<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 2000
REGISTRATION STATEMENT NO. 333-51160
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INVERNESS MEDICAL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3826 04-3164127
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
</TABLE>
200 PROSPECT STREET
WALTHAM, MASSACHUSETTS 02453
(781) 647-3900
(Address, including zip code, and telephone number, including area code
of Registrant's principal executive offices)
RON ZWANZIGER, PRESIDENT AND CHIEF EXECUTIVE OFFICER
INVERNESS MEDICAL TECHNOLOGY, INC.
200 PROSPECT STREET
WALTHAM, MASSACHUSETTS 02453
(781) 647-3900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN W. CARR, P.C. KENNETH L. CUTLER, ESQ.
SCOTT F. DUGGAN, ESQ. DORSEY & WHITNEY LLP
GOODWIN, PROCTER & HOAR LLP 220 SOUTH 6TH STREET
EXCHANGE PLACE MINNEAPOLIS, MINNESOTA 55402
BOSTON, MASSACHUSETTS 02109-2881 (612) 340-2600
(617) 570-1000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
possible after the effective date of this Registration Statement and the
effective time of the merger contemplated by the Agreement and Plan of Merger,
as amended, among Inverness Medical Technology, Inc., Terrier Acquisition Corp.
and Integ Incorporated, dated as of October 3, 2000, which is attached as
Annex A to the proxy statement and prospectus forming a part of this
Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. / /
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(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. / /
------------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
[INTEG INCORPORATED LOGOLOGO]
Dear Integ Shareholders:
You are cordially invited to attend the special meeting of shareholders of
Integ Incorporated, to be held on January 23, 2001, at 10:00 a.m., at the
Minneapolis Marriott City Center, 30 South 7th Street, Minneapolis, Minnesota
55402. At the special meeting you will be asked to consider and vote upon a
proposal to approve an Agreement and Plan of Merger dated as of October 3, 2000,
as amended, pursuant to which Integ will be merged with and into Terrier
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Inverness Medical Technology, Inc., a Delaware corporation. Integ will become a
wholly owned subsidiary of Inverness as a result of the Merger.
If the merger agreement is approved and the merger is subsequently
completed, each outstanding share of Integ common stock will be converted into
the right to receive Inverness common stock. The per share exchange ratio will
be determined as of the closing of the merger based on an exchange ratio
described in detail in this proxy statement and prospectus. Based on the number
of outstanding shares of Integ common stock, options and warrants on
December 13, 2000, and the average closing sale price of Inverness common stock
during the five trading days prior to such date, each share of Integ common
stock would be exchanged for approximately .1734 of an Inverness share, although
this number will change. You will receive cash, without interest, for any
fractional share of Inverness common stock that you would otherwise be entitled
to receive.
Inverness common stock is traded on the American Stock Exchange under the
trading symbol "IMA," and on December 13, 2000, Inverness common stock closed at
$36.6875 per share.
Before we can complete the merger, a majority of the shareholders of Integ
must vote on a specific proposal. This proposal involves the approval of the
merger agreement related to the merger. Only shareholders who hold shares of
Integ common stock at the close of business on December 13, 2000, will be
entitled to vote at the special meeting. Approval of the merger agreement
requires the affirmative vote of the holders of a majority of the issued and
outstanding shares of Integ common stock. Each share of Integ common stock is
entitled to one vote on all matters to come before the special meeting. The
Integ common stock constitutes the only class of Integ's capital stock entitled
to vote at the special meeting.
YOUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE TERMS AND CONDITIONS OF
THE MERGER AND UNANIMOUSLY AGREES THAT THE TERMS ARE FAIR TO, AND IN THE BEST
INTERESTS OF, OUR SHAREHOLDERS AND HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT. U.S. Bancorp
Piper Jaffray Inc. provided to the board of directors a written opinion dated
October 3, 2000 to the effect that, as of that date, and based upon and subject
to the matters stated in the opinion, the merger consideration to be received by
holders of our common stock was fair, from a financial point of view, to our
common shareholders. U.S. Bancorp Piper Jaffray's written opinion is attached as
Annex B to the enclosed proxy statement and prospectus, and you should read it
carefully and in its entirety.
Attached to this letter you will find a formal notice of the special meeting
and a proxy statement and prospectus. This proxy statement and prospectus
provides you with detailed information concerning Inverness, Integ and the
merger. Please give all of the information contained or incorporated by
reference in the proxy statement and prospectus your careful attention. IN
PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION ENTITLED
"RISK FACTORS" ON PAGE 17 OF THIS PROXY STATEMENT AND PROSPECTUS, INCLUDING
THOSE RISK FACTORS THAT ARE INCORPORATED BY REFERENCE INTO THIS PROXY STATEMENT
AND PROSPECTUS. You may also obtain more information about Inverness and us from
documents we have filed with the Securities and Exchange Commission. If the
requisite holders of Integ common stock approve the merger agreement, it is
expected that the closing of the merger will occur soon after the special
meeting and after all of the other conditions to closing the merger are
satisfied.
To vote your shares, you may use the enclosed proxy card or attend the
special shareholders meeting that will be held for this important vote.
Thank you for your cooperation.
Sincerely,
/s/ Susan L. Critzer
Susan L. Critzer
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SHARES OF INVERNESS COMMON STOCK TO
BE ISSUED IN THE MERGER OR DETERMINED IF THIS PROXY STATEMENT AND PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
This proxy statement and prospectus is dated December 15, 2000 and is first
being mailed to Integ shareholders on or about December 20, 2000.
<PAGE>
INTEG INCORPORATED
2800 PATTON ROAD
ST. PAUL, MINNESOTA 55113
(651) 639-8816
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 23, 2001
------------------------
To the Shareholders of Integ Incorporated:
We will hold a special meeting of shareholders of Integ Incorporated at
10:00 a.m., local time, on January 23, 2001 at the Minneapolis Marriott City
Center, 30 South 7th Street, Minneapolis, Minnesota 55402, for the following
purposes:
1. To consider and vote on a proposal to approve the Agreement and Plan of
Merger dated as of October 3, 2000, as amended, by and among Inverness
Medical Technology, Inc., a Delaware corporation, Terrier Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of Inverness,
and Integ Incorporated, a Minnesota corporation, a copy of which is
attached as Annex A to the accompanying proxy statement and prospectus.
2. To transact such other business as may properly come before the special
meeting or any adjournment or postponement.
Only shareholders of record of Integ common stock at the close of business
on December 13, 2000 are entitled to notice of, and will be entitled to vote at,
the special meeting or any adjournment or postponement thereof. Approval of the
merger agreement will require the affirmative vote of the holders of Integ
common stock representing a majority of the outstanding shares of Integ common
stock entitled to vote at the special meeting.
YOUR VOTE IS IMPORTANT. TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE
SPECIAL MEETING, YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
CARD AND MAIL IT PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON. YOU MAY REVOKE YOUR PROXY IN
THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AND PROSPECTUS AT ANY
TIME BEFORE IT HAS BEEN VOTED AT THE SPECIAL MEETING. IF YOU ATTEND THE SPECIAL
MEETING YOU MAY VOTE IN PERSON EVEN IF YOU RETURNED A PROXY.
Integ shareholders have the right to dissent from the merger and obtain
payment in cash of the fair value of their shares of common stock under
applicable provisions of Minnesota law. In order to perfect dissenters'
appraisal rights, shareholders must give written demand for appraisal of their
shares before the taking of the vote on the merger at the special meeting and
must not vote in favor of the merger. A copy of the applicable Minnesota
statutory provisions is included as Annex C to the accompanying proxy statement
and prospectus, and a summary of these provisions can be found under "The
Merger--Dissenters' Appraisal Rights" beginning on page 41 of the accompanying
proxy statement and prospectus.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Susan L. Critzer
Susan L. Critzer,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
St. Paul, Minnesota
December 15, 2000
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS
COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK
CERTIFICATES.
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement and prospectus incorporates important business and
financial information about Inverness and Integ from other documents that are
not included in or delivered with this proxy statement and prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain those documents, which are incorporated by reference in
this proxy statement and prospectus, by requesting them in writing or by
telephone from the appropriate company at the following addresses and telephone
numbers:
<TABLE>
<S> <C>
Inverness Medical Technology, Inc. Integ Incorporated
200 Prospect Street 2800 Patton Road
Waltham, Massachusetts 02453 St. Paul, Minnesota 55113
(781) 647-3900 (651) 639-8816
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY JANUARY 16, 2001 IN
ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETING.
See also the section of this proxy statement and prospectus entitled "Where
You Can Find More Information" beginning on page 107.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 3
RISK FACTORS................................................ 17
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 23
THE SPECIAL MEETING OF INTEG SHAREHOLDERS................... 25
THE MERGER.................................................. 28
THE MERGER AGREEMENT........................................ 45
ABOUT THE COMPANIES......................................... 60
INVERNESS' MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 69
SELECTED FINANCIAL DATA OF INTEG............................ 70
INTEG'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 71
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES...... 76
INVERNESS MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS................................................ 78
MANAGEMENT OF INVERNESS..................................... 87
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS.................................... 90
DESCRIPTION OF INVERNESS CAPITAL STOCK...................... 93
COMPARISON OF RIGHTS OF SHAREHOLDERS OF INTEG AND
STOCKHOLDERS OF INVERNESS................................. 97
LEGAL MATTERS............................................... 107
EXPERTS..................................................... 107
WHERE YOU CAN FIND MORE INFORMATION......................... 107
FUTURE SHAREHOLDER PROPOSALS................................ 109
INDEX TO FINANCIAL STATEMENTS............................... F-1
Annex A--Merger Agreement (including Amendment No. 1)....... A-1
Annex B--Fairness Opinion of U.S. Bancorp Piper
Jaffray Inc............................................... B-1
Annex C--Sections 302A.471 and 302A.473 of the Minnesota
Business Corporations Act................................. C-1
</TABLE>
i
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT IS THE PROPOSED TRANSACTION?
A: The proposed transaction contemplates that Integ will merge with and into a
newly formed, wholly owned subsidiary of Inverness. The merged entity will
survive the merger as a wholly owned subsidiary of Inverness.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Each share of Integ common stock you hold immediately prior to the effective
time of the merger will be converted into the right to receive a specific
number of shares of Inverness common stock. This specific number of shares
of Inverness common stock to be issued for each share of Integ common stock,
which is called the exchange ratio, is tied to a formula described in more
detail in the summary of the merger beginning on page 3. In general, the
exchange ratio will be calculated so that a total of 1,900,000 shares of
Inverness common stock, net of exercise amounts attributable to options and
warrants of Integ that are outstanding as of the effective time, will be
issued to:
- existing holders of shares of Integ common stock,
- holders of options to purchase shares of Integ common stock, upon exercise
of the options, and
- holders of warrants to purchase Integ common stock, upon exercise of the
warrants.
Accordingly, Inverness will be assuming all outstanding Integ options and
warrants.
You will not receive any fractional shares. Instead, you will receive cash
in an amount equal to the average closing price for a share of Inverness
common stock for the five-day trading period immediately preceding the
effective date of the merger, multiplied by the appropriate fraction.
Q: IS THE EXCHANGE RATIO CURRENTLY DETERMINABLE?
A: No. Because the formula is dependent on certain factors not determinable
until immediately prior to the effective time of the merger, including the
average closing sale price of Inverness common stock for the five trading
days immediately preceding the effective time of the merger and the number
of options and warrants to purchase Integ common stock outstanding at the
effective time, the exact number of shares you will receive for each Integ
share cannot be determined at this time.
The average closing sale price of Inverness common stock for the
five trading days prior to December 13, 2000, the record date, was $34.0752
per share. Accordingly, factoring in the exercise prices of all outstanding
Integ options and warrants as of December 13, 2000, if the merger were to
occur on such date, each share of Integ common stock would be converted into
the right to receive approximately .1734 shares of Inverness common stock.
Q: WILL I BE ABLE TO TRADE THE INVERNESS COMMON STOCK THAT I RECEIVE IN THE
MERGER?
A: Yes. Inverness intends to list the Inverness common stock on the American
Stock Exchange under the symbol "IMA".
Q: DO I HAVE APPRAISAL RIGHTS WITH RESPECT TO THE TRANSACTIONS?
A: Holders of Integ common stock are entitled to appraisal rights under sections
302A.471 and 302A.473 of the Minnesota Business Corporation Act.
Q: WHAT HAPPENS IF THE MERGER IS NOT COMPLETED?
A: If the merger is not completed both companies will continue as independent
companies. Integ may be required to pay a termination fee and certain
expenses to Inverness under the merger agreement if the merger is not
completed for certain reasons as discussed in this proxy statement and
prospectus.
Q: WHEN WILL THE TRANSACTIONS BE COMPLETED?
A: The shareholders of Integ must approve the merger agreement at the special
meeting. Some of Integ's principal shareholders, including all of Integ's
directors and executive officers, representing a total of approximately
15.4% of the outstanding
1
<PAGE>
Integ common stock on October 3, 2000, have entered into a voting agreement
to vote all of their shares of Integ common stock in favor of the merger
agreement.
We plan to complete the transactions as soon as possible after the special
meeting, subject to the satisfaction or waiver of other conditions to the
transactions, some of which are not in our control. Although we cannot
predict when our conditions will be satisfied, we hope to complete the
transactions no later than in the first quarter of 2001.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If the merger is completed, you will receive written instructions for
exchanging your shares of Integ common stock for shares of Inverness common
stock. In the meantime, you should retain your certificates as the Integ
common stock certificates are still valid. Please do not send in your stock
certificates with your proxy.
Q: WHAT DO I NEED TO DO NOW?
A: You should carefully read and consider the information contained or
incorporated by reference in this proxy statement and prospectus, including
its annexes. It contains important information about Integ and Inverness. It
also contains important information about what the boards of directors of
Integ and Inverness considered in evaluating the transactions.
You should then complete and sign your proxy card and return it in the
enclosed return envelope as soon as possible so that your shares will be
represented at the special meeting. If you sign and send in your proxy, but
do not indicate how you want to vote, we will count your proxy as a vote FOR
approval of the merger agreement. If you abstain from voting or do not vote,
it will have the effect of a vote against the merger agreement.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways:
- you can send a written notice stating that you revoke your proxy to Integ
at the address listed below;
- you can complete and submit a new proxy card, dated a later date than the
first proxy card and send it to Integ at the address listed below. The new
proxy card will automatically replace any earlier dated proxy card that
you returned; or
- you can attend the special meeting and vote in person.
Your attendance at the special meeting will not, however, by itself revoke
your proxy; you must also vote at the special meeting.
You should send any notice of revocation or your completed new proxy card,
as the case may be, to Integ at the following address:
Integ Incorporated
c/o Wells Fargo Shareowner Services
P.O. Box 64873
St. Paul, Minnesota 55164-9397
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No. Your broker will vote your shares only if you provide instructions to
your broker on how to vote. You should contact your broker and ask what
directions your broker will need from you. Your broker will not be able to
vote your shares without instructions from you, and therefore the failure to
give these instructions will have the effect of a vote against the merger.
Q: ARE THERE ANY RISKS I SHOULD CONSIDER IN DECIDING WHETHER I VOTE FOR THE
MERGER?
A: Yes. We have set out under the heading of "Risk Factors" beginning on page 17
of this proxy statement and prospectus, and incorporated by reference in
this proxy statement and prospectus a number of risk factors that you should
consider.
Q: WHERE CAN I FIND MORE INFORMATION?
A: You may obtain more information from various sources, as set forth under
"Where You Can Find More Information" on page 107.
2
<PAGE>
SUMMARY
This summary highlights what we believe is the most important information
about the merger. However, to more fully understand the transaction, you should
read this entire proxy statement and prospectus, including the materials
attached as annexes, as well as the other documents to which we have referred
you. See "Where You Can Find More Information" on page 107. The page references
in parentheses will direct you to a more detailed description of each topic
presented in this summary.
Inverness Medical Technology and the "Little Man" logo are some of
Inverness' trademarks. ONE TOUCH-Registered Trademark-
FastTAKE-Registered Trademark- and ONE TOUCH-Registered Trademark- Ultra are
trademarks of LifeScan, Inc., a subsidiary of Johnson & Johnson. Other
trademarks, trade names and service marks referred to in this proxy statement
and prospectus are the property of their respective owners.
THE COMPANIES
INVERNESS (SEE PAGE 60)
The principal executive office of Inverness Medical Technology, Inc., a
Delaware corporation, is located at 200 Prospect Street, Waltham, Massachusetts
02453, and its telephone number is (781) 647-3900.
Inverness develops, manufactures and markets innovative products focused
primarily on diabetes self-management. Inverness' principal products are
advanced electrochemical blood glucose monitoring systems that are used by
people with diabetes to determine their glucose levels in order to manage their
disease. Inverness' systems are accurate, small, fast and easy to use. They
utilize Inverness' proprietary biosensor test strips, which quickly draw blood
into the strip, require only a small sample and provide users with the option of
sampling from the forearm, thus avoiding the need for finger sticking. Inverness
believes that the increased convenience and comfort offered by its systems will
encourage more frequent blood glucose testing, an essential element of effective
diabetes self-management. Inverness introduced its first generation
electrochemical system in early 1998 and has shipped over 1.4 million meters
through September 30, 2000. Meter shipments for this system more than doubled in
the nine months ended September 2000 as compared to the same period in 1999.
Inverness recently received FDA clearance for its second generation
electrochemical system, which it expects to begin shipping in the fourth quarter
of 2000. This system utilizes Inverness' latest proprietary test strip with a
reduced blood sample requirement of just one microliter, and features the
fastest test time of any commercially available system at five seconds,
providing enhanced convenience and comfort. Inverness uses its diabetes
expertise to design and manufacture low-cost alternative test strips for use in
leading brand glucose meters made by other manufacturers. Inverness also markets
a full family of ancillary diabetes supplies such as syringes, lancets, glucose
tablets, and specialty skin creams. In addition to its diabetes products,
Inverness sells women's health products, including home pregnancy detection
tests, ovulation prediction tests and a line of nutritional supplements.
Inverness seeks to maximize market penetration of its products through
strategic partnerships and through its wholesale and retail distribution
networks. Inverness has a global distribution agreement with LifeScan, a
subsidiary of Johnson & Johnson, under which it develops and manufactures, and
LifeScan markets, its electrochemical blood glucose monitoring systems.
Inverness' first and second generation electrochemical systems are being
marketed by LifeScan as the ONE TOUCH-Registered Trademark-
FastTAKE-Registered Trademark- and ONE TOUCH-Registered Trademark- Ultra.
Inverness believes that its systems, which are the only electrochemical systems
offered by LifeScan, are well positioned to capture an increasing market share.
Further, its agreement with LifeScan contemplates that it will develop and
manufacture, and LifeScan will market, additional electrochemical blood glucose
monitoring systems.
3
<PAGE>
Inverness' objective is to be the leading provider of innovative products
that provide a fully integrated and comprehensive approach to the
self-management of diabetes. The key elements of Inverness' strategy for
achieving this goal are to:
- continue to develop superior blood glucose monitoring products;
- maximize market penetration of its products through strategic partnerships
and through its wholesale and retail distribution networks;
- develop or acquire a comprehensive and integrated array of products for
diabetes self-management; and
- continue to manufacture high quality products in mass volumes at low
costs.
Consistent with its objectives, Inverness continues to focus on the
development of pain-free, non-disruptive, continuous blood glucose monitoring
systems and other complementary diabetes self-management products. For example,
in addition to this merger with Integ, which Inverness believes will supplement
and accelerate its existing efforts to develop glucose monitoring systems that
do not require blood samples, more recently, Inverness entered into a
development and license agreement with Debiotech, S.A. pursuant to which
Debiotech will seek to develop an externally worn insulin pump using its
proprietary technology.
Inverness was incorporated in August 25, 1992 in Delaware under the name
Selfcare, Inc. Inverness changed its name to Inverness Medical Technology, Inc.
in May 2000.
RECENT DEVELOPMENTS OF INVERNESS
DEVELOPMENT AND LICENSE AGREEMENT WITH DEBIOTECH, S.A.
On October 14, 2000, Inverness entered into a development and license
agreement with Debiotech, S.A., pursuant to which Debiotech will seek to develop
an externally-worn insulin pump using its proprietary technology in exchange for
a $10 million fee. Inverness also received an option, exercisable in certain
circumstances for an additional fee, for the exclusive right to commercialize an
implantable insulin pump which Debiotech may seek to develop using its
proprietary technology.
OFFERING FOR ADDITIONAL INVERNESS COMMON STOCK
On October 24, 2000, Inverness filed a registration statement on Form S-3
with the SEC with respect to the registration and sale of 3,350,000 shares of
Inverness common stock by Inverness and an additional 250,000 shares of common
stock by certain selling stockholders, which was consummated on November 27,
2000, at $25.00 per share (less underwriting discounts and commissions). The
underwriters in this offering were also granted an option to purchase 150,000
shares of Inverness common stock from Inverness and 390,000 shares of Inverness
common stock from the selling stockholders solely to cover overallotments, which
was exercised on November 24, 2000 and consummated in full on November 28, 2000
at $25.00 per share (less underwriting discounts and commissions). Accordingly,
after the closing of the offering and the overallotment option on November 28,
2000, there were 29,100,106 shares of Inverness common stock outstanding, not
including the shares to be issued pursuant to the merger. Inverness intends for
the proceeds of the offering to be used for the repayment of certain
indebtedness, to fund a portion of the consideration payable in the acquisition
of Integ, to pay a fee due under its licensing agreement with Debiotech, to fund
the redemption of preferred stock of a subsidiary and for working capital and
other general corporate purposes, including other possible acquisitions.
4
<PAGE>
INTEG (SEE PAGE 60)
The principal executive office of Integ, a Minnesota corporation, is located
at 2800 Patton Road, St. Paul, Minnesota 55113, and its telephone number is
(651) 639-8816.
Integ Incorporated is a development stage medical technology company focused
on developing an innovative glucose monitoring product to enable people with
diabetes to manage this disease more effectively and conveniently. Integ has
focused its efforts on developing methods to sample interstitial fluid, the
clear fluid found between the cells throughout the body, and methods of
presenting this sample to various types of glucose measurement systems in an
integrated fashion. Integ has developed and patented what it believes is a
unique technology to collect interstitial fluid samples. Using this technology,
it has conducted extensive research on interstitial fluid. With Integ's
advancements in interstitial fluid sampling technology and knowledge of
interstitial fluid, it hopes to improve diabetes self-management by eliminating
the need to draw blood for glucose monitoring. Integ believes that its
technology, when combined with commercially available glucose measurement
technology, will create a handheld glucose monitoring product for use by people
with diabetes that will be simpler to use and less messy than current alternate
site blood based test systems, and less painful than traditional fingerstick
devices. Integ believes that this product, which Integ refers to as the
LIFEGuide-TM- System, will allow people with diabetes to frequently self-monitor
their glucose levels without repeatedly enduring the pain and mess associated
with lancing their fingers to obtain a blood sample. Integ is a development
stage company and was incorporated in April 1990 in Minnesota.
THE SPECIAL MEETING
DATE AND PURPOSE (SEE PAGE 25)
A special meeting of Integ shareholders will be held at the Minneapolis
Marriott City Center, 30 South 7th Street, Minneapolis, Minnesota 55402 on
January 23, 2001 at 10:00 a.m., local time.
RECORD DATE; VOTING RIGHTS (SEE PAGE 25)
If you owned shares of Integ common stock as of the close of business on
December 13, 2000, the record date for the special meeting, you may vote on the
approval of the merger agreement.
On that date, there were 9,922,285 shares of Integ common stock outstanding.
Integ shareholders will have one vote at the meeting for each share of common
stock they owned on the record date.
REQUIRED VOTES (SEE PAGE 25)
To approve the merger, holders of a majority of the outstanding shares of
Integ common stock must vote to approve the merger agreement. If you fail to
vote or abstain from voting, it will have the effect of a vote against the
merger. A broker who holds Integ stock as your nominee will not have authority
to vote your shares unless you provide the broker with specific voting
instructions.
On the record date, directors and officers of Inverness as a group owned no
shares of Integ stock, and directors and officers of Integ as a group owned
approximately 5% of the outstanding shares of Integ stock. In addition, certain
Integ shareholders, some of whom are directors and officers of Integ, who
beneficially own approximately 15.4% of the outstanding shares of Integ common
stock, entered into an agreement with Inverness to vote their shares in favor of
the merger. These Integ shareholders were not paid additional consideration to
enter into the voting agreement. For further information, please refer to "The
Merger Agreement--Related Agreements--Voting Agreement" on page 58 of this proxy
statement and prospectus.
5
<PAGE>
THE MERGER
SUMMARY OF THE TRANSACTION
Inverness and Integ executed a merger agreement on October 3, 2000, which
was amended on October 16, 2000. The merger agreement provides for a merger of
Integ with and into Terrier Acquisition Corp., a newly formed, wholly owned
subsidiary of Inverness. The surviving company will be Terrier, which will
remain a wholly owned subsidiary of Inverness.
The proposed merger will occur following approval of the merger agreement by
the Integ shareholders and satisfaction or waiver of all other conditions to the
merger. The merger agreement, as amended, is attached as Annex A. We encourage
you to read it because it is the legal document that governs the merger.
WHAT THE HOLDERS OF INTEG COMMON STOCK WILL RECEIVE IN THE MERGER (SEE PAGE 45)
In the merger, each outstanding share of Integ common stock will be
converted into the right to receive a fixed number of shares of common stock of
Inverness based on an exchange ratio calculated as follows:
<TABLE>
<S> <C> <C>
aggregate exercise
price of Integ stock
(average closing price of Inverness common stock X options and warrants
1,900,000) + options and warrants
---------------------------------------------------------------------------------
exchange ratio = average closing price of Inverness common stock
-------------------------------------------------------------------------------------
total number of shares of Integ common stock outstanding immediately prior
to the effective time of the merger + the total number of shares of Integ common
stock issuable upon exercise of Integ stock options and warrants
</TABLE>
For the purpose of calculating the exchange ratio, the average closing price
for Inverness common stock will be computed by averaging the closing sale prices
of Inverness common stock on the American Stock Exchange for the five trading
days immediately preceding the effective time of the merger.
Since some of the variables necessary to determine the exchange ratio will
not be determined until immediately prior to the effective time of the merger,
the precise exchange ratio will not be determined until immediately prior to the
effective time of the merger. However, if the effective time of the merger were
December 13, 2000, the record date, the exchange ratio would equal approximately
.1734.
No fractional shares of Inverness common stock will be issued in connection
with the merger. Instead, you will receive an amount of cash for any fractional
shares that would otherwise be issued.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 76)
We intend that the merger qualify as a reorganization within the meaning of
section 368(a) of the Internal Revenue Code. If the merger does qualify as a
reorganization, no gain or loss will be recognized by Integ, Inverness or
Terrier by reason of the merger. In addition, you will not recognize gain or
loss on the exchange of your shares of Integ stock for shares of Inverness
stock, except for any cash you receive instead of fractional shares. BECAUSE THE
TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON EACH INTEG SHAREHOLDER'S
PARTICULAR CIRCUMSTANCES, WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS ABOUT THE
FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES TO YOU AS A RESULT OF THE
MERGER.
DISSENTERS' APPRAISAL RIGHTS (SEE PAGE 41)
Integ's shareholders may exercise dissenters' appraisal rights in connection
with the merger. Any shareholder exercising dissenter's appraisal rights will be
required to follow the procedures set forth
6
<PAGE>
under Minnesota law and will receive cash for the shareholder's Integ common
stock. If a shareholder fails to follow the proposed procedure for exercising
dissenters' appraisal rights, these rights may be terminated or waived.
INTERESTS OF INTEG DIRECTORS AND OFFICERS IN THE MERGER (SEE PAGE 39)
Some of Integ's executive officers and directors have interests in the
merger that are different from, or in addition to, those of Integ shareholders
generally. For instance, all outstanding options to purchase Integ stock will
vest and become exercisable immediately prior to the closing of the merger.
Integ intends to compensate employees for any excise tax required by
section 280G of the Internal Revenue Code resulting from the acceleration of
vesting of these stock options. In addition, the executive officers of Integ
have employment agreements that provide for certain benefits if the officer is
terminated by Inverness without cause or if he or she terminates his or her
employment for good reason following a change of control. Furthermore, the
merger agreement provides officers and directors of Integ with continuing
indemnification rights.
CONDITIONS TO THE MERGER (SEE PAGE 54)
Inverness and Integ will not complete the merger unless a number of
conditions are satisfied or waived, including approval of the merger agreement
by the Integ shareholders.
LIMITATION ON CONSIDERING OTHER ACQUISITION PROPOSALS (SEE PAGE 52)
Integ has agreed not to consider an acquisition proposal, such as a business
combination or other similar transaction, with a party other than Inverness
while the merger is pending unless the other party has made an unsolicited
written proposal that represents a superior proposal. The determination as to
whether an acquisition proposal is a superior proposal would be based on the
financial benefit to Integ shareholders. In addition, to consider a superior
proposal, the board of Integ must also be satisfied with the other party's
ability to finance the transaction and that considering the superior proposal is
required by the directors' fiduciary duties.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 56)
The merger agreement may be terminated by mutual written consent. Either
Inverness and Terrier, on the one hand, or Integ, on the other hand, may
terminate the merger agreement if:
- Integ shareholder approval is not obtained at the special meeting;
- any governmental entity has issued an injunction or taken other action
that permanently enjoins the merger;
- the other party materially breaches any representation, warranty, covenant
or agreement contained in the merger agreement (except for those breaches
unlikely to have a material adverse effect on the business, results of
operations or financial condition of the breaching party); or
- the merger has not occurred by March 31, 2001, without a material breach
by the terminating party of its obligations under the merger agreement.
The merger agreement may be terminated by Integ prior to the special meeting
if Integ concurrently enters into a definitive agreement with respect to a
superior proposal, provided that Integ:
- provides Inverness and Terrier with five business days prior notice of the
decision to terminate during which time Inverness may propose any
adjustment to the merger agreement; and
- pays to Inverness or its designee a $2.0 million termination fee
concurrently with the effectiveness of the termination.
7
<PAGE>
The merger agreement may be terminated by Inverness or Terrier if:
- the Integ board does not make a recommendation of, or withdraws, amends,
modifies or changes its approval or recommendation of, the merger
agreement or the transactions contemplated thereby;
- the Integ board fails to include its favorable recommendation regarding
the merger in this proxy statement and prospectus;
- the Integ board recommends any superior proposal;
- the Integ board publicly expresses no opinion and remains neutral in
respect of any acquisition proposal or the merger and related
transactions;
- Integ enters into a definitive agreement with respect to a superior
proposal; or
- Integ makes any proposal or announces its intention to enter into an
agreement with respect to an acquisition proposal with a party other than
Inverness.
TERMINATION FEES AND EXPENSES (SEE PAGE 57)
The merger agreement requires Integ to pay Inverness a termination fee of
$2.0 million in cash if:
- Integ terminates the merger agreement in order to effect a superior
proposal; or
- Inverness or Terrier terminates the merger agreement as a result of:
- the Integ board failing to make a recommendation of, or having
withdrawn, amended, modified or changed its approval or recommendation
of, the merger agreement;
- the Integ board failing to include its favorable recommendation
regarding the merger in this proxy statement and prospectus;
- the Integ board recommending any superior proposal;
- the Integ board publicly expressing no opinion and remaining neutral in
respect of any acquisition proposal or the merger and related
transactions;
- entering into a definitive agreement with respect to a superior
proposal;
- Integ making a proposal or announcement of its intention to enter into
an agreement with respect to an acquisition proposal; or
- Integ or its board resolving to do any of the actions discussed in the
five points above.
Furthermore, if either party terminates the merger agreement because:
- the required approval of the Integ shareholders has not been obtained at
the special meeting;
- the merger has not occurred by March 31, 2001 (and the terminating party
is not in material breach of its obligations); or
- Inverness or Terrier terminates the merger agreement because Integ
materially breaches any representation, warranty, covenant or agreement
contained in the merger agreement;
AND if prior to one year from such termination, Integ enters into an
acquisition proposal with any other entities (with certain exceptions) or the
Integ board recommends or resolves to recommend to Integ shareholders approval
or acceptance of an acquisition proposal with any party (with certain
exceptions);
THEN Integ is required to pay Inverness a fee of $2.0 million.
Additionally, if Inverness or Terrier terminates the merger agreement
because Integ materially breaches any representation, warranty, covenant or
agreement contained in the merger agreement, and this breach is caused by a
willful act, omission or other willful misconduct of Integ, then Integ is
required to reimburse Inverness and Terrier for their out-of-pocket costs and
expenses incurred in
8
<PAGE>
connection with the merger agreement and the transactions contemplated thereby,
up to a maximum of $2.0 million.
FAIRNESS OPINION OF U.S. BANCORP PIPER JAFFRAY INC. (SEE PAGE 34)
In deciding to approve the merger, the Integ board considered an opinion
from its financial advisor, U.S. Bancorp Piper Jaffray Inc. On October 3, 2000,
U.S. Bancorp Piper Jaffray delivered its written opinion to the Integ board of
directors that as of that date and based on and subject to the matters set forth
in the opinion, the consideration to be received by holders of common stock
pursuant to the merger agreement was fair, from a financial point of view, to
Integ common shareholders. The full text of this written opinion is attached as
Annex B to this proxy statement and prospectus. We encourage you to read this
opinion carefully in its entirety. The opinion of U.S. Bancorp Piper Jaffray is
directed to the Integ board and is not a recommendation to any shareholder on
how to vote on the merger or the merger agreement.
TREATMENT OF STOCK OPTIONS AND WARRANTS (SEE PAGE 39)
Each option and warrant to purchase shares of Integ stock outstanding
immediately prior to the merger will be assumed by Inverness and will become an
option or warrant, as the case may be, to acquire Inverness stock. Inverness
will adjust the number of shares issuable upon exercise and the exercise prices
to reflect the merger's exchange ratio.
ACCOUNTING TREATMENT (SEE PAGE 41)
Inverness expects to account for the merger as an asset acquisition, which
means the assets and liabilities of Integ, including its intangible assets, will
be recorded on Inverness' books at their fair values. The results of operations
and cash flows of Integ will be included in Inverness' financial statements
prospectively as of the closing of the merger. It is expected that a substantial
portion of the purchase price will be allocated to Integ's in-process research
and development, which, under generally accepted accounting principles, will be
expensed by Inverness immediately following completion of the merger.
REGULATORY APPROVALS
We are not aware of any material governmental or regulatory approvals
required for closing the merger other than compliance with federal securities
laws.
PURCHASE OF SERIES B PREFERRED STOCK (SEE PAGE 40)
The merger agreement requires that Inverness fund the redemption for cash of
all of Integ's outstanding shares of Series B preferred stock at a price equal
to the amount of funds that Integ received from Amira Medical in exchange for
such Series B preferred stock plus a 10% premium. As of the date of this proxy
statement and prospectus, there are 1,983,123 shares of Series B preferred stock
outstanding and the redemption price would be $4,977,266.87.
COMPARATIVE STOCKHOLDER RIGHTS (SEE PAGE 97)
When we complete the merger, Integ shareholders will hold shares of
Inverness common stock. Your rights as an Inverness stockholder will be governed
by Inverness' certificate of incorporation and bylaws and by Delaware general
corporate laws. Integ shareholders will have different rights as holders of
Inverness common stock than they currently have as holders of Integ common
stock.
9
<PAGE>
INTEG'S REASONS FOR THE MERGER AND RECOMMENDATION OF INTEG BOARD (SEE PAGE 32)
Integ's board of directors consulted with senior management and Integ's
financial and legal advisors and considered a number of factors, including those
set forth below, in reaching its decision to approve the merger agreement and
the transactions contemplated by the merger agreement, and to recommend that
Integ's shareholders vote "FOR" approval of the merger agreement.
- Integ's development of technology in connection with its alliance with
Amira Medical and the progress of potential competitors;
- the relative value of the consideration to be received by Integ
shareholders compared to the historical and recent market prices of Integ
common stock;
- the potential consideration to be received in, and likelihood of, Integ
exercising its option to merge with a subsidiary of Amira;
- the fairness opinion of Integ's financial advisor, U.S. Bancorp Piper
Jaffray;
- Integ's prospects of remaining independent;
- the possible effect of the merger on the current facility and employees;
- the ability of Integ to terminate the merger agreement in the event of a
superior proposal, subject to the payment of a termination fee; and
- the limited nature of the closing conditions included in the merger
agreement.
The foregoing discussion of the information and factors considered by
Integ's board of directors, while not exhaustive, includes the material factors
considered by the board of directors. In view of the variety of factors
considered in connection with its evaluation of the merger, Integ's board of
directors did not find it practicable to, and did not, quantify or otherwise
assign relative or specific weight or values to any of these factors, and
individual directors may have given different weights to different factors.
INVERNESS' REASONS FOR THE MERGER (SEE PAGE 31)
In reaching its decision to approve the merger, the Inverness board
considered, among other things, the following factors:
- acquiring the technology contained within Integ's LIFEGuide-TM- System of
glucose measurement on Inverness' revenue and earnings;
- the rights of Amira Medical in certain of Integ's intellectual property,
including certain exclusive rights with respect to jointly developed
technology;
- the development and potential commercialization of Integ's proprietary
interstitial fluid sampling technology; and
- synergies resulting from the acquisition of Integ's existing and
in-process intellectual property and the elimination of redundancies.
10
<PAGE>
COMPARATIVE STOCK PRICE INFORMATION (SEE PAGE 16)
Inverness common stock is traded on the American Stock Exchange and Integ
stock is quoted on the Nasdaq National Market. The following table presents the
market value of Inverness stock, on a historical basis, and the market value of
Integ stock, on a historical and equivalent per share basis, as of October 3,
2000, the last trading day before we publicly announced the merger, and
December 13, 2000, the record date. The equivalent per share amount is
determined using an assumed exchange ratio of .1734. The actual exchange ratio
will not necessarily equal the assumed exchange ratio.
<TABLE>
<CAPTION>
EQUIVALENT
INVERNESS COMMON STOCK INTEG COMMON STOCK PER SHARE
------------------------------ ------------------------------ VALUE OF INTEG
HIGH LOW CLOSING HIGH LOW CLOSING COMMON STOCK
-------- -------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 3, 2000....... $19.4375 $18.3125 $18.8750 $2.5625 $2.3125 $2.3750 $3.27
December 13, 2000..... $37.0000 $36.1250 $36.6875 $6.6875 $6.3125 $6.4375 $6.36
</TABLE>
You are encouraged to obtain current market quotations for Inverness stock
and Integ stock.
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following summary unaudited pro forma financial data presents the
combined condensed financial data of Inverness and Integ after giving effect to
the merger, assuming the merger had been effective for the periods indicated.
The summary unaudited pro forma combined condensed financial data as of and for
the year ended December 31, 1999 and as of and for the nine months ended
September 30, were derived from, and should be read in conjunction with, the
unaudited pro forma condensed consolidated balance sheet and unaudited pro forma
condensed consolidated statements of operations, including the notes, which are
included in this proxy statement and prospectus. You should read the selected
unaudited pro forma combined condensed financial data in conjunction with the
historical financial statements of Integ, which are included in this proxy
statement and prospectus beginning on page 70, and the historical financial
statements of Inverness, which are incorporated by reference from Inverness'
Form 10-K for the fiscal year ended December 31, 1999 and Form 10-Q for the nine
months ended September 30, 2000. We have presented the summary unaudited pro
forma condensed financial data for illustration purposes only. This data does
not necessarily show what the operating results or financial position would have
been if the merger had been completed, nor does it indicate the future operating
results or financial position of the combined entities.
11
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1999(1) 2000(1)
------------- -----------------
<S> <C> <C>
Consolidated Statement of Operations:
Net revenues................................................ $125,873 $121,318
Cost of sales............................................... 83,246 70,595
-------- --------
Gross profit................................................ 42,627 50,723
-------- --------
Operating expenses:
Research and development.................................... 11,123 12,192
Selling, general and administrative....................... 39,892 31,072
Other expenses............................................ -- --
-------- --------
Total operating expenses.................................. 51,015 43,264
-------- --------
Operating (loss) income................................... (8,388) 7,459
Interest and other expenses, net............................ (9,498) (4,849)
-------- --------
(Loss) income before income taxes......................... (17,886) 2,610
Provision for income taxes.................................. 246 435
-------- --------
Net (loss) income......................................... $(18,132) $ 2,175
======== ========
Net (loss) income per common and potential common share:(2)
Basic..................................................... $ (0.97) $ 0.09
======== ========
Diluted................................................... $ (0.97) $ 0.07
======== ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
-------------------
PRO FORMA(1)
-------------------
<S> <C>
Balance Sheet Data:
Cash and cash equivalents................................. $ 2,204
Working capital........................................... (22,206)
Total assets.............................................. 133,075
Debt obligations.......................................... 54,526
Preferred stock subject to redemption..................... 4,328
Total stockholders' equity................................ 44,392
</TABLE>
------------------------
(1) Reflects the effect of Inverness acquisition of Integ, excluding a
non-recurring charge for the write-off of a portion of the purchase price as
in-process research and development.
(2) Computed as described in Inverness historical financial statements and
related notes incorporated by reference into this prospectus.
12
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF INTEG
The following summary historical financial data of Integ is qualified by
reference to and should be read in conjunction with "Integ's Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and the Notes thereto included elsewhere herein. The
statements of operations data for the years ended December 31, 1997, 1998 and
1999 and the balance sheet data at December 31, 1998 and 1999 are derived from,
and are qualified by reference to, the audited financial statements and should
be read in conjunction with those financial statements and notes thereto. The
statements of operations data for the years ended December 31, 1995 and 1996 and
the balance sheet data at December 31, 1995, 1996 and 1997 are derived from
audited financial statements not included herein. The summary statements of
operations data for the nine-month periods ended September 30, 1999 and 2000 and
for the period from April 3, 1990 (inception) to September 30, 2000 are derived
from unaudited consolidated financial statements included in this prospectus.
The unaudited consolidated financial statements for the nine-month periods have
been prepared on a basis consistent with Integ's audited financial statements
and, in the opinion of management, include all adjustments consisting only of
normal recurring adjustments, necessary for a fair presentation of Integ's
financial position and results of operations for those periods. The results of
operations for the nine months ended September 30, 2000 are not necessarily
indicative of results for the year ending December 31, 2000 or any future
period.
<TABLE>
<CAPTION>
NINE MONTHS PERIOD FROM
ENDED APRIL 3, 1990
YEAR ENDED DECEMBER 31, SEPTEMBER 30 (INCEPTION) TO
---------------------------------------------------- ------------------- SEPTEMBER 30,
1995 1996 1997 1998 1999 1999 2000 2000
-------- -------- -------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY STATEMENTS OF OPERATIONS:
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
Operating loss.................... $(5,281) $(9,920) $(12,462) $(10,871) $(7,503) $(5,933) $(3,964) $(54,791)
Net loss.......................... $(5,049) $(9,083) $(11,564) $(11,086) $(7,844) $(6,176) $(4,154) $(53,522)
Net loss per share:
Basic and diluted............... $(11.65) $ (1.86) $ (1.24) $ (1.17) $ (.81) $ (.64) $ (.42) $ (13.27)
Weighted average number of common
shares outstanding:
Basic and diluted............... 433 4,889 9,305 9,477 9,649 9,644 9,827 4,035
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------- SEPTEMBER 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
(IN THOUSANDS, EXCEPT EMPLOYEE DATA)
Current assets..................................... $15,860 $34,151 $21,914 $11,308 $3,218 $1,691
Current liabilities................................ 523 1,574 2,340 2,411 1,924 1,602
Working capital.................................... 15,337 32,577 19,574 8,897 1,294 89
Total assets....................................... 17,376 37,716 29,216 18,155 8,636 6,562
Long-term obligations.............................. 447 1,298 3,030 2,686 1,274 333
Shareholders' equity............................... 16,405 34,844 23,846 13,058 5,438 4,627
Number of full time employees...................... 45 63 79 26 28 31
</TABLE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF INVERNESS
You should read the following summary consolidated financial data of
Inverness in conjunction with its consolidated financial statements and notes
and the other information included in or incorporated by reference into this
proxy statement and prospectus. The summary consolidated balance sheet data as
of December 31, 1998 and 1999 and the summary consolidated statement of
operations data for the years ended December 31, 1997, 1998 and 1999 have been
derived from Inverness' consolidated financial statements that have been audited
by Arthur Andersen, LLP, independent public accountants, and are incorporated by
reference into this proxy statement and prospectus. The summary
13
<PAGE>
consolidated balance sheet data as of December 31, 1995, 1996 and 1997 and the
summary consolidated statement of operations data for the years ended
December 31, 1995 and 1996 have been derived from Inverness' audited
consolidated financial statements not included or incorporated by reference in
this prospectus. The summary consolidated statement of operations data for the
nine-month periods ended September 30, 1999 and 2000 and the summary
consolidated balance sheet data at September 30, 2000 are derived from unaudited
consolidated financial incorporated by reference in this prospectus. The
unaudited consolidated financial statements for the nine-month periods have been
prepared on a basis consistent with Inverness' audited consolidated financial
statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of Inverness' consolidated financial position and consolidated
results of operations for these periods. The consolidated results of operations
for the nine months ended September 30, 2000 are not necessarily indicative of
results for the year ending December 31, 2000 or any future period.
When you read this summary financial data, it is important that you also
read the historical financial statement and related notes included in or
incorporated by reference into this prospectus, as well as the section of this
prospectus entitled "Inverness' Management's Discussion and Analysis of
Financial Condition and Results of Operations." The historical results are not
necessarily indicative of future results.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues......................................... $ 7,239 $ 19,063 $ 52,250 $117,984 $125,873 $89,647 $121,318
Cost of sales........................................ 5,565 10,958 26,277 77,081 83,246 60,957 70,595
-------- -------- -------- -------- -------- ------- --------
Gross profit......................................... 1,674 8,105 25,973 40,903 42,627 28,690 50,723
-------- -------- -------- -------- -------- ------- --------
Operating Expenses:
Research and development........................... 1,532 6,643 15,633 7,380 6,906 4,357 9,479
Selling, general and administrative................ 5,702 14,713 25,805 36,290 35,390 26,839 28,910
Other expenses..................................... -- 4,397 3,303 7,542 -- -- --
-------- -------- -------- -------- -------- ------- --------
Total operating expenses........................... 7,234 25,753 44,741 51,212 42,296 31,196 38,389
-------- -------- -------- -------- -------- ------- --------
Operating (loss) income............................ (5,560) (17,648) (18,768) (10,309) 331 (2,506) 12,334
Interest expense, including amortization of original
issue discount..................................... (4,519) (11,561) (5,487) (9,565) (8,093) (6,003) (5,898)
Interest and other income (expense) net.............. 38 741 434 1,787 (532) 169 2,423
-------- -------- -------- -------- -------- ------- --------
(Loss) income before dividends and accretion on
mandatorily redeemable preferred stock of a
subsidiary....................................... (10,041) (28,468) (23,821) (18,087) (8,294) (8,340) 8,859
Dividends and accretion on mandatorily redeemable
preferred stock of subsidiary...................... (56) (110) (114) (146) (226) (169) (383)
-------- -------- -------- -------- -------- ------- --------
(Loss) income before extraordinary loss and income
taxes............................................ (10,097) (28,578) (23,935) (18,233) (8,520) (8,509) 8,476
Extraordinary loss on modification and early
extinguishment of debt............................. -- -- (579) -- (306) (306) (800)
-------- -------- -------- -------- -------- ------- --------
(Loss) income before income taxes.................. (10,097) (28,578) (24,514) (18,233) (8,826) (8,815) 7,676
Provision for income taxes........................... -- -- 196 545 246 349 435
-------- -------- -------- -------- -------- ------- --------
Net (loss) income.................................. $(10,097) $(28,578) $(24,710) $(18,778) $ (9,072) $(9,164) $ 7,241
======== ======== ======== ======== ======== ======= ========
Net (loss) income per common and potential common
share(1)
Basic.............................................. $ (2.61) $ (6.00) $ (3.36) $ (1.55) $ (0.66) $ (0.64) $ 0.30
======== ======== ======== ======== ======== ======= ========
Diluted............................................ $ (2.61) $ (6.00) $ (3.36) $ (1.55) $ (0.66) $ (0.64) $ 0.26
======== ======== ======== ======== ======== ======= ========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- SEPTEMBER 30
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
(IN THOUSANDS)
Cash and cash equivalents........ $ 7,395 $16,459 $15,670 $ 9,200 $ 5,234 $ 6,140
Working capital.................. 4,318 9,863 (2,282) 2,733 (8,673) (16,545)
Total assets..................... 13,692 41,089 95,372 115,077 114,837 119,856
Debt obligations................. 10,500 8,833 59,903 62,481 60,375 52,861
Preferred stock subject to
redemption..................... 1,644 1,754 11,141 14,257 9,054 4,328
Total stockholders' (deficit)
equity......................... $(5,230) $12,079 $ 5,441 $ 15,009 $ 18,120 $ 33,359
</TABLE>
------------------------
(1) Historical basic and diluted net (loss) income per common and potential
common share is computed as described in Inverness' historical financial
statements and related notes incorporated by reference into this prospectus.
COMPARATIVE PER SHARE DATA
We are providing the following comparative per share information to aid you
in your analysis of the financial aspects of the merger. You should read this
information in conjunction with each company's historical financial statements
and unaudited pro forma condensed consolidated financial statements and the
related notes that are included elsewhere in this proxy statement and
prospectus. The unaudited pro forma consolidated per share data presented below
reflects the purchase method of accounting for business combinations. The
results may have been different if the companies had always been consolidated.
Both Inverness and Integ have fiscal years ending on December 31. The Integ
pro forma equivalent per share data equals an assumed exchange ratio of .1734
multiplied by the Inverness pro forma consolidated per share data. The actual
exchange ratio will not necessarily equal this assumed exchange ratio, and the
pro forma per share data are not necessarily indicative of the results that
would have occurred if the merger had been completed on the dates indicated or
the results that will occur after the merger. Please refer to the section of
this proxy statement and prospectus entitled "Inverness Medical Technology, Inc.
and Subsidiaries Unaudited Pro Forma Combined Condensed Financial Statements"
beginning on page 78.
<TABLE>
<CAPTION>
INVERNESS INTEG
---------------------- -----------------------
PRO FORMA
PRO FORMA EQUIVALENT
HISTORICAL PER SHARE HISTORICAL PER SHARE
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Loss (earnings) per share:
Year ended December 31, 1999.........................
Basic.............................................. $(0.66) $(0.97) $(0.81) $(0.17)
Diluted............................................ $(0.66) $(0.97) $(0.81) $(0.17)
Nine months ended September 30, 2000.................
Basic.............................................. $ 0.30 $ 0.09 $(0.42) $ 0.02
Diluted............................................ $ 0.26 $ 0.07 $(0.42) $ 0.01
Dividends per share:
Year ended December 31, 1999......................... -- -- -- --
Nine months ended September 30, 2000................. -- -- -- --
Book value per share at September 30, 2000........... $ 1.30 $ 1.60 $ 0.47 $ 0.28
</TABLE>
15
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDENDS
Inverness common stock is quoted on the American Stock Exchange under the
trading symbol "IMA." Integ common stock is quoted on the Nasdaq National Market
under the trading symbol "NTEG." The following table sets forth, for the periods
indicated, the high and low sale prices per share of Inverness stock as reported
on the American Stock Exchange and the high and low bid price per share of Integ
stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
INVERNESS INTEG
------------------- -------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CALENDAR YEAR 1998
First Quarter....................................... $11.1250 $ 8.3750 $7.3800 $3.2500
Second Quarter...................................... $11.8750 $ 9.0625 $4.7500 $2.1300
Third Quarter....................................... $ 9.6250 $ 3.3125 $3.2500 $0.5000
Fourth Quarter...................................... $ 3.8125 $ 1.2500 $1.8100 $0.5900
CALENDAR YEAR 1999
First Quarter....................................... $ 5.9375 $ 2.0000 $1.6300 $1.0000
Second Quarter...................................... $ 5.1875 $ 2.7500 $3.0000 $1.3100
Third Quarter....................................... $ 3.8750 $ 2.3750 $2.1300 $1.4400
Fourth Quarter...................................... $ 4.6875 $ 2.5625 $2.6300 $1.7500
CALENDAR YEAR 2000
First Quarter....................................... $11.3750 $ 3.1875 $6.3800 $1.9700
Second Quarter...................................... $ 9.7500 $ 4.1250 $3.0000 $1.3800
Third Quarter....................................... $22.4375 $ 8.5625 $3.0000 $1.1900
Fourth Quarter (through December 13, 2000).......... $37.0000 $16.5625 $6.8750 $2.3125
</TABLE>
RECENT CLOSING PRICES
The following table sets forth the high, low and closing sale prices per
share of Inverness stock as reported on the American Stock Exchange and Integ
stock as reported on the Nasdaq National Market, respectively, on October 3,
2000, the last trading day before our public announcement of the merger
agreement, and on December 13, 2000, the record date.
<TABLE>
<CAPTION>
INVERNESS INTEG INTEG
------------------------------ ------------------------------ EQUIVALENT
HIGH LOW CLOSING HIGH LOW CLOSING STOCK PRICE
-------- -------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
October 3, 2000.......... $19.4375 $18.3125 $18.8750 $2.5625 $2.3125 $2.3750 $3.27
December 13, 2000........ $37.0000 $36.1250 $36.6875 $6.6875 $6.3125 $6.4375 $6.36
</TABLE>
The market price of Inverness stock is likely to fluctuate prior to the
merger. You should obtain current market quotations. We cannot predict the
future prices for Inverness stock, or on which markets it will be traded in the
future.
DIVIDEND INFORMATION
No cash dividends have ever been paid or declared on the shares of Inverness
common stock or Integ common stock. Inverness does not intend to pay cash
dividends on its common stock in the foreseeable future. Inverness' present
intention is to retain its earnings to finance the growth and development of its
business. Any future payment of dividends on Inverness stock will be at the
board's discretion and will depend upon, among other things, Inverness'
earnings, financial condition, capital requirements, level of indebtedness and
other factors that the Inverness board deems relevant.
NUMBER OF HOLDERS OF COMMON STOCK AND NUMBER OF SHARES OUTSTANDING
As of December 13, 2000, there were 338 stockholders of record of Inverness
who held an aggregate of 29,118,655 shares of Inverness stock.
As of December 13, 2000, there were 241 shareholders of record of Integ who
held an aggregate of 9,922,285 shares of Integ stock.
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<PAGE>
RISK FACTORS
In addition to the other information included in this proxy statement and
prospectus, you should consider carefully the risk factors described below in
deciding how to vote on the merger proposal. You should keep these risk factors
in mind when you read forward-looking statements. Please refer to the section of
this proxy statement and prospectus entitled "Special Note Regarding
Forward-looking Statements."
RISKS RELATING TO THE MERGER
THE EXCHANGE RATIO FOR INTEG STOCK IN THE MERGER IS FIXED AGAINST A SET NUMBER
OF SHARES OF INVERNESS STOCK AND WILL NOT BE ADJUSTED IF THERE IS ANY CHANGE IN
THE PRICE OF INVERNESS STOCK.
In the merger, Integ stock will be exchanged for Inverness stock at an
exchange ratio designed to provide that a total of 1,900,000 shares of Inverness
common stock, net of exercise amounts attributable to the options and warrants,
will be issued to:
- existing holders of shares of Integ common stock;
- holders of options to purchase shares of Integ common stock; and
- holders of warrants to purchase Integ common stock.
For more information on the determination of the exchange ratio, see the section
of this proxy statement and prospectus entitled "The Merger Agreement--Merger
Consideration" on page 45. The market value of Inverness stock on and after the
closing date of the merger may vary significantly from the prices on the date of
execution of the merger agreement, the date of this proxy statement and
prospectus and the date on which you vote on the merger. Any change in the price
of Inverness stock will affect the value of the consideration that Integ
shareholders receive in the merger. The price of Inverness stock can be volatile
and the price at the time that the merger is completed may be lower than its
price on the date of this document or the date of the Integ special meeting. On
October 3, 2000, the date of the execution of the merger, the closing price of
Inverness stock was $18.875 per share. On December 13, 2000, the record date,
the closing price of Inverness stock was $36.6875 per share. You are encouraged
to obtain current market quotations for Inverness stock.
INVERNESS FACES DIFFERENT MARKET RISKS FROM THOSE FACED BY INTEG, AND THESE
RISKS MAY CAUSE THE VALUE OF THE SHARES OF INVERNESS STOCK ISSUED TO YOU TO
DECLINE.
In the merger you will receive shares of Inverness stock. Inverness stock
has historically experienced significant fluctuations in price and volume. The
business, strategy and financial condition of Inverness are somewhat different
from that of Integ. Inverness' results of operations, as well as the price of
Inverness stock, will be affected by various factors different from those
affecting Integ's results of operations and its common stock price. Future
events that may not have affected the price of Integ stock may cause the price
of Inverness stock to fall.
For a description of and other information about Inverness stock and
differences between Inverness stock and Integ stock, see the sections of this
proxy statement and prospectus entitled "Comparative Per Share Data" on
page 15, "Comparative Stock Prices and Dividends" on page 16 and "Comparison of
Rights of Shareholders of Integ and Stockholders of Inverness" on page 97.
THE MERGER MAY NOT YIELD PRODUCTS OR TECHNOLOGY THAT CAN BE COMMERCIALIZED BY
INVERNESS.
The value of Integ to Inverness may not be greater than or equal to the
purchase price which Inverness has agreed to pay. If Inverness is unable to
effectively integrate the technologies of Integ into the research and
development efforts of Inverness, its research and development efforts may
suffer. Further, Inverness cannot guarantee that it will realize any of the
benefits or strategic objectives it is
17
<PAGE>
seeking to obtain by acquiring Integ. In that regard, Integ has granted to a
third party certain rights in its intellectual property that survive the
acquisition by Inverness which will permit this third party to also utilize
substantially all the technology that Inverness will acquire. In connection with
accounting for the acquisition of Integ, Inverness will record a significant
amount of intangible assets, the amortization of which will adversely affect its
results of operations in future periods. In addition, Inverness will also record
a significant charge for the write-off of a portion of the purchase price as
in-process research and development. For the purpose of preparing the pro forma
information that is included in summary form in this proxy statement and
prospectus, Inverness estimated the allocation of the purchase price. The final
purchase price allocation will be based, in part, on an independent appraisal of
the acquired intangible assets and the charge for in-process research and
development. The appraisal results and final allocation of the purchase price
could vary significantly from Inverness' original estimates, which would result
in a greater or lesser non-recurring charge for the write-off of a portion of
the purchase price as in-process research and development during the quarter in
which the merger is consummated.
THE TERMINATION FEE AND THE RESTRICTIONS ON SOLICITATION CONTAINED IN THE MERGER
AGREEMENT MAY DISCOURAGE OTHER COMPANIES FROM TRYING TO ACQUIRE INTEG.
Until the completion of the merger, and with some exceptions, Integ is
prohibited from entering into or soliciting, initiating or encouraging any
inquiries or proposals that may lead to a proposal or offer for a merger or
other business combination transaction with any person other than Inverness. In
addition, Integ agreed to pay a termination fee to Inverness in specified
circumstances, including where a third party acquires or seeks to acquire Integ.
These provisions could discourage other companies from trying to acquire Integ
even though those other companies might be willing to offer greater value to
Integ shareholders than Inverness has offered in the merger. The payment of the
termination fee could also have a material adverse effect on Integ's financial
condition.
OFFICERS AND DIRECTORS OF INTEG HAVE INTERESTS THAT ARE DIFFERENT FROM, OR IN
ADDITION TO, INTERESTS OF INTEG'S SHAREHOLDERS GENERALLY.
The officers and directors of Integ have interests in the merger that are in
addition to, or different from, their interests as Integ shareholders. The Integ
board was aware of these conflicts of interest when it approved the merger.
These interests include:
- the accelerated vesting of stock options upon consummation of the merger
and the ability of certain officers of Integ to receive compensation for
any excise taxes payable by virtue of such acceleration;
- the receipt of severance benefits under employee retention agreements in
the event any of Integ's officers are terminated by Inverness after the
merger; and
- the receipt of indemnification and insurance coverage with respect to acts
and omissions in their capacities as officers and directors of Integ.
For a more detailed discussion of these interests, see the section of this
proxy statement and prospectus entitled "The Merger--Interests of Integ's
Directors and Officers in the Merger" on page 39.
SUBSTANTIALLY ALL OF THE INTELLECTUAL PROPERTY OF INTEG IS ALSO LICENSED TO, AND
SUBLICENSABLE BY, ANOTHER COMPANY.
The consummation of the merger will trigger certain significant provisions
contained in Integ's development and license agreement with Amira Medical.
Primary among these consequences is that Amira will be granted an exclusive,
perpetual, non-terminable and transferable license to all Integ
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<PAGE>
intellectual property relating to glucose monitoring using interstitial fluid
developed after April 2, 1999 and through the date of the closing of the merger,
and a co-exclusive, perpetual, non-terminable and transferable license to all
Integ intellectual property relating to glucose monitoring using interstitial
fluid, other than its infrared technology, in existence as of April 2, 1999.
Accordingly, after the closing of the merger, Inverness will receive no rights
to any Integ intellectual property relating to glucose monitoring using
interstitial fluid developed after April 2, 1999. In addition, with respect to
all Integ intellectual property relating to glucose monitoring using
interstitial fluid developed up to and through April 2, 1999, including all
patents owned and patent applications pending, Inverness, as the successor to
Integ, will receive a co-exclusive license with Amira. Integ and Inverness do
not expect that the co-exclusive license will affect Inverness' plans to use
Integ's intellectual property in the future because Inverness intends to utilize
only the intellectual property that was in existence or pending as of April 2,
1999, which includes the patents relating to the LIFEGuide-TM- System and
Integ's proprietary interstitial fluid sampling. However, Amira will also
possess the rights to utilize this technology and the exclusive rights to all
post-April 2, 1999 technology, which Amira will be able to develop and
commercialize. Furthermore, Amira is not prohibited from transferring its
license to use such technology to any other person, including to competitors of
Inverness. Accordingly, there is nothing to prevent the intellectual property
that Inverness is acquiring in the merger from also being owned and possibly
commercialized by Inverness' competitors.
RISKS RELATING TO INVERNESS
In the merger, Inverness will issue shares of Inverness stock in exchange
for Integ stock. Accordingly, before voting on the merger, you should carefully
consider the factors relating to Inverness and the operation of its business
generally that are included in Inverness' filings with the Securities and
Exchange Commission from time to time that have been or are thereafter
incorporated by reference into this document, including the risk factors set
forth under the heading "Management's Discussion and Analysis of Financial
Conditions and Results of Operations--Certain Factors Affecting Future Results."
YOU ARE URGED TO READ THESE RISK FACTORS CAREFULLY. These risks could result in
material adverse consequences to Inverness' business, financial condition,
operating results or cash flows. These consequences could cause the trading
price of Inverness stock to decline.
RISKS RELATING TO INTEG
The following matters, among others, may have a material adverse effect on
the business, financial condition, liquidity, results of operations or
prospects, financial or otherwise, of Integ, particularly if the shareholders of
Integ do not vote to approve the merger agreement at the special meeting.
INTEG IS DEVELOPING A NEW TECHNOLOGY WHICH MAY NEVER BECOME COMMERCIALLY VIABLE
OR IF VIABLE MAY NEVER ACHIEVE MARKET ACCEPTANCE.
Integ is a development stage company and does not have any commercial
products available for sale. Integ is developing an interstitial fluid sampling
technology. This technology, when combined with a measurement technology, will
create a handheld glucose monitoring product, referred to as the LIFEGuide-TM-
System, for use by people with diabetes that avoids the pain and blood
associated with conventional "finger-stick" technologies. Integ's future success
is dependent upon the successful development of the LIFEGuide-TM- System, which
is ongoing and the complete efficacy of which has not yet been demonstrated.
Integ does not own rights to a glucose measurement technology to use with the
LIFEGuide-TM- System. In order to successfully develop the LIFEGuide-TM- System,
Integ must obtain rights to a proven glucose measurement technology, such as
that used by Inverness. Unforeseen problems may occur in any or all of the
following areas:
- research and development;
19
<PAGE>
- integration of Integ's sampling technology with Inverness' measuring
technology;
- clinical testing;
- regulatory submissions and clearance or approval;
- product manufacturing and commercial scale up;
- marketing; or
- product distribution.
Occurrence of any of these problems could materially delay the
commercialization of the LIFEGuide-TM- System or prevent its market introduction
entirely. Further, even if successfully developed, the commercial success of the
LIFEGuide-TM- System will depend upon its acceptance as an accurate, reliable
and cost-effective alternative to existing blood glucose monitoring techniques.
The glucose monitoring industry is currently dominated by several companies with
established markets and distribution channels. Because the proposed
LIFEGuide-TM- System will represent a new practice in the monitoring of glucose
levels, Integ is unable to predict how quickly, if at all, its products will be
accepted by members of the medical community and people with diabetes.
INTEG IS CURRENTLY DEPENDENT ON EXTERNAL SOURCES OF FUNDING TO MEET ITS
OPERATIONAL EXPENSES, HAS A HISTORY OF OPERATING LOSSES AND EXPECTS LOSSES TO
CONTINUE.
Integ has generated no revenue and has sustained significant operating
losses each year since its inception. As of September 30, 2000, Integ had an
accumulated deficit of $53,522,000. Integ incurred net losses of $7,844,000 for
the year ended December 31, 1999, $11,086,000 for the year ended December 31,
1998 and $11,564,000 for the year ended December 31, 1997, and Integ expects
such losses to continue through 2000. To increase its available cash, in
February 2000, Integ announced that Amira agreed to provide funding of up to
$5,600,000 through purchases of Series B preferred stock for continued
LIFEGuide-TM- System development during the year 2000. As an independent
company, Integ would remain dependent upon sales of Series B preferred stock to
Amira to meet its operating expenses, and will remain so dependent unless the
merger occurs. Furthermore, pursuant to its existing arrangement with Amira,
Integ will receive only a fixed percentage of profit over its costs up to a
certain cap in producing the LIFEGuide-TM- Key, which is not based upon the
price that the LIFEGuide-TM- System may sell.
Pursuant to the terms of the Series B purchase agreement, Integ will be
required to redeem for either cash or Integ common stock all outstanding shares
of Series B preferred stock at a 10% premium upon the closing of the merger with
Inverness. Integ has elected to redeem the Series B preferred stock for cash. It
is anticipated that the cost to Integ for this redemption will be $4,977,266.87,
and Inverness has agreed to fund this amount.
If the merger is not completed, adequate funds for Integ's operations,
whether from third parties, financial markets or from other sources, may not be
available when needed on terms attractive to Integ or at all. Insufficient funds
may prevent the commercial introduction of the LIFEGuide-TM- System altogether.
APPROVAL OF THE LIFEGUIDE-TM- SYSTEM IS SUBJECT TO A RIGOROUS PROCESS FOR FDA
CLEARANCE OR APPROVAL.
Testing of the current LIFEGuide-TM- System has been performed on prototypes
solely by Integ and Amira personnel under controlled circumstances. The FDA has
informed Integ that a premarket approval application (PMA) is the most likely
submission which will be required to permit commercialization of the
LIFEGuide-TM- System in the United States. Neither Integ nor Inverness can
predict whether problems will be encountered in clinical testing which will
cause delays in the commercialization of the LIFEGuide-TM- System. Neither Integ
nor Inverness can predict whether the
20
<PAGE>
LIFEGuide-TM- System will prove to be accurate and reliable on a consistent
basis or that the LIFEGuide-TM- System will be safe or effective. Neither Integ
nor Inverness can also not predict whether the required FDA clearances will be
obtained on a timely basis or at all.
THE GLUCOSE MONITORING INDUSTRY IS HIGHLY COMPETITIVE AND MOST PARTICIPANTS ARE
LARGER THAN INTEG AND HAVE BETTER CAPITALIZATION AND ARE MORE EXPERIENCED THAN
INTEG.
The glucose monitoring industry is characterized by continuously evolving
technology and intense competition, and the market is currently dominated by
several companies with established products and distribution channels. In
addition, other companies are attempting to develop minimally or noninvasive
glucose monitoring products competitive with the proposed LIFEGuide-TM- System.
If the merger is not completed and Integ remains an independent company, it is
possible that Integ's competitors and potential competitors may succeed in
developing or marketing technologies and products that will be more accepted in
the marketplace than the proposed LIFEGuide-TM- System or that would render
Integ's technology and proposed device obsolete or noncompetitive. In addition,
numerous researchers are investigating alternative treatments or cures for
diabetes. If any of these efforts are successful in reducing the complications
associated with diabetes and can be cost-effectively provided to people with
diabetes, the need for Integ's products could be mitigated or become entirely
nonexistent.
Furthermore, most of Integ's competitors and potential competitors have
substantially greater capital resources, research and development staffs and
facilities than Integ currently and Integ as anticipated if the merger does not
occur and Integ remains an independent company. In addition, most of Integ's
competitors and potential competitors have substantially greater experience than
Integ in research and new product development, obtaining regulatory approvals
and manufacturing and marketing medical devices. Many of Integ's potential
competitors have already entered into distribution and marketing agreements with
major marketing partners.
INTEG'S LIFEGUIDE-TM- SYSTEM REQUIRES MANUFACTURING CAPABILITIES GREATER THAN
CURRENTLY IN PLACE AND ALSO DEPENDS ON TIMELY AND RELIABLE DELIVERY FROM
SUPPLIERS.
Integ's LIFEGuide-TM- System is still in development. To be successful,
LIFEGuide-TM- System must be manufactured in compliance with regulatory
requirements, in a timely manner and in sufficient quantities while maintaining
product quality and acceptable manufacturing costs. If the merger with Inverness
is not consummated, Integ plans to assemble the disposable key portion of the
LIFEGuide-TM- System from components to be purchased from outside suppliers.
Manufacturers often encounter difficulties in scaling up production of new
products, including problems involving production yields, quality control and
assurance, component supplies and shortages of personnel. Accordingly, in that
case, Integ may not be able to achieve and maintain product quality and
reliability when producing the LIFEGuide-TM- System in the quantities required
for commercial operations or within a period that will permit Integ to introduce
its product in a timely fashion, nor may Integ be able to assemble and
manufacture its product at an acceptable cost.
INTEG DEPENDS GREATLY ON OBTAINING PATENTS AND OTHER METHODS OF SAFEGUARDING AND
PROTECTING ITS INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY. FAILING TO
ADEQUATELY PROTECT THESE INTERESTS, OR PROTECTING OR DEFENDING INTERESTS THROUGH
LITIGATION, MAY BE COSTLY TO INTEG.
Integ's success as an independent company if the merger with Inverness is
not completed will depend in part on its ability to obtain patent protection for
its proposed products and processes, to preserve its trade secrets and to
operate without infringing the proprietary rights of third parties. Under the
terms of the development and license agreement with Amira, upon the closing of
the merger with Inverness, Integ will be deemed to have granted to Amira an
exclusive license to all of Integ's technology relating to glucose monitoring
using interstitial fluid developed after the date of the agreement and a
coexclusive license to Integ's technology relating to glucose monitoring
interstitial
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<PAGE>
fluid developed prior to the date of the agreement. Integ has historically
pursued a policy of seeking patent protection for each of the areas of invention
embodied in the LIFEGuide-TM- System. Integ has four issued United States
patents relating to the method of drawing a body fluid sample from the outer
layers of the skin, as well as six related United States patents. Integ has
several pending United States patent applications directed toward various
aspects of the technologies underlying the LIFEGuide-TM- System. Integ has also
filed two corresponding foreign patent applications related to its sampling
methods, in order to seek similar patent protection outside the United States.
The first of these has received a favorable option and has been filed in Europe
and three non-European countries. The European application has been granted and
is being filed in selected member states. Integ cannot be sure, however, that
- any additional patents will be issued;
- the scope of any patent protection granted to Integ will prevent
competitors from introducing products competitive with the LIFEGuide-TM-
System; or
- any of Integ's patents will be held valid or enforceable if subsequently
challenged.
Patenting medical devices involves complex legal and factual questions, and
there is no consistent policy regarding the breadth of claims that pertain to
such technologies. Integ also has relied, and currently relies, upon unpatented
trade secrets. Neither Integ nor Inverness can be sure others will not
independently develop or otherwise acquire unpatented technologies substantially
equivalent to those of Integ currently. In addition, even if the patents for
which Integ has applied are ultimately issued, other parties may hold or receive
patents that contain claims covering the LIFEGuide-TM- System and which may
delay or prevent the sale of the LIFEGuide-TM- System or require licenses
resulting in the payment of fees or royalties by Integ in order for Integ to
carry on its business. In addition, needed or potentially useful licenses may
not be available to Integ in the future on acceptable terms or at all.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry. As an independent
company, litigation could result in substantial costs to and a diversion of
effort by Integ. However, litigation may be necessary to enforce any patents
issued to Integ, protect trade secrets or know-how owned by Integ, defend Integ
against claimed infringement of the rights of others or determine the scope and
validity of the proprietary rights of others. It is always possible that third
parties may pursue litigation which could be costly to Integ. An adverse
determination in any litigation could:
- subject Integ to significant liabilities to third parties,
- require Integ to seek licenses from or pay royalties to third parties, or
- prevent Integ from manufacturing, selling or using its proposed products.
Any of these alternatives could have a material adverse effect on Integ's
business and prospects.
INTEG DEPENDS ON ITS ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL.
As an independent company, the success of Integ is dependent in large part
upon the ability of Integ to attract and retain key management and operating
personnel. Qualified individuals are in high demand and are often subject to
competing offers. Integ may not be able to attract and retain the qualified
personnel needed for its business if the merger is not consummated and it
remains independent. The loss of the services of members of Integ's research,
manufacturing or management group or the inability to hire additional personnel
as needed would likely have a material adverse effect on Integ's business and
prospects.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement and prospectus contains "forward-looking statements"
within the meaning of section 27A of the Securities Act of 1933 and section 21E
of the Exchange Act of 1934 with respect to the merger and financial business,
condition, results of operations, plans, objectives, future performance and
business of Inverness and Integ, which are usually identified by the use of
words such as "will," "may," "anticipates," "believes," "estimates," "expects,"
"projects," "plans," "predicts," "continues," "intends," "should," "would," or
similar expressions, or the negative of these items. This proxy statement and
prospectus also includes forward-looking statements about the consummation and
anticipated timing of the merger, the potential market opportunity for glucose
monitoring systems that use interstitial fluid, the expected drivers of growth
for the market opportunity, the anticipated impact of Integ's technology on
Inverness' future growth, the expected benefits of the merger, the actual
exchange ratio, the tax-free nature of the transaction and the anticipated
impact of the acquisition on Inverness' earnings and development programs.
Inverness and Integ intend for those forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Reform Act of 1995 and are including this statement for
purposes of complying with these safe harbor provisions.
These forward-looking statements reflect current views about the relevant
company's plans, strategies and prospects, which are based on the information
currently available and on current assumptions.
Although each company believes that its plans, intentions and expectations
as reflected in or suggested by these forward-looking statements are reasonable,
it can give no assurance that the plans, intentions or expectations will be
achieved. Investors are cautioned that all forward-looking statements involve
risks and uncertainties and actual results may differ materially from those
discussed as a result of various factors including those factors described in
the "Risk Factors" section of this proxy statement and prospectus. Listed below
and discussed elsewhere in this proxy statement and prospectus are some
important risks, uncertainties and contingencies which could cause each
company's actual results, performances or achievements to be materially
different from the forward-looking statements made in this proxy statement and
prospectus. These risks, uncertainties and contingencies include, but are not
limited to, the following:
- economic factors, including inflation and fluctuations in interest rates
and foreign currency exchange rates and the potential effect of such
fluctuations on revenues, expenses and resulting margins;
- competitive factors and industry trends, including the interstitial fluid
glucose monitoring market, technological advances achieved and patents
attained by competitors and generic competition and the relevant company's
ability to respond to those actions;
- domestic and foreign healthcare changes resulting in pricing pressures,
including the continued consolidation among healthcare providers, trends
toward managed care and healthcare cost containment and government laws
and regulations relating to sales and promotion, reimbursement and pricing
generally;
- government laws and regulations affecting domestic and foreign operations,
including those relating to trade, monetary and fiscal policies, taxes,
price controls, regulatory approval of new products and licensing;
- manufacturing interruptions or delays or capacity constraints or lack of
availability of alternative sources for components for products which may
be experienced;
- difficulties inherent in product development, including the potential
inability to successfully continue technological innovation, complete
clinical trials, obtain regulatory approvals in the
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United States and abroad, gain and maintain market approval of products
and the possibility of encountering infringement claims by competitors
with respect to patent or other intellectual property rights which can
preclude or delay commercialization of a product;
- significant litigation adverse to each company including product liability
claims, patent infringement claims and antitrust claims;
- product efficacy or safety concerns resulting in product recalls or
declining sales;
- the impact of business combinations, including acquisitions and
divestitures, and organizational restructuring consistent with evolving
business strategies;
- issuance of new or revised accounting standards by the American Institute
of Certified Public Accountants, the Financial Accounting Standards Board
or the Securities and Exchange Commission; and
- the receipt of shareholder and other approvals of the transaction.
In addition, events may occur in the future that the companies are not able
to accurately predict or control and that may cause actual results to differ
materially from the expectations described in the forward-looking statements.
Readers should not place undue reliance on the forward-looking statements
contained in this proxy statement and prospectus. These forward-looking
statements speak only as of the date on which the statements were made. In
evaluating forward-looking statements, you should consider these risks and
uncertainties, together with the other risks described from time to time in
Inverness' and Integ's reports and documents filed with the Securities and
Exchange Commission, and you should not place undue reliance on those
statements.
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THE SPECIAL MEETING OF INTEG SHAREHOLDERS
The Integ board of directors is soliciting the proxies of its common
shareholders in connection with the special meeting of common shareholders to
vote on the proposed merger.
DATE, TIME AND PLACE OF THE SPECIAL MEETING AND MATTERS TO BE CONSIDERED
The special meeting of shareholders of Integ will be held at the Minneapolis
Marriott City Center, 30 South 7th Street, Minneapolis, Minnesota 55402 on
January 23, 2001 at 10:00 a.m. local time. At the meeting, Integ will ask the
holders of its common stock:
1. to consider and vote on a proposal to approve the agreement and plan of
merger dated as of October 3, 2000, as amended, by and among Inverness, Terrier
and Integ; and
2. to transact such other business as may properly come before the special
meeting or any adjournment or postponement.
Approval of the merger agreement will also constitute approval of the merger
and the other transactions contemplated by the merger agreement. The merger
agreement is attached as Annex A to this proxy statement and prospectus. Please
read it and the other information contained in this proxy statement and
prospectus carefully before deciding how to vote.
RECORD DATE AND SHARES ENTITLED TO VOTE
Integ's board of directors has fixed the close of business on December 13,
2000 as the record date for determining Integ shareholders entitled to notice of
and to vote at the special meeting. The only outstanding securities of Integ
entitled to vote on the merger are the shares of Integ common stock. Shares of
Integ's Series B preferred stock are not entitled to vote on the proposal to
approve the merger agreement.
At the close of business on the record date, 9,922,285 shares of Integ
common stock were outstanding and entitled to vote. They were held of record by
approximately 241 shareholders.
VOTE REQUIRED
To approve the merger and the merger agreement, the Minnesota Business
Corporation Act requires approval of the merger agreement by the affirmative
vote of a majority of the shares of Integ common stock outstanding and entitled
to vote at the special meeting. Some shareholders of Integ, including all of
Integ's directors, who beneficially own 1,405,387 shares, or approximately 15.4%
of the outstanding shares of Integ common stock, have entered into an agreement
with Inverness to vote their shares in favor of the merger agreement and the
merger. As of the record date and the date of this proxy statement and
prospectus, Inverness owned no shares of Integ common stock.
QUORUM; ABSTENTIONS AND BROKER NON-VOTES
A majority of the shares of Integ common stock outstanding on the record
date must be present at the meeting to establish a quorum. Shareholders may be
present in person or by proxy. Abstentions and broker non-votes each will be
included in determining the number of shares present and voting at the meeting
for the purpose of determining the presence of a quorum. If a quorum is not
present, it is expected that the special meeting will be adjourned or postponed
to solicit additional proxies. Because approval of the merger agreement and the
completion of the merger requires the affirmative vote of a majority of the
outstanding shares of Integ common stock entitled to vote, abstentions and
broker non-votes will have the same effect as votes against the merger agreement
and the completion of the merger. In addition, a failure of an Integ shareholder
to return a proxy will have the effect of a vote against the approval of the
merger agreement.
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THE ACTIONS PROPOSED IN THIS PROXY STATEMENT AND PROSPECTUS ARE NOT MATTERS
THAT CAN BE VOTED ON BY BROKERS HOLDING SHARES FOR BENEFICIAL OWNERS WITHOUT THE
OWNERS' SPECIFIC INSTRUCTIONS. ACCORDINGLY, YOU ARE URGED TO RETURN THE ENCLOSED
PROXY CARD MARKED TO INDICATE YOUR VOTE.
VOTING OF PROXIES; REVOCATION OF PROXIES
You are requested to complete, date and sign the accompanying proxy card and
promptly mail it to Integ. All properly executed proxies received prior to
taking the vote at the meeting, and not revoked, will be voted as instructed on
the proxy card. As to any business that may properly come before the special
meeting, however, it is intended that proxies, in the form enclosed, will be
voted in respect thereof in accordance with the judgment of the persons voting
these proxies. If no instructions are given, Integ will vote the proxy in favor
of approving the merger agreement. You may revoke your proxy at any time before
it is voted at the meeting by:
- signing and delivering to the chief financial officer of Integ, a written
notice, bearing a date later than the date on your proxy, stating that the
proxy is revoked;
- signing and delivering to Integ a proxy for the same shares and bearing a
later date, which will automatically replace any earlier dated proxy card
that you returned; or
- attending the special meeting and voting in person. You must vote,
however, because your attendance at the special meeting, by itself, does
not revoke your proxy.
If your broker holds your shares in "street name," your broker will vote
your shares only if you provide instructions on how to vote. Your broker will
provide you directions regarding how to instruct your broker to vote your
shares. Please note, however, that if the holder of record of your shares is
your broker, bank or other nominee and you wish to vote at the meeting, you must
bring a letter from the broker, bank or other nominee confirming that you are
the beneficial owner of the shares.
You should not send any certificates representing Integ stock with your
proxy. After the merger, you will receive instructions for the surrender and
exchange of your stock certificates.
EXPENSES OF SOLICITATION OF PROXIES
Integ will assume the cost of solicitation of proxies from you. In addition
to solicitation by mail, the directors, officers and employees of Integ may
solicit proxies from shareholders by telephone, facsimile or in person.
Following the original mailing of the proxies and other soliciting materials,
Integ will request brokers, custodians, nominees and other record holders to
forward copies of the proxy and other soliciting materials to persons for whom
they hold shares of Integ common stock and to request authority for the exercise
of proxies. In such cases, Integ, upon the request of the record holders, will
reimburse such holders for their reasonable expenses. Integ has engaged
Innisfree M&A Incorporated to assist in the solicitation of proxies for the
meeting and will pay Innisfree a fee of approximately $6,500 for this service.
DISSENTERS' APPRAISAL RIGHTS
In connection with the proposal to approve the merger agreement and the
merger, the shareholders of Integ may, under certain circumstances and by
following procedures prescribed by Minnesota law, exercise dissenters' appraisal
rights and receive cash for their shares of Integ common stock. The failure of a
dissenting shareholder of Integ to follow the appropriate procedures may result
in the termination or waiver of such rights. See the section of this proxy
statement and prospectus titled "The Merger--Dissenters' Appraisal Rights" on
page 41 for a summary of dissenters' appraisal rights and the procedures to
follow to assert these rights.
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OTHER MATTERS
Integ is not aware of any business or matter other than those indicated
above that may be properly presented at the special meeting. If, however, any
other matter properly comes before the special meeting, the proxy holders will,
in their discretion, vote on it in accordance with their best judgment.
RECOMMENDATION OF THE INTEG BOARD OF DIRECTORS
THE INTEG BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RECOMMENDS THAT INTEG SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE SHAREHOLDERS OF INTEG. ACCORDINGLY, YOU ARE URGED TO READ AND CAREFULLY
CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT AND PROSPECTUS AND TO
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF YOUR STOCK
CERTIFICATES FOR INTEG COMMON STOCK WILL BE MAILED TO YOU AS SOON AS PRACTICABLE
AFTER COMPLETION OF THE MERGER.
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THE MERGER
BACKGROUND OF THE MERGER
On July 1, 1998, representatives of Integ including Susan L. Critzer, Chief
Executive Officer of Integ and Richard F. Mussmann, Chief Technical Officer of
Integ met with Ron Zwanziger, Chief Executive Officer of Inverness and Tony
Hall, Chief Financial Officer of Inverness, in Minneapolis, Minnesota about the
possibility of engaging in a joint development activity.
Based on the results of a large-scale internal study, Integ announced in
August 1998 that it would be replacing its infrared measurement system with an
alternate proven measurement technology. Furthermore, Integ announced that it
would explore potential corporate alliances that could expedite this change.
On August 10, 1998, Ms. Critzer and Mr. Mussmann met with David Scott, Ph.D,
the Managing Director of Inverness, at Inverness' facility in Scotland to
continue discussions of a possible joint development activity. On August 11,
1998, Mark B. Knudson, Ph.D, Chairman of the Board of Integ and Mr. Zwanziger
had additional discussions concerning possible structures for a joint venture.
Integ engaged U.S. Bancorp Piper Jaffray Inc. on August 26, 1998 to serve as
financial advisor to Integ in connection with the exploration of certain
strategic alternatives, including joint ventures, corporate strategic alliances,
a sale of Integ or other business combinations.
On September 9, 1998, Jerry McAleer, Vice President of Research and
Development of Inverness, met with Ms. Critzer and Mr. Mussmann at Integ and had
additional discussions concerning the technology of the respective companies.
In September and November of 1998, Inverness and several other parties
executed confidentiality agreements with Integ and visited Integ to conduct due
diligence in connection with a possible transaction.
Ms. Critzer updated the board of directors as to progress toward the search
for a partner at a meeting of the board of directors on September 22, 1998.
Representatives of U.S. Bancorp Piper Jaffray also provided an update on the
status of partner search activity to the board.
On September 28, 1998, representatives of U.S. Bancorp Piper Jaffray sent a
draft term sheet to Mr. Zwanziger concerning a possible joint venture or
acquisition.
Integ's board of directors met on November 13, 1998. U.S. Bancorp Piper
Jaffray reviewed the status of contacts and discussions with various third
parties identified as possible partners with the board. Management also provided
the board with an update on visits to Integ by third parties.
On December 1, 1998, Ms. Critzer and Mr. Mussmann from Integ visited Amira
Medical and met with Ms. Karen Drexler, Chief Executive Officer and Joel
Douglas, Chief Technical Officer to tour Amira's facilities and continue
discussions regarding possible collaborations. On December 2, 1998,
Ms. Critzer, Mr. Mussmann and Dr. Knudson met with Mr. Zwanziger and his
financial advisor to outline a tentative joint development program and possible
joint venture structures.
On December 14, 1998, Integ, through U.S. Bancorp Piper Jaffray, received a
draft term sheet from Amira regarding a potential business alliance. On
December 15, 1998, Mr. Zwanziger sent U.S. Bancorp Piper Jaffray a draft joint
venture term sheet. Both Amira and Inverness were advised that their proposal
would be reviewed with Integ's board of directors.
On December 18, 1999, U.S. Bancorp Piper Jaffray updated Integ's board of
directors on the progress toward a search for a partner. U.S. Bancorp Piper
Jaffray also outlined the terms tentatively being discussed with Amira and
Inverness. The board did not take any formal action but instructed
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management with U.S. Bancorp Piper Jaffray to continue negotiations with both
parties and to continue to explore all strategic alternatives with all possible
parties.
During the month of January 1999, representatives of Integ and Inverness
continued to have preliminary discussions concerning a possible transaction, but
were unable to reach agreement upon tentative terms and, as a result,
preliminary discussions with Inverness terminated on January 30, 1999.
The Integ board of directors had a board meeting on February 17, 1999 at
which U.S. Bancorp Piper Jaffray discussed Integ's strategic alternatives. The
board did not take any formal action but instructed management and U.S. Bancorp
Piper Jaffray to continue to explore all strategic alternatives with all
possible parties.
On February 25, 1999, U.S. Bancorp Piper Jaffray received an updated
alliance proposal from Amira.
At a meeting of Integ's board of directors on February 26, 1999, management
of Integ briefed the board on Amira's proposal to enter into a strategic
alliance with Integ. The board authorized management of Integ to continue to
negotiate terms of an alliance with Amira. The board also authorized management
to provide notice to a third party that it had received a proposal from Amira as
required by the terms of the confidentiality agreement entered into with that
party.
On March 10 and 11, 1999, Ms. Critzer, Dr. Knudson and Robert Momsen, a
director of Integ at that time, and representatives of U.S. Bancorp Piper
Jaffray and Dorsey & Whitney, Integ's outside legal counsel, traveled to Palo
Alto, California to meet with Jim Wilson, Chairman of Amira, Ms. Drexler,
Mr. Douglas and Andrew Galligan, Chief Financial Officer of Amira to discuss
tentative terms for a proposed alliance between Amira and Integ and to conduct
due diligence of Amira. Pursuant to the proposed alliance, Integ and Amira would
agree to jointly develop a glucose monitoring device using interstitial fluid.
In consideration for entering into the strategic alliance, Integ would receive
an option to be acquired by Amira for total consideration fixed at the time the
strategic alliance is entered into. This option would not be immediately
exercisable, but would be exercisable by Integ upon the earliest to occur of an
initial public offering by Amira, an acquisition of Amira by a third party or
three years from the date of the strategic alliance. In consideration for
entering into the strategic alliance, Amira would receive certain rights to
Integ's intellectual property in the event that Integ was acquired by a third
party.
Integ's board of directors held a telephonic meeting on March 11, 1999
during which management updated the board on the status of negotiations with
Amira. Representatives from U.S. Bancorp Piper Jaffray made a presentation to
the board concerning the state of the industry and other strategic alternatives
available to Integ. The board of directors authorized management to enter into
an agreement with Amira in connection with negotiating definitive terms for the
proposed strategic alliance which prohibited Integ from conducting additional
negotiations with any other parties unless Integ received an unsolicited
superior proposal from that party.
On March 17 and 18, 1999, representatives of Amira Medical and Wilson
Sonsini Goodrich & Rosati, counsel for Amira, traveled to Integ's facilities to
conduct due diligence.
On March 23, 1999, the third party provided an offer to acquire Integ for
cash. On March 24, 1999, Integ's board of directors held a telephonic meeting to
discuss the offer received. The board concluded that the consideration offered
by the third party was not superior to the consideration offered by Amira and
instructed a representative of U.S. Bancorp Piper Jaffray to communicate that to
the third party.
On March 25, 1999, the third party provided an offer to acquire Integ for
cash at an improved valuation. Integ's board of directors held a telephonic
meeting on March 26, 1999 to discuss the offer received. In addition, management
of Integ and representatives of U.S. Bancorp Piper Jaffray and
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Dorsey & Whitney updated the board with respect to the status of negotiating the
definitive terms of a strategic alliance with Amira. The board concluded that
the improved consideration offered by the third party was not superior to the
consideration offered by Amira and instructed a representative of U.S. Bancorp
Piper Jaffray to communicate that to the third party.
On March 30, 1999, Mr. Galligan and a representative of Wilson Sonsini
Goodrich & Rosati traveled to Minneapolis, Minnesota to negotiate the final
terms of the alliance between Amira and Integ with management of Integ.
Integ's board of directors held a telephonic meeting on March 30, 1999 and
management updated the board on the status of negotiating the definitive
agreement on the terms of an alliance with Amira.
On April 1, 1999, the third party provided an offer to acquire Integ for
cash at a valuation that was higher than the March 25, 1999 offer. Integ's board
of directors held a telephonic meeting to discuss this offer. Representatives of
U.S. Bancorp Piper Jaffray briefed the directors as to their discussions with
the third party and representatives of Dorsey & Whitney discussed the
requirements of the no-shop agreement contained in the letter of intent with
Amira. The board concluded that the terms of the offer from the third party
constituted a superior proposal under the terms of the letter of intent. The
board also authorized Dr. Knudson and Mr. Momsen to advise Mr. Wilson of the
proposal and to negotiate with Mr. Wilson to determine whether Amira would
improve the terms of the proposed alliance. During a telephone call in the
evening of April 1, 1999, Mr. Wilson communicated that Amira would increase the
consideration offered in the event that Integ exercised the option to be
acquired by Amira.
On April 2, 1999, the Integ board of directors met, was updated by
management of Integ as to the status of discussions with Amira, heard
presentations by, and received an oral fairness opinion, later confirmed in
writing, from U.S. Bancorp Piper Jaffray, to the effect that, as of the date and
subject to limitations and assumptions set forth therein, the consideration
payable to holders of Integ common stock in the merger contemplated by the
proposed option agreement was fair, received a description by Dorsey & Whitney
of the terms of the strategic alliance and authorized the strategic alliance and
related matters. Later that evening, Integ and Amira entered into the alliance
and executed a development agreement and the option agreement.
On June 7, 2000 Mr. Zwanziger contacted Ms. Critzer to determine Integ's
interest in collaborating with Inverness. On June 13, 2000, Mr. Zwanziger,
Ms. Critzer and Robert S. Nickoloff, a director of Integ, met in Minneapolis,
Minnesota and discussed in general terms what types of collaboration that Integ
might be willing and able to entertain.
Ms. Critzer briefed the board of directors of Integ of the meeting with
Mr. Zwanziger at a meeting held on June 22, 2000. The board took no formal
action, but authorized Ms. Critzer, Dr. Knudson and Mr. Nickoloff to continue
discussions with Inverness.
On July 31, 2000, Mr. Zwanziger held a conference call with Ms. Critzer,
Dr. Knudson and Mr. Nickoloff to discuss tentative terms of an acquisition of
Integ. On August 7, 2000, Integ retained U.S. Bancorp Piper Jaffray to assist it
in connection with a possible acquisition by Inverness.
On August 30, 2000, representatives of Goodwin, Procter & Hoar LLP, counsel
to Inverness, traveled to Minneapolis, Minnesota and conducted a due diligence
review of Integ.
Throughout the month of September 2000, Ms. Critzer, Dr. Knudson and
Mr. Nickoloff had several conversations with Mr. Zwanziger concerning the
tentative terms of an acquisition. On September 8, 2000, Ms. Critzer updated the
board on the status of discussions with Inverness.
On September 14, 2000 Integ received an offer to be acquired by Inverness.
Integ's board of directors held a telephonic meeting on September 15, 2000 and
management of Integ updated the board as to the offer received from Inverness.
The board authorized management to negotiate final
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terms of the acquisition. The board also authorized management to provide notice
to Amira that Integ had received an offer to be acquired.
From September 14, 2000 through October 3, 2000, there were various
discussions between lawyers for each of the parties and management of Integ and
Inverness on various issues.
On October 3, 2000, the Integ board of directors met, was updated by
Ms. Critzer on the status of discussions, heard presentations by, and received
an oral fairness opinion from, U.S. Bancorp Piper Jaffray, which was later
confirmed in writing, to the effect that, as of that date and subject to the
limitations and assumptions therein set forth, the consideration proposed to be
paid to the holders of Integ common stock in the merger in accordance with the
merger agreement was fair to the common shareholders of Integ. The Integ board
also received a description by legal counsel of the terms of the transaction and
authorized the merger agreement and various other related documents and matters.
There were final negotiations on the specific terms of the definitive merger
agreement, which was signed later that evening.
REASONS FOR THE MERGER
The following discussion of the parties' reasons for the merger contains a
number of forward-looking statements that reflect the current views of Inverness
and Integ with respect to future events that may have an effect on their future
financial performance. Forward-looking statements are subject to risks and
uncertainties. Actual results and outcomes may differ materially from the
results and outcomes discussed in the forward-looking statements. Cautionary
statements that identify important factors that could cause or contribute to
differences in results and outcomes include those discussed or incorporated by
reference in the sections of this proxy statement and prospectus entitled
"Special Note Regarding Forward-Looking Statements" and "Risk Factors."
INVERNESS' REASONS FOR THE MERGER
In evaluating the proposed merger, the Inverness board of directors reviewed
presentations from management and advisors, including its transaction advisor,
Covington & Associates, and considered the following information and factors:
- The Inverness board of directors believes that the merger will accelerate
revenue and earnings growth in the future through the acquisition of the
technology contained within Integ's LIFEGuide-TM- System of glucose
measurement.
- Inverness is anticipating continuing the development and commercialization
of Integ's proprietary interstitial fluid sampling technology, which
allows people with diabetes to measure their glucose levels without the
need to lance a finger or deal with blood.
- The merger will permit Inverness to increase its focus in the diabetes
self-test and professional diagnostic product market, including the
expansion of its related product pipeline, while still maintaining its
existing presence in women's health and infectious disease self-test and
professional diagnostic markets.
- Inverness expects to realize synergies through the acquisition of Integ's
existing and in-process intellectual property and the elimination of
redundancies.
The Inverness board of directors weighed these advantages against potential
risks of the merger, including the rights of Amira Medical in certain of Integ's
intellectual property, including certain exclusive rights with respect to
jointly developed technology. These risks are discussed in the section of this
proxy statement and prospectus entitled "Risk Factors--Risks Relating to the
Merger."
The foregoing discussion of information and factors considered by the
Inverness board of directors is not intended to be exhaustive but is believed to
include all material factors considered by the
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Inverness board of directors. In view of the wide variety of factors considered
by the Inverness board of directors, the Inverness board of directors did not
find it practicable to quantify or otherwise assign relative weight to the
specific factors considered. In addition, the Inverness board did not reach any
specific conclusion on each factor considered, or any aspect of any particular
factor, but conducted an overall analysis of these factors. Individual members
of the Inverness board may have given different weight to different factors.
However, after taking into account all of the factors set forth above, the
Inverness board of directors unanimously agreed that the merger agreement and
the merger were fair to, and in the best long-term interests of, Inverness and
its stockholders and that Inverness should proceed with the merger.
INTEG'S REASONS FOR THE MERGER
Integ's board of directors consulted with senior management and Integ's
financial and legal advisors and considered a number of factors, including those
set forth below, in reaching its decision to approve the merger agreement and
the transactions contemplated by the merger agreement, and to recommend that
Integ's shareholders vote "FOR" approval of the merger agreement.
BACKGROUND. Integ's board of directors was knowledgeable in the progress
that Integ had made in the last few year towards development of its product,
including development progress made in connection with the development and
license agreement with Amira Medical. The board of directors was also
knowledgeable with regard to the additional pre-clinical research recently
conducted by Integ at Amira's request, and was aware of the progress made by
other potential competitors in introducing products that utilized painless
glucose testing. As described under "--Background of the Merger," Integ's board
of directors held numerous meetings during the year preceding approval of the
merger to understand and monitor the progress Integ was making towards
development of an alternative painless glucose testing product under its
agreement with Amira and the progress its potential competitors were making.
MERGER CONSIDERATION. In addition to the analysis and presentations by
Integ's financial advisor referred to in "Fairness Opinion of Integ's Financial
Advisor" below, the board of directors looked at the premium represented by the
merger consideration, based upon a contemporaneous five day average share price
of $18.01 of Inverness common stock compared to recent trading prices of Integ
common stock of $2.75 on September 29, 2000, a 22.9% premium, $2.50 on
September 25, 2000, a 35.2% premium, and $1.44 on September 1, 2000, a 134.7%
premium. Integ's board of directors also considered the ability of Integ
shareholders to continue to participate in the growth of the combined company
since the consideration to be received by Integ's shareholders consists of
shares of common stock of Inverness.
ALLIANCE WITH AMIRA. Integ's board of directors further considered the
aggregate merger consideration of $20,000,000 and 2,000,000 shares of Amira
common stock available to Integ shareholders pursuant to the option to merge
with a subsidiary of Amira granted under its alliance with Amira. The board
noted that Integ would not be able to exercise this option until the earlier to
occur of:
- an initial public offering of Amira,
- a sale of Amira to a third party, or
- April 2, 2002.
Integ's board considered the likelihood of an initial public offering by Amira
or a sale of Amira to a third party within the near term. The board also noted
that the 2,000,000 shares of Amira common stock that Integ shareholders would
receive were not subject to anti-dilution protection and that the percentage
ownership of Amira that the 2,000,000 shares represented was diluted by a
private financing
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round recently completed by Amira. The board also was aware that if Amira is
recapitalized through the subdivision of, combination of, or a stock dividend
on, its outstanding common stock, the 2,000,000 shares would be adjusted in the
same proportion. Integ's board of directors considered that any transaction with
Amira would be a taxable transaction to Integ's shareholders while the merger
with Inverness would be a tax-free transaction. Integ's board of directors also
considered the immediate liquidity that would be available to Integ's
shareholders under the terms proposed by Inverness.
ADVICE FROM INTEG'S FINANCIAL ADVISOR. Integ's board of directors
considered the detailed presentations made by U.S. Bancorp Piper Jaffray,
Integ's financial advisor, with respect to the proposed consideration offered to
the holders of Integ common stock in the merger. The board also considered U.S.
Bancorp Piper Jaffray's oral opinion, which was subsequently confirmed in
writing, concluding, as of the date of its opinion, that the merger
consideration to be received by the holders of Integ common stock was fair, from
a financial point of view, to the holders of Integ common stock. The full text
of this opinion is attached to this proxy statement and prospectus as Annex B.
REVIEW OF PROSPECTS IN REMAINING INDEPENDENT. Integ's board of directors
considered Integ's financial condition, results of operations and business and
earnings prospects if it were to remain an independent entity in light of
Integ's available cash and the amount of cash necessary to develop and launch a
commercially viable product.
EFFECT ON EMPLOYEES AND FACILITY. The board of directors of Integ
considered the possible effect of the merger on the current facility and
employees and compared this to the corresponding risks associated with continued
dependence on funding from Amira Medical.
CERTAIN TERMS OF THE MERGER AGREEMENT RELATING TO ALTERNATIVE
TRANSACTIONS. In evaluating the adequacy of the consideration to be received,
the board of directors determined that the merger agreement did not preclude a
third party offer for Integ. In particular, in connection with a proposal more
favorable from a financial point of view than the merger, the merger agreement
permits the board of directors to, if and to the extent required by its
fiduciary duties:
- provide information to, and engage in discussions or negotiations with, a
third party that makes an unsolicited proposal; and
- withdraw its recommendation that the shareholders vote in favor of
adopting the merger agreement.
Integ's board of directors also considered that the merger agreement:
- permits Inverness to terminate the merger agreement if the board of
directors withdraws its recommendation in favor of the merger with
Inverness or recommends a superior proposal; and
- requires Integ to pay a termination fee to Inverness if the merger
agreement is terminated under some circumstances.
The board of directors noted that the termination payment provisions of the
merger agreement could have the effect of discouraging alternative proposals for
a business combination between Integ and a third party. However, the board of
directors concluded that the amount of the fee that Integ may be obligated to
pay and the circumstances under which it may be payable, are typical for
transactions of this size and type, are not likely to discourage any such
proposals and were necessary to ensure that Inverness would sign the merger
agreement.
LIMITED CLOSING CONDITIONS. The board of directors considered the limited
nature of the closing conditions included in the merger agreement, including
regulatory consents, and the likelihood that the merger agreement would be
approved by Integ's shareholders.
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The foregoing discussion of the information and factors considered by
Integ's board of directors, while not exhaustive, includes the material factors
considered by the board of directors. In view of the variety of factors
considered in connection with its evaluation of the merger, Integ's board of
directors did not find it practicable to, and did not, quantify or otherwise
assign relative or specific weight or values to any of these factors, and
individual directors may have given different weights to different factors.
RECOMMENDATION OF INTEG'S BOARD OF DIRECTORS
After careful consideration, Integ's board of directors has unanimously
determined that the merger agreement is advisable and in the best interests of
Integ and its shareholders, has unanimously determined that the merger is fair
to, and in the best interests of, the shareholders of Integ, has unanimously
approved the merger agreement, and UNANIMOUSLY RECOMMENDS THAT INTEG
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT.
FAIRNESS OPINION OF INTEG'S FINANCIAL ADVISOR
Integ retained U.S. Bancorp Piper Jaffray to act as its financial advisor
and to render to the board of directors an opinion as to the fairness, from a
financial point of view, of the consideration to be received by Integ common
shareholders in the merger.
U.S. Bancorp Piper Jaffray delivered to the board of directors of Integ on
October 3, 2000 its oral opinion, subsequently confirmed in writing, as of that
date and based upon and subject to the assumptions, factors and limitations set
forth in the written opinion and described below, the consideration proposed to
be received by Integ common shareholders in the proposed merger was fair, from a
financial point of view, to those shareholders. A copy of U.S. Bancorp Piper
Jaffray's written opinion is attached to this proxy statement and prospectus as
Annex B and is incorporated into this proxy statement and prospectus by
reference.
While U.S. Bancorp Piper Jaffray rendered its opinion, provided certain
analyses to the board of directors and participated in negotiations with
Inverness, U.S. Bancorp Piper Jaffray was not requested to and did not make any
recommendation to the board of directors as to the specific form or amount of
the consideration to be received by Integ shareholders in the proposed merger,
which was determined by Integ and Inverness. U.S. Bancorp Piper Jaffray's
written opinion, which was directed to the board of directors, addresses only
the fairness, from a financial point of view, of the proposed consideration to
be received by Integ common shareholders in the proposed merger, does not
address Integ's underlying business decision to participate in the merger and
does not constitute a recommendation to any Integ shareholder as to how a
shareholder should vote with respect to the merger.
In arriving at its opinion, U.S. Bancorp Piper Jaffray reviewed:
- a draft of the merger agreement dated October 1, 2000,
- publicly available financial, operating and business information related
to Inverness and Integ,
- publicly available market and securities data of Inverness and Integ,
- analyst reports relating to Inverness and Integ,
- forecast financial information of Integ and Inverness as a combined
company furnished by Integ and Inverness management, and
- the Development and License Agreement and the Option Agreement with Amira
Medical and other information concerning Amira Medical more fully
described below.
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In addition, U.S. Bancorp Piper Jaffray visited facilities of Integ and
Inverness and conducted discussions with members of senior management of both
Inverness and Integ concerning the financial condition, current operating
results and business outlook of Inverness, Integ and the combined company
following the merger.
In delivering its opinion to the board of directors of Integ, U.S. Bancorp
Piper Jaffray presented various analyses and other information material to its
opinion. The following is a summary of this presentation:
IMPLIED CONSIDERATION
Giving effect to the proposed conversion ratio and the current trading price
of Inverness common stock at the close of trading on October 3, 2000 of $18.88,
U.S. Bancorp Piper Jaffray calculated an implied consideration per share of
Integ common stock of $3.52 and an aggregate implied consideration for the
common equity of Integ of approximately $38.0 million.
INTEG STOCK TRADING ANALYSIS
U.S. Bancorp Piper Jaffray reviewed the stock trading history of Integ. U.S.
Bancorp Piper Jaffray presented the recent common stock trading information
contained in the following table:
<TABLE>
<S> <C>
Closing price on October 3, 2000............................ $2.38
30 calendar day closing average............................. 2.29
60 calendar day closing average............................. 1.83
90 calendar day closing average............................. 1.72
52 week high trade.......................................... 5.25
52 week low trade........................................... 1.25
</TABLE>
U.S. Bancorp Piper Jaffray also presented graphs illustrating daily stock
price and volume performance of Integ over the prior year.
ANALYSIS OF OPTION AGREEMENT
U.S. Bancorp Piper Jaffray advised the Integ board of directors of certain
factors relating to Integ and the proposed merger, which affected its review and
analyses in certain material respects. As a development stage company, Integ has
no historical operating results upon which to base a valuation analysis as a
going concern. Nor was U.S. Bancorp Piper Jaffray furnished any forecasts of
Integ future operating results, nor, in light of recent developments involving
its joint development activity with Amira Medical and Integ's current financial
and operating condition, could such a forecast be reasonably prepared for Integ
on a stand alone, going concern basis. Further, U.S. Bancorp Piper Jaffray was
not furnished, nor requested to perform, any appraisals or valuations of
specific assets or liabilities of Integ, including its technology portfolio.
In view of the foregoing, U.S. Bancorp Piper Jaffray, with the concurrence
of the Integ board of directors, concluded the principal source of Integ
shareholder value against which the fairness of the proposed merger
consideration could be reasonably evaluated was the implied value of the
consideration payable to Integ shareholders in a possible merger with Amira
Medical in accordance with the Option Agreement with Amira Medical. Amira
Medical is a privately held company. Amira Medical does not provide its
historical or forecast results of operations to the public, nor, since the
execution of the Option Agreement, has such information been provided by Amira
Medical to Integ or U.S. Bancorp Piper Jaffray. Integ management assisted U.S.
Bancorp Piper Jaffray in developing an estimated forecast for Amira Medical for
the calendar year ending 2004 for use in evaluating the implied value of Integ
arising out of a possible Amira Merger. U.S. Bancorp Piper Jaffray developed
assumptions regarding the possible timing of an initial public offering of Amira
Medical common stock.
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Using this information, U.S. Bancorp Piper Jaffray presented several
analyses from which it calculated a range of possible implied values for the
equity interest in Amira Medical payable to Integ shareholders pursuant to a
possible merger with Amira Medical in accordance with the Option Agreement.
These analyses included an initial public offering valuation, a discounted cash
flow valuation, a discounted future equity valuation and recent third party
financing valuation.
- INITIAL PUBLIC OFFERING VALUATION. Based on recent medical company initial
public offering activity, U.S. Bancorp Piper Jaffray calculated an
estimated post-initial public offering value for Amira Medical of
$300 million, of which it estimated Integ shareholders would own 4.8%.
Applying a discount rate in order to present value from an assumed initial
public offering date the value of this Integ shareholder interest and a
further discount factor to account for the illiquidity of this interest on
a present value basis, U.S. Bancorp Piper Jaffray calculated an estimated
value for this interest of $10.457 million.
- DISCOUNTED CASH FLOW VALUATION. Based on a discount rate of 35.0% and
using a terminal value multiple of 13.0x projected calendar 2004 operating
income, U.S. Bancorp Piper Jaffray calculated a discounted cash flow value
of Amira Medical of $14.183 million. Giving effect to the estimated
hypothetical 4.8% interest of Integ shareholders in Amira Medical and an
illiquidity and control discount to account for the illiquidity of this
interest on a present value basis and minority interest of these
shareholders, U.S. Bancorp Piper Jaffray calculated an estimated value for
this interest of $9.219 million.
- DISCOUNTED FUTURE EQUITY VALUATION. U.S. Bancorp Piper Jaffray calculated
an implied future stock price at December 31, 2001 for Amira Medical
common stock based on projected fiscal year 2002 earnings and an estimated
multiple of earnings. Applying an estimated 5.7% pre-initial public
offering ownership stake in Amira Medical for Integ shareholders, present
valuing that interest and adjusting for assumed illiquidity on a present
value basis, U.S. Bancorp Piper Jaffray calculated an estimated value for
this interest of $11.650 million.
- RECENT FINANCING. U.S. Bancorp Piper Jaffray was also aware that Amira
Medical had recently completed a private round of preferred stock
financing. Based on the estimated pricing of this round and the shares
issued, U.S. Bancorp Piper Jaffray calculated an estimated value for the
interest of Integ shareholders of $11.3 million.
Adding these values together with the estimated present value of the cash
component of a possible Amira Merger, or $15.749 million, U.S. Bancorp Piper
Jaffray indicated a range of implied values for the equity of Integ based on the
Option Agreement as follows: high, $27.355 million; low, $24.968 million; and
mean, $26.395 million. These values were compared to the implied value of
$38.0 million payable in the merger with Inverness.
PREMIUMS PAID ANALYSIS
U.S. Bancorp Piper Jaffray reviewed publicly available information for a
group of selected pending or completed acquisition transactions since
January 1, 1997 involving medical technology companies and a change of control.
The table below shows a comparison of the premiums (discounts) paid in these
transactions to the premium that would be paid to Integ common shareholders
based on the implied value payable in the
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merger. The premium calculations for Integ common stock are based upon an
assumed announcement date of October 3, 2000.
<TABLE>
<CAPTION>
IMPLIED PREMIUM (DISCOUNT)
-------------------------------------------------------
INTEG COMPARABLE TRANSACTIONS
-------- --------------------------------------------
LOW MEAN MEDIAN HIGH
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
One day before announcement.............. 48.2%
One week before announcement............. 57.5% (7.7)% 38.8% 37.0% 150.9%
Four weeks before announcement........... 120.9% (9.3)% 52.5% 50.1% 130.0%
</TABLE>
ANALYSIS OF INVERNESS COMMON STOCK
U.S. Bancorp Piper Jaffray reviewed general background information
concerning Inverness. U.S. Bancorp Piper Jaffray presented publicly available
analyst estimates and ratings of Inverness common stock, recent financial and
operating results and outlook, and the stock price and volume over selected
periods. U.S. Bancorp Piper Jaffray also reviewed the stock trading history of
Inverness common stock at the dates or for the periods indicated below.
<TABLE>
<S> <C>
Closing price on October 3, 2000............................ $18.88
5 trading day closing average............................... 18.38
30 calendar day closing average............................. 18.91
60 calendar day closing average............................. 17.59
52 week high trade.......................................... 21.38
52 week low trade........................................... 2.56
</TABLE>
In addition, U.S. Bancorp Piper Jaffray illustrated the relative stock price
performance of Inverness against various market indices.
In reaching its conclusion as to the fairness of the merger consideration
and in its presentation to the board of directors, U.S. Bancorp Piper Jaffray
did not rely on any single analysis or factor described above, assign relative
weights to the analyses or factors considered by it, or make any conclusion as
to how the results of any given analysis, taken alone, supported its opinion.
The preparation of a fairness opinion is a complex process and not necessarily
susceptible to partial analysis or summary description. U.S. Bancorp Piper
Jaffray believes that its analyses must be considered as a whole and that
selection of portions of its analyses and of the factors considered by it,
without considering all of the factors and analyses, would create a misleading
view of the processes underlying the opinion.
The analyses of U.S. Bancorp Piper Jaffray are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by the analyses. Analyses relating to the value of
companies do not purport to be appraisals or valuations or necessarily reflect
the price at which companies may actually be sold. No company or transaction
used in any analysis for purposes of comparison is identical. Accordingly, an
analysis of the results of the comparisons is not mathematical; rather, it
involves complex considerations and judgments about differences in the companies
and transactions compared and other factors that could affect the public trading
or transactional value of the companies. Other than one party that it was
authorized to contact and did contact, U.S. Bancorp Piper Jaffray was not
authorized to solicit, and did not solicit, other purchasers of Integ or
alternative transactions to the merger with Inverness. Pursuant to its
engagement in late 1998 and early 1999, which resulted in the Amira Medical
agreements, U.S. Bancorp Piper Jaffray was active on behalf of Integ in
soliciting interest for a possible strategic or other combination with Integ as
described above under "Background of the Merger."
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For purposes of its opinion, U.S. Bancorp Piper Jaffray relied upon and
assumed the accuracy, completeness and fairness of the financial statements and
other information provided to it by Integ and Inverness or otherwise made
available to it and did not assume responsibility for the independent
verification of that information. Information prepared for financial planning
purposes was not prepared with the expectation of public disclosure. U.S.
Bancorp Piper Jaffray relied upon the assurances of management of Integ that the
information provided to it by Integ and Inverness, including, without
limitation, information furnished by Integ concerning Amira Medical, was
prepared on a reasonable basis, the financial planning data and other business
outlook information reflects the best currently available estimates of
management, and management was not aware of any information or facts that would
make the information provided to U.S. Bancorp Piper Jaffray incomplete or
misleading.
For purposes of its opinion, U.S. Bancorp Piper Jaffray assumed that the
merger will constitute a reorganization for federal income tax purposes and will
be treated as a purchase for accounting purposes. U.S. Bancorp Piper Jaffray
also assumed that, in the course of obtaining the necessary regulatory approvals
and consents for the merger, no restrictions will be imposed that have a
material adverse effect on the contemplated benefits of the merger to Integ and
its common shareholders.
U.S. Bancorp Piper Jaffray assumed the Option Agreement remained in full
force and effect, without amendment, and was enforceable by the parties thereto
in accordance with its terms. The opinion of U.S. Bancorp Piper Jaffray
addressed solely the fairness of the stock consideration to be paid to holders
of Integ common stock in the merger and did not address any other term or
agreement relating to the merger. Without limiting the generality of the
foregoing, U.S. Bancorp Piper Jaffray made no evaluation of the terms pursuant
to which outstanding shares of Series B preferred stock would be redeemed or
pursuant to which Inverness would extend financing to Integ in accordance with
the loan agreement.
In arriving at its opinion, U.S. Bancorp Piper Jaffray did not perform any
appraisals or valuations of any specific assets or liabilities of Integ or
Inverness, and was not furnished with any such appraisals or valuations. U.S.
Bancorp Piper Jaffray analyzed Integ as a going concern and accordingly
expressed no opinion as to its liquidation value. U.S. Bancorp Piper Jaffray
expressed no opinion as to the price at which shares of Integ or Inverness
common stock have traded or at which the shares of Integ, Inverness or the
combined company may trade at any future time. The opinion is based on
information available to U.S. Bancorp Piper Jaffray and the facts and
circumstances as they existed and were subject to evaluation on the date of the
opinion. Events occurring after that date could materially affect the
assumptions used in preparing the opinion. U.S. Bancorp Piper Jaffray has not
undertaken to and is not obligated to affirm or revise its opinion or otherwise
comment on any events occurring after the date it was given.
U.S. Bancorp Piper Jaffray, as a customary part of its investment banking
business, evaluates businesses and their securities in connection with mergers
and acquisitions, underwritings and secondary distributions of securities,
private placements and valuations for estate, corporate and other purposes. The
Board of Directors selected U.S. Bancorp Piper Jaffray because of its expertise,
reputation and familiarity with the medical technology industry in general and
with Integ in particular. U.S. Bancorp Piper Jaffray maintains a market in and
provides research coverage on the common stock of Integ. In the ordinary course
of its business, U.S. Bancorp Piper Jaffray and its affiliates may actively
trade securities of Integ for their own accounts or the accounts of their
customers and, accordingly, may at any time hold a long or short position in
those securities. U.S. Bancorp Piper Jaffray has provided investment banking
services to Integ in the past for which it received customary fees.
Under the terms of the engagement letter dated August 7, 2000, Integ has
agreed to pay U.S. Bancorp Piper Jaffray a fee equal to $750,000 upon
consummation of the merger for its financial advisory services, and $400,000 for
rendering its opinion, which will be credited against payment of the fee for
financial advisory services. The contingent nature of the financial advisory fee
may have created
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a potential conflict of interest in that Integ would be unlikely to consummate
the merger unless it had received the opinion of U.S. Bancorp Piper Jaffray.
Whether or not the transaction is consummated, Integ has agreed to pay the
reasonable out-of-pocket expenses of U.S. Bancorp Piper Jaffray and to indemnify
U.S. Bancorp Piper Jaffray against liabilities incurred. These liabilities
include liabilities under the federal securities laws in connection with the
engagement of U.S. Bancorp Piper Jaffray by the board of directors.
INTERESTS OF INTEG'S DIRECTORS AND OFFICERS IN THE MERGER
When you are considering the recommendation of Integ's board of directors
with respect to approving the merger, you should be aware that the directors and
officers of Integ have interests in the merger and participate in arrangements
that are different from, or are in addition to, those of Integ shareholders
generally. The Integ board was aware of these interests and considered them,
among other matters, when they approved the merger agreement. These interests
include the following:
ACCELERATED VESTING OF OPTIONS
All outstanding options to purchase Integ stock that are unvested as of the
date of the merger will accelerate and become fully vested and exercisable
immediately prior to the closing of the merger. The number and shares of Integ
common stock covered by unvested options held by directors and executive
officers as of October 3, 2000 was 406,724 shares. Pursuant to the terms of the
merger agreement, all options to purchase Integ common stock will be assumed by
Inverness in the merger and converted into options to purchase Inverness common
stock. For further discussion about the treatment of Integ options in the
merger, see the section of this proxy statement and prospectus entitled "The
Merger Agreement--Integ Stock Options and Warrants" on page 46.
CHANGE OF CONTROL/SEVERANCE AGREEMENTS
Susan L. Critzer, a director and chief executive officer of Integ, and
Richard F. Mussmann, chief technology officer of Integ, have employment
agreements that provide for certain benefits if they are terminated by Inverness
without cause or if they terminate their employment for good reason following a
change of control. The merger with Inverness will constitute a change of
control. Upon such termination, each of Ms. Critzer and Mr. Mussmann are
entitled to receive a cash payment equal to 12 times her or his average monthly
salary as in effect in the month prior to the change of control, which amount
includes salary and bonus pro rated for that period.
REIMBURSEMENT FOR EXCISE TAXES
Payments or other benefits, including the acceleration of the exercisability
of options, may be compensatory payments that are contingent on a change of
control and when made to certain defined individuals will be parachute payments
within the meaning of section 280G of the Internal Revenue Code. Section 280G
provides that if parachute payments to an employee equal or exceed three times
the employee's "base amount," the average annual compensation over the five
taxable years preceding the taxable year in which the change of control occurs,
the excess of the parachute payment over the employee's base amount will not be
deductible by Integ and will be subject to an excise tax payable by the
employee.
The value of the acceleration of vesting under Integ's stock option plans
may result in excess parachute payments to some Integ employees under
section 280G of the Internal Revenue Code. Integ's board of directors has
adopted a resolution that will provide for payments to these employees in an
amount that, after deducting all federal, state and local taxes, will equal the
excise tax payable by the employees. The purpose of these resolutions is to
assure that employees retain the economic value of the stock options granted by
Integ.
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INDEMNIFICATION
Integ officers and directors are entitled to continuing indemnification
against some liabilities by virtue of provisions contained in Integ's articles
of incorporation and the merger agreement. The merger agreement provides for the
maintenance of directors' and officers' insurance for a period of not less than
six years after the effective time of the merger. For more information on the
extent of the indemnification, see the section of this proxy statement and
prospectus on page 53 entitled "The Merger Agreement--Officers and Directors
Indemnification."
WARRANTS
At the effective time of the merger, Inverness will assume all outstanding
warrants to purchase shares of Integ common stock. This amount includes warrants
to purchase 87,845 shares of Integ stock at $4.13 per share held by affiliates
of an Integ director. See the section of the proxy statement and prospectus
entitled "The Merger Agreement--Integ Stock Options and Warrants" on page 46 for
further discussion about the treatment of Integ warrants in the merger.
PURCHASE OF INTEG SERIES B PREFERRED STOCK
On February 15, 2000, Integ entered into a financing arrangement with Amira
Medical pursuant to which Integ borrows money from Amira and in exchange issues
to Amira a number of shares of Integ Series B preferred stock that is determined
by dividing the amount borrowed by the closing price of Integ's common stock on
the day of the borrowing. The maximum number of shares of Series B preferred
stock that may be issued pursuant to this arrangement is 3,000,000, and through
November 30, 2000, Integ had issued to Amira a total of 1,983,123 shares of
Series B preferred stock.
The charter documents of Integ relating to the Series B preferred stock
provide that if there is a change of control of Integ, which will occur as a
result of the merger, the Series B preferred stock must be redeemed for either
cash or Integ common stock at a price equal to the amount borrowed by Integ plus
a 10% premium. Integ intends to redeem the Series B preferred stock for cash. As
of November 30, 2000, the 1,983,123 shares of Series B preferred stock
outstanding would be required to be redeemed for a total price of $4,977,266.87.
Under the terms of the merger agreement, Inverness has agreed to fund the
redemption for cash of all outstanding shares of the Series B preferred stock.
The financing arrangement obligates Amira to continue to provide funding to
Integ to pay expenses incurred in accordance with Integ's Year 2000 budget. If
Amira defaults in its funding obligations before the effective time of the
merger, then Integ is entitled to redeem the outstanding shares of Series B
preferred stock for $0.01 per share.
EFFECT OF MERGER ON INTEG INTELLECTUAL PROPERTY
The consummation of the merger will trigger certain significant provisions
set forth in the development and license agreement that Integ entered into with
Amira Medical in April 1999. This agreement provides for the joint development
of a new generation of home glucose monitoring tests that would combine Integ's
proprietary interstitial fluid sampling technology with Amira's glucose
measurement technologies. In addition, the agreement addresses the rights of the
parties with respect to each party's intellectual property in the event one of
the parties merges with another party. The agreement provides that if Integ
merges with a third party, such as Inverness, then upon the closing of the
merger, Integ automatically will grant to Amira an exclusive, perpetual,
non-terminable and transferable license to all Integ intellectual property
relating to glucose monitoring using interstitial fluid developed after
April 2, 1999 and through the date of the closing of the merger and a
co-exclusive, perpetual, non-terminable and transferable license to all Integ
intellectual property relating to glucose monitoring using interstitial fluid,
other than its infrared technology, in existence as of April 2, 1999. Upon the
closing of the merger, the development and license agreement will be
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terminated. These provisions mean that, at the closing of the merger, Inverness
will receive no rights to any Integ intellectual property relating to glucose
monitoring using interstitial fluid developed after April 2, 1999. In addition,
with respect to all Integ intellectual property relating to glucose monitoring
using interstitial fluid developed up to and through April 2, 1999, including
all patents owned and patent applications pending, Inverness, as the successor
to Integ, will receive a co-exclusive license with Amira.
Inverness does not expect that the agreement with Amira, and the
consequences of the merger pursuant to the agreement, will affect Inverness'
plans to use the Integ intellectual property in the future because Inverness
intends to utilize only the Integ intellectual property that was in existence or
pending as of April 2, 1999. This intellectual property includes Integ's patents
relating to the LIFEGuide-TM- System and Integ's proprietary interstitial fluid
sampling.
POST-CLOSING CAPITALIZATION
Following the merger, Inverness will have approximately 31,018,700 shares of
common stock outstanding. Stockholders of Inverness before the merger will own
approximately 93.9% of the total shares outstanding after the merger and Integ's
current shareholders will own approximately 6.1%.
All of the percentages calculated above do not take into account the
exercise of any outstanding stock options or warrants that would result in the
issuance of additional common equity of Integ or Inverness.
ACCOUNTING TREATMENT
Inverness will account for the acquisition of Integ as an asset acquisition.
Under this method of accounting, the assets and liabilities of Integ, including
intangible assets, will be recorded at their fair values. The results of
operations and cash flows of Integ will be included in Inverness' financial
statements following the completion of the merger. Inverness expects that it
will allocate a substantial portion of the purchase price to Integ's in-process
research and development which, under generally accepted accounting principles,
will be expensed by Inverness immediately following completion of the merger.
The remainder of the purchase price will be amortized over a 10 year period.
DISSENTERS' APPRAISAL RIGHTS
Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act
provide each shareholder of Integ the right to dissent from the merger and
obtain payment for the "fair value" of the shareholder's shares following the
consummation of the merger.
The following summary of the applicable provisions of sections 302A.471 and
302A.473 of Minnesota law does not purport to be a complete statement of the
provisions and is qualified in its entirety by reference to the full texts of
these sections attached as Appendix C to this proxy statement and prospectus.
Any shareholder who wishes to exercise dissenters' appraisal rights, or who
wishes to preserve the right to do so, should review these sections carefully
because failure to comply with the procedures set forth in the sections will
result in the loss of dissenters' appraisal rights.
Under Minnesota law, shareholders of Integ have the right, by fully
complying with the applicable provisions of sections 302A.471 and 302A.473, to
dissent with respect to the merger and to receive from Integ payment in cash of
the "fair value" of their shares after the merger is completed. The term "fair
value" means the value of the shares immediately before the effective date of
the merger without any appreciation or depreciation in anticipation of the
merger.
All references in sections 302A.471 and 302A.473 and in this summary to a
"shareholder" are to a record holder of the shares as to which dissenters'
appraisal rights are asserted. A record holder is a shareholder who held Integ
common stock at the close of business on December 13, 2000. A person
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having beneficial ownership of shares that are held of record in the name of
another person, such as a broker, nominee, trustee or custodian, must act
promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner in order to prefect any dissenters' appraisal
rights the beneficial owner may have.
Shareholders of record who desire to exercise their dissenters' appraisal
rights must satisfy all of the following conditions. A written notice of intent
to demand fair value for shares must be mailed or delivered to the executive
offices of Integ before the shareholder vote is taken to approve the merger
agreement. This written demand must be in addition to and separate from any
proxy or vote against approval of the merger agreement. Voting against,
abstaining from voting or failing to vote to approve the merger agreement does
not constitute a demand for appraisal within the meaning of Minnesota law.
Shareholders electing to exercise their dissenters' appraisal rights under
Minnesota law must not vote for approval of the merger agreement. A
shareholder's failure to vote against approval of the merger agreement will not
constitute a waiver of dissenters' appraisal rights. However, if a shareholder
returns a signed proxy but does not specify a vote against approval of the
merger agreement or direction to abstain, the proxy will be voted for approval
of the merger agreement, and the shareholder's dissenters' appraisal rights will
be waived.
A shareholder must assert dissenters' appraisal rights with respect to all
of the shares registered in the holder's name except where certain shares are
beneficially owned by another person but registered in the holder's name. If a
record owner, such as a broker, nominee, trustee or custodian, wishes to dissent
with respect to shares beneficially owned by another person, the shareholder
must dissent with respect to all of the shares and must disclose the name and
address of the beneficial owner on whose behalf the dissent is made. A
beneficial owner of those shares who is not the record owner of such shares may
assert dissenters' appraisal rights as to shares held on that person's behalf,
provided that the beneficial owner submits a written consent of the record owner
to Integ at or before the time the dissenters' appraisal rights are asserted.
A shareholder who elects to exercise dissenters' appraisal rights must mail
or deliver a written demand, before the vote is taken on approval of the merger
agreement, to the Chief Financial Officer of Integ at 2800 Patton Road, St.
Paul, Minnesota 55113. The written demand should specify the shareholder's name
and mailing address, the number of shares owned and that the shareholder intends
to demand the fair value of its, his or her shares.
After approval of the merger agreement by the shareholders at the special
meeting, Integ will send a written notice to each shareholder who delivered a
written demand for dissenters' appraisal rights. The notice will contain the
address to which the shareholder must send a demand for payment and the stock
certificates in order to obtain payment and the date by which they must be
received and other related information.
In order to receive fair value for a dissenting shareholder's shares, the
shareholder must, within 30 days after the date Integ gives the notice described
in the preceding paragraph, demand payment and send the stock certificates, and
all other information specified in the notice from Integ, to the address
specified in the notice. A dissenting shareholder will retain all rights as a
shareholder until the effective date of the merger. After a valid demand for
payment and the related stock certificates and other information is received, or
after the effective date of the merger, whichever is later, Integ will remit to
each dissenting shareholder who has complied with the statutory requirements the
amount that Integ estimates to be the fair value of the dissenting shareholder's
shares, with interest starting five days after the effective date of the merger
at a rate prescribed by statute. Integ will also send its closing balance sheet
and statement of income for the fiscal year ending no more than 16 months before
the effective date of the merger, together with the latest available interim
financial statement, an estimate of the fair value of the shareholder's shares
and a brief description of the method used to
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reach the estimate and a brief description of the procedure to be followed if
the dissenting shareholder decides to make a demand for a supplemental payment.
Copies of sections 302A.471 and 302A.473 of the Minnesota Business Corporation
Act are attached hereto as Annex C.
If the dissenting shareholder believes that the amount remitted by Integ is
less than the fair value of the holder's shares plus interest, the shareholder
may mail or deliver written notice to Integ of the holder's own estimate of the
fair value of the shares, plus interest, within 30 days after the mailing date
of the remittance and demand payment of the difference. This notice must be
delivered to the executive office of Integ at the address set forth above. A
shareholder who fails to give such written notice within this time period is
entitled only to the amount remitted by Integ.
Within 60 days after receipt of a demand for supplemental payment, Integ
must either pay the shareholder the amount demanded or agreed to by the
shareholder after discussion with Integ, or petition a court for the
determination of the fair value of the shares, plus interest. The petition must
name as parties all shareholders who have demanded supplemental payment and have
not reached an agreement with Integ. The court, after determining that the
shareholder or shareholders in question have complied with all the statutory
requirements, may use any valuation method or combination of methods it deems
appropriate to use, whether or not used by Integ or the dissenting shareholder,
and may appoint appraisers to recommend the amount of the fair value of the
shares. The court's determination will be binding on all shareholders who
properly exercised dissenters' appraisal rights and did not agree with Integ as
to the fair value of the shares. Dissenting shareholders are entitled to
judgment for the amount by which the court-determined fair value per share, plus
interest, exceeds the amount per share, plus interest, remitted to the
shareholders by Integ. The shareholders will not be liable to Integ for any
amounts paid by Integ that exceed the fair value of the shares as determined by
the court, plus interest. The costs and expenses of such a proceeding, including
the expenses and compensation of any appraisers, will be determined by the court
and assessed against Integ, except that the court may, in its discretion, assess
part or all of those costs and expenses against any shareholder whose action in
demanding supplemental payment is found to be arbitrary, vexatious or not in
good faith. The court may award fees and expenses to an attorney for the
dissenting shareholders out of the amount, if any, awarded to these
shareholders. Fees and expenses of experts or attorneys may also be assessed
against any person who acted arbitrarily, vexatiously or not in good faith in
bringing the proceeding.
Shareholders considering whether to exercise dissenters' appraisal rights
should bear in mind that the fair value of their shares determined under
sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act could
be more than, the same as or less than the consideration they would receive
pursuant to the merger agreement if they did not seek appraisal of their shares.
Cash received pursuant to the exercise of dissenters' appraisal rights may
be subject to federal or state income tax. ANY HOLDER WHO FAILS TO COMPLY FULLY
WITH THE STATUTORY PROCEDURE SUMMARIZED ABOVE WILL FORFEIT ALL RIGHTS OF DISSENT
AND INSTEAD EACH OUTSTANDING SHARE OF INTEG COMMON STOCK HELD BY THAT HOLDER
WILL BE CANCELED AND CONVERTED INTO THE RIGHT TO RECEIVE INVERNESS COMMON STOCK
UNDER THE TERMS OF THE MERGER AGREEMENT.
RESTRICTIONS ON RESALE OF INVERNESS COMMON STOCK BY AFFILIATES
The shares of Inverness common stock to be received by Integ shareholders in
the merger have been registered under the Securities Act and, except as
described in this paragraph, may be freely traded without restriction. The
shares of Inverness common stock to be issued in the merger and received by
persons who are considered to be "affiliates," as that term is used in Rule 145
under the Securities Act, of Integ before the merger may be resold by them only
in transactions permitted by the resale provisions of Rule 145 under the
Securities Act or as otherwise permitted under the Securities Act. Affiliates of
Integ for this purpose include individuals or entities that control, are
controlled by, or
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are under common control with, Integ and are expected to include the directors
and executive officers of Integ and holders of 10% or more of Integ common
stock. These affiliates or their brokers risk being characterized as
"underwriters" when they sell shares of Inverness stock received in the merger.
The United States securities laws require registration of shares sold by
underwriters. An affiliate and its broker can avoid being characterized as an
underwriter and, therefore, avoid the Securities Act registration requirements
by selling shares in compliance with Rule 145. This proxy statement and
prospectus does not cover resales of Inverness common stock received by any
person upon completion of the merger, and no person is authorized to make any
use of this proxy statement and prospectus in connection with any such resale.
DELISTING AND DEREGISTRATION OF INTEG COMMON STOCK FOLLOWING THE MERGER
If the merger is completed, shares of Integ's common stock will be delisted
from the Nasdaq National Market and will be deregistered under the Exchange Act.
LISTING OF INVERNESS COMMON STOCK TO BE ISSUED IN THE MERGER
The listing on the American Stock Exchange of the shares of Inverness common
stock to be issued in the merger is a condition to the closing of the merger.
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THE MERGER AGREEMENT
THE FOLLOWING IS A BRIEF SUMMARY OF THE SIGNIFICANT PROVISIONS OF THE MERGER
AGREEMENT BETWEEN INVERNESS AND INTEG. THIS SUMMARY IS NOT COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COPY OF THE MERGER AGREEMENT
ATTACHED TO AND INCORPORATED INTO THIS PROXY STATEMENT AND PROSPECTUS AS ANNEX
A. YOU SHOULD READ THE MERGER AGREEMENT CAREFULLY AND IN ITS ENTIRETY.
GENERAL
The merger agreement provides for a merger of Integ with and into Terrier
Acquisition Corp., a newly formed, wholly owned subsidiary of Inverness. The
surviving company will be Terrier, which will remain a wholly owned subsidiary
of Inverness.
MERGER CONSIDERATION
In the merger, each outstanding share of Integ common stock, par value $.01
per share, will be converted into the right to receive a fixed number of shares
of common stock of Inverness based on an exchange ratio calculated as follows:
<TABLE>
<S> <C> <C>
aggregate exercise
price of Integ stock
(average closing price of Inverness common stock X options and warrants
1,900,000) + options and warrants
---------------------------------------------------------------------------------
exchange ratio = average closing price of Inverness common stock
-------------------------------------------------------------------------------------
total number of shares of Integ common stock outstanding immediately prior
to the effective time of the merger + the total number of shares
issuable upon exercise of Integ stock options and warrants
</TABLE>
For the purpose of calculating the exchange ratio, the average closing price
for Inverness common stock will be computed by averaging the closing sale prices
of Inverness common stock on the American Stock Exchange for the five trading
days immediately preceding the effective time of the merger.
In general, the exchange ratio has been formulated to provide that an
aggregate number of 1,900,000 shares of Inverness common stock, net of exercise
amounts attributable to the options and warrants, will be issued to:
- existing holders of shares of Integ common stock;
- holders of options to purchase shares of Integ common stock; and
- holders of warrants to purchase shares of Integ common stock.
However, since many of the variables necessary to determine the exchange ratio
will not be determined until immediately prior to the effective time of the
merger, the precise exchange ratio will not be determined until immediately
prior to the effective time of the merger. The average closing sale price of
Inverness common stock for the five trading days prior to December 13, 2000, the
record date, was $34.0752 per share. Also, as of that date, there were 9,922,285
shares of Integ common stock outstanding, and options and warrants to purchase
2,147,421 shares of common stock with exercise prices per share ranging from
$0.81 to $7.60. Accordingly, if the effective time of the merger were the record
date, the exchange ratio would equal approximately .1734.
No fractional shares of Inverness common stock will be issued in connection
with the merger. Instead, you will receive an amount of cash, without interest
and rounded to the nearest cent, determined by multiplying the average closing
price of Inverness common stock by the fraction of a share of Inverness common
stock that you would have received if fractional shares were issuable. Any
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cash and any Inverness stock certificates remaining unclaimed for more than one
year will be delivered to Terrier.
The conversion of Integ common stock described in this section is not
applicable to shares held by Inverness or Terrier whose shares, if any, will be
canceled, or to dissenting Integ shareholders who effectively exercise their
dissenters' appraisal rights as described in this proxy statement and
prospectus.
INTEG STOCK OPTIONS AND WARRANTS
Each outstanding Integ stock option, whether vested or unvested, or warrant
to purchase shares of Integ common stock will be assumed by Inverness and become
an option or warrant, as applicable, to acquire a number of shares of Inverness
common stock equal to the number of shares of Integ common stock subject to the
option or warrant immediately prior to the effective time multiplied by the
exchange ratio used to determine the fraction of a share of Inverness common
stock to be received by Integ shareholders in connection with the merger,
rounded down to the nearest whole number of shares for options and rounded to
the nearest whole share for warrants. The new exercise price of the option or
warrant shall be adjusted to equal the exercise price of the option or warrant
divided by the exchange ratio used to determine the fraction of a share of
Inverness common stock to be received by Integ shareholders in connection with
the merger, rounded up to the nearest cent for options and rounded to the
nearest cent for warrants. By virtue of the merger, all Integ stock options
issued under Integ's 1990 Incentive and Stock Option Plan, 1991 Incentive and
Stock Option Plan, 1994 Long-Term Incentive and Stock Option Plan, as revised
and restated, and 1996 Directors' Stock Option Plan automatically will be deemed
vested and immediately exercisable.
Inverness will use its best efforts to register with the SEC the shares of
Inverness common stock to be received upon exercise of the assumed options
within 10 business days after the effective time of the merger.
EMPLOYEE STOCK PURCHASE PLAN
As of the date of approval of the merger agreement by Integ's shareholders,
Integ's 1997 Employee Stock Purchase Plan will be considered terminated. Each
participant will receive from Integ:
- the maximum number of whole shares of Integ common stock that the
participants' account will purchase, and
- cash in the amount of any remaining balance in the participant's account.
However, a participant may elect to receive the entire amount of his or her
credit balance in cash in accordance with the terms of the employee stock
purchase plan.
EFFECTIVE TIME OF THE MERGER
The merger will be completed upon the filing of the articles of merger with
the Secretary of the State of Minnesota and the filing of the certificate of
merger with the Secretary of State of the State of Delaware. Integ and Inverness
believe these filings will occur at the same time as the closing, which, unless
the parties otherwise agree, will occur on the second business day immediately
following the day on which the last of the conditions to closing are fulfilled
or waived.
EXCHANGE OF INTEG STOCK CERTIFICATES FOR INVERNESS STOCK CERTIFICATES
Promptly after the effective time of the merger, Boston EquiServe,
Inverness' transfer agent and exchange agent for the merger, will mail to you a
letter of transmittal and instructions for use in surrendering your Integ stock
certificates in exchange for Inverness stock certificates. When you deliver your
Integ stock certificates to the exchange agent along with a properly executed
letter of transmittal
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and any other required documents, your Integ stock certificates will be
cancelled and you will receive Inverness stock certificates representing the
number of full shares of Inverness common stock, and cash in lieu of fractional
shares, to which you are entitled under the merger agreement. YOU SHOULD NOT
SUBMIT YOUR STOCK CERTIFICATES FOR EXCHANGE UNTIL YOU HAVE RECEIVED THE LETTER
OF TRANSMITTAL AND INSTRUCTIONS REFERRED TO ABOVE.
You are not entitled to receive any dividends or other distributions on
Inverness common stock with a record date after the merger is completed until
you have surrendered your Integ stock certificates in exchange for Inverness
stock certificates. If there is any dividend or other distribution on Inverness
common stock with a record date after the merger and a payment date prior to the
date you surrender your Integ stock certificates in exchange for Inverness stock
certificates, you will receive the dividend with respect to the whole shares of
Inverness common stock issued to you promptly after they are issued. If there is
any dividend or other distribution on Inverness common stock with a record date
after the merger and a payment date after the date you surrender your Integ
stock certificates in exchange for Inverness stock certificates, you will
receive the dividend with respect to the whole shares of Inverness common stock
issued to you promptly after the payment date.
Inverness will only issue an Inverness stock certificate or a check in lieu
of a fractional share in a name other than the name in which a surrendered Integ
stock certificate is registered if you present the exchange agent with all
documents required to show and effect the unrecorded transfer of ownership and
show that you paid any applicable stock transfer taxes.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various customary representations and
warranties by both Integ, on one hand, and Inverness and Terrier, on the other
hand, relating to:
- due organization, existence, good standing and corporate authority;
- capital structure;
- authority, validity and effect of the agreements;
- no violations, consents;
- SEC documents and filings;
- litigation;
- treatment of the merger as a reorganization for federal income tax
purposes;
- ownership of stock, affiliates and associates;
- compliance with applicable laws; and
- brokers.
The merger agreement also contains various customary representations and
warranties by Integ relating to:
- subsidiaries;
- other interests;
- books and records;
- real property matters;
- its operation of business in the ordinary course and absence of any
material changes in its business;
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- taxes;
- intellectual property;
- patents;
- trademarks;
- copyrights;
- trade secrets;
- exclusivity of rights of intellectual property assets;
- licenses received;
- licenses granted;
- absence of affirmative obligations;
- sufficiencies of intellectual property assets;
- infringement of Integ proprietary rights;
- adequacy of technical documentation;
- environmental laws;
- non-disclosure contracts;
- material contracts;
- regulatory matters;
- employee benefit programs;
- labor relations and employment issues;
- the vote required to approve the merger and other contemplated
transactions;
- receipt of fairness opinion from Integ's financial advisor;
- insurance;
- inapplicability of Integ's company rights agreement;
- compliance with Hart-Scott-Rodino Antitrust Improvements Act;
- absence of contracts with affiliates;
- absence of any control share acquisition under section 302A.671 of the
Minnesota Business Corporation Act; and
- termination of all other discussions or negotiations.
The merger agreement also contains customary representations and warranties
by Inverness and Terrier relating to the control of Inverness and Terrier.
The representations and warranties in the merger agreement are complicated
and not easily summarized. You are urged to carefully read the articles in the
merger agreement entitled "Representations and Warranties of the Company" and
"Representations and Warranties of Parent."
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COVENANTS
Each of Inverness and Integ have agreed, prior to the effective time of the
merger, except as specifically permitted or contemplated by the merger
agreement, unless the other party has consented in writing, to:
- use its reasonable best efforts, and to cause each of its subsidiaries, if
any, to use its reasonable best efforts, to preserve intact its business
organization and goodwill and keep available the services of its officers
and material employees;
- confer on a regular basis with one or more representatives of the other to
report on material operational matters and any proposals to engage in
material transactions;
- promptly notify the other of any material emergency or other material
change in the condition, financial or otherwise, business, properties,
assets, liabilities, prospects or the normal course of its business, any
material governmental complaints, investigations or hearings, or
communications indicating that the same may be contemplated, or the breach
in any material respect of any representation or warranty contained in the
merger agreement; and
- promptly deliver to the other true and correct copies of any report,
statement or schedule filed by or with respect to it with the SEC
subsequent to October 3, 2000.
Each of Integ and Inverness further agreed, among other things, that each of
them will:
- prepare, and Inverness shall file with the SEC, under the Securities
Exchange Act of 1934 and the Securities Act of 1933, a registration
statement on Form S-4, which will include this proxy statement and
prospectus and form of proxy relating to the shareholders meeting of Integ
and the vote of the shareholders of Integ with respect to the merger
agreement and the transactions contemplated therein;
- furnish all information about itself and its business and operations and
all necessary financial information to the other as the other may
reasonably request in connection with the preparation of this proxy
statement and prospectus and the Form S-4;
- correct any information provided by it for use in this proxy statement and
prospectus and the Form S-4 if and to the extent that such information
shall have become false or misleading in any material respect; and
- use its best efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by the merger agreement and to cooperate with each other in
doing such things, including:
(1) taking all actions necessary to obtain any necessary consents,
approvals, orders, exemptions and authorizations by or from any public
or private third party, including any that are required to be obtained
under any federal, state or local law or regulation or any contract,
agreement or instrument to which Integ is a party or by which any of its
properties or assets are bound;
(2) to defend all lawsuits or other legal proceedings challenging the
merger agreement or the consummation of the merger;
(3) to cause to be lifted or rescinded any injunction or restraining order
or other order adversely affecting the ability of the parties to
consummate the transactions contemplated in the merger agreement; and
(4) to effect all necessary registrations and filings and submissions of
information requested by governmental authorities.
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For these purposes the obligations to use "best efforts" to obtain waivers,
consents and approvals to loan agreements, leases and other contracts do not
include any obligation to agree to an adverse modification of the terms of those
documents or to prepay or incur additional obligations to any other parties.
Integ has agreed, prior to the effective time of the merger, except as
specifically permitted by the merger agreement or with the consent of Inverness
and Terrier, to use its reasonable best efforts to conduct its operations
according to its usual, regular and ordinary course in substantially the same
manner as previously conducted. Except as expressly permitted by the merger
agreement, or with the consent of Inverness and Terrier, which shall not be
unreasonably withheld or delayed, Integ will not:
- declare, set aside or pay any dividend or other distribution, whether in
cash, stock, or property or any combination thereof, in respect of any of
its capital stock;
- split, combine or reclassify any of its capital stock;
- repurchase, redeem or otherwise acquire any of its securities, except,
for:
(1) the acquisition of shares of Integ common stock from holders of options
in full or partial payment of the exercise price payable by those
holders upon exercise of options; or
(2) the redemption of Integ Series B preferred stock upon an event of
default under the terms of the Series B preferred stock purchase
agreement;
- authorize for issuance, issue, sell, deliver or agree or commit to issue,
sell or deliver, whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise, any
stock of any class or any other securities, including indebtedness having
the right to vote, or equity equivalents, including stock appreciation
rights, other than the issuance of shares of Series B preferred stock in
accordance with the terms of the Series B purchase agreement or shares of
common stock upon the exercise of options or warrants in accordance with
their terms;
- acquire, sell, lease, encumber, transfer or dispose of any assets outside
the ordinary course of business that are material to Integ, whether by
asset acquisition, stock acquisition or otherwise, except pursuant to
obligations in effect as of October 3, 2000 or as set forth in the merger
agreement;
- other than the issuance of shares of Series B preferred stock in
accordance with the terms of the Series B purchase agreement, or the loan
agreement with Inverness, incur any amount of indebtedness for borrowed
money, guarantee any indebtedness, issue or sell debt securities or
warrants or rights to acquire any debt securities, guarantee (or become
liable for) any debt of others, make any loans, advances or capital
contributions, mortgage, pledge or otherwise encumber any material assets,
create or suffer any material lien thereupon;
- pay, discharge or satisfy any claims, liabilities or obligations,
absolute, accrued, asserted or unasserted, contingent or otherwise, other
than any payment, discharge or satisfaction:
(1) in the ordinary course of business consistent with past practice; or
(2) in connection with the transactions contemplated in the merger
agreement;
- change any of the accounting principles or practices used by it, except as
required by generally accepted accounting principles, in which case
written notice shall be provided to Inverness prior to any such change;
- except as required by law:
(1) enter into, adopt, amend or terminate any existing employee benefit
plan of Integ;
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(2) enter into, adopt, amend or terminate any agreement, arrangement, plan
or policy between Integ and one or more of its directors or officers; or
(3) except for normal increases in the ordinary course of business
consistent with past practice, increase in any manner the compensation
or fringe benefits of any director, officer or employee or pay any
benefit not required by any benefit plan of Integ or arrangement as in
effect as of the date hereof;
- adopt any amendments to Integ's articles of incorporation or bylaws;
- adopt a plan of complete or partial liquidation or resolutions providing
for or authorizing a liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or reorganization;
- settle or compromise any litigation other than settlements or compromises
of litigation where the amount paid, after giving effect to insurance
proceeds actually received, in settlement or compromise does not exceed
$25,000;
- amend or waive any rights under Integ's Company Rights Agreement; or
- enter into an agreement to take any of the foregoing actions.
Integ has further agreed, among other things, that it will:
- take all action necessary to convene a meeting of its shareholders as
promptly as practicable to consider and vote upon the approval of the
merger agreement and the transactions contemplated therein. Except as
provided in the merger agreement, the proxy statement of Integ must
contain the recommendation of the Integ board of directors that its
shareholders approve the merger agreement and the transactions
contemplated therein. Integ, including its board of directors, subject to
and in accordance with applicable law, has agreed to use its reasonable
best efforts to obtain such approval, including by timely mailing this
proxy statement to its shareholders.
Inverness has agreed, among other things, to:
- at or prior to the effective time of the merger, fund the redemption of
all outstanding shares of Integ's Series B preferred stock for cash
consideration in accordance with the terms of the Integ's articles of
incorporation;
- promptly prepare and submit to the American Stock Exchange all reports,
applications and other documents that may be necessary or desirable to
enable all of the shares of common stock that will be outstanding or will
be reserved for issuance at the effective time to be listed for trading on
the American Stock Exchange; or
- file the reports required to be filed by it under the Securities Exchange
Act of 1934 and the rules and regulations adopted by the SEC thereunder,
and Integ will take such further action as any affiliate, within the
meaning of Rule 145 under the Securities Act of 1933, of Integ may
reasonably request, all to the extent, if any, required from time to time
to enable such affiliate to sell shares of Inverness common stock received
by the affiliate in the merger without registration under the Securities
Act of 1933 pursuant to (a) Rule 145(d)(1) or (b) any successor rule or
regulation.
The agreements related to the conduct of Integ and Inverness prior to the
closing of the merger are complicated and not easily summarized. You are urged
to carefully read the article in the merger agreement entitled "Covenants."
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NO SOLICITATION OF TRANSACTIONS
Until the merger is completed or the merger agreement is terminated, Integ
has agreed not to, and not to authorize or permit its officers, directors or
employees or professional representatives to:
- solicit, initiate or encourage, including by way of furnishing non-public
information, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes an acquisition proposal;
- engage or participate in any discussion with, or provide any confidential
information or data to, any person relating to any acquisition proposal;
or
- otherwise facilitate any effort to attempt to make or implement an
acquisition proposal.
Integ further agreed to cease and cause to be terminated any existing
activities, negotiations or discussions with any persons related to such
activities.
Furthermore, Integ's board is not permitted to adversely withdraw or modify,
or propose to withdraw or modify, its approval or recommendation of the merger
or the merger agreement.
For these purposes, an acquisition proposal is a proposed or actual:
- merger, consolidation or similar transaction involving Integ;
- sale, lease or other disposition, directly or indirectly, by merger,
consolidation, share exchange or otherwise, of any assets of Integ
representing 15% or more of the assets of Integ;
- issue, sale or other disposition by Integ of, including by way of merger,
consolidation, share exchange or any similar transaction, securities, or
options, rights or warrants to purchase, or securities convertible into,
such securities, representing 15% or more of the votes associated with the
outstanding securities of Integ;
- tender offer or exchange offer in which any person shall acquire
beneficial ownership, as such term is defined in Rule 13d-3 under the
Securities Exchange Act, or the right to acquire beneficial ownership, or
any "group," as such term is defined under the Securities Exchange Act of
1934, shall have been formed which beneficially owns or has the right to
acquire beneficial ownership of, 15% or more of the outstanding shares of
Integ common stock;
- recapitalization, restructuring, liquidation, dissolution or other similar
type of transaction with respect to Integ; or
- transaction that is similar in form, substance or purpose to any of the
foregoing transactions.
This covenant does, however, expressly permit Integ to engage in discussions
or negotiations with a third party who makes an unsolicited bona fide written
acquisition proposal, or to approve or recommend such unsolicited acquisition
proposal, prior to the special meeting of Integ's shareholders if:
- a majority of the disinterested directors of Integ determines, in good
faith after consultation with its independent financial advisors that the
competing proposal is more favorable to Integ's shareholders from a
financial point of view than the transactions contemplated in the merger
agreement;
- the Integ board has determined in good faith, based on its consultation
with experienced outside legal counsel that the proposal is a superior
proposal based on these standards;
- Integ's board has determined in good faith after consultation with its
independent financial advisor that the third party is financially capable
of completing the acquisition proposal and the acquisition proposal is
likely to be consummated; and
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- a majority of the disinterested directors of Integ determines in good
faith, after receiving advice from outside legal counsel, that the action
is required for the board of directors to act in a manner consistent with
its fiduciary duties under applicable law.
In the event that Integ accepts a superior proposal, it will be obligated to
pay a termination fee of $2,000,000 plus expenses up to $2,000,000. Please refer
to the sections of this proxy statement and prospectus entitled "Termination"
and "Termination Fees and Expenses" on pages 56-57.
Integ is not prohibited from taking and disclosing to Integ's shareholders a
position in conjunction with sections 14d-9 or 14e-2 of the Securities Exchange
Act of 1934 related to a tender or exchange offer.
Integ has agreed to notify Inverness promptly if it receives any competing
proposal and the terms and conditions thereof, except that Integ is not required
to identify the party making the acquisition proposal.
OFFICERS AND DIRECTORS INDEMNIFICATION
After the merger is completed, Inverness will preserve all rights to
indemnification existing as of October 3, 2000, the date of the merger
agreement, in favor of any director, officer, employee or agent of Integ for a
period of at least six years following the merger. Terrier will also indemnify
directors, officers, agents, fiduciaries and employees of Integ against
liabilities or claims arising before the merger is completed and as a result of
their positions at or due to the negotiating, execution or performance of the
merger agreement and the transactions contemplated therein. Integ will purchase
an extended reporting period endorsement to provide directors and officers with
liability insurance coverage for six years following the merger similar to the
coverage presently maintained by Integ.
ACCESS TO INFORMATION AND CONFIDENTIALITY
Inverness and Integ have agreed to, and to cause each of their respective
subsidiaries, if any, and each of their respective subsidiaries' officers,
employees and agents to, afford to the other and to the officers, employees and
agents of the other complete access, except to the extent each other's access is
prohibited by the terms of a binding agreement between Integ and a third party,
at all reasonable times to such officers, employees, agents, properties, books,
records and contracts, and shall furnish to the other such financial, operating
and other data and information as the other may reasonably request. Furthermore,
prior to the effective time, Inverness has agreed to hold in confidence all such
information.
PUBLICITY
Inverness and Integ have agreed to consult with each other before issuing
any press release or otherwise making any public statements with respect to the
merger agreement or any transaction contemplated thereby and not issue any press
release or make any public statement generally without the prior consent of the
other party, which consent will not be unreasonably withheld.
EMPLOYEE BENEFITS
Inverness agreed that it will cause Terrier to honor all obligations under:
- the existing terms of employment and severance agreements specifically set
forth in the merger agreement; and
- Integ's general severance policy.
Furthermore, Inverness agrees that if any employee of Integ becomes a
participant in any employee benefit plan, practice or policy of Terrier, the
employee shall, to the extent permitted by such
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plan, practice or policy, be given credit under the plan, practice or policy for
all service prior to the effective time of the merger with Integ and prior to
the time the employee becomes a participant, for purposes of eligibility,
including waiting periods, and vesting but not for any other purposes for which
the service is either taken into account or recognized, including benefit
accrual, except for vacation credit.
NOTIFICATION OF SPECIFIED EVENT
Each of Integ and Inverness agreed that it will promptly advise the other
party of any change or event:
- having a material adverse effect on it; or
- which it believes would or would be reasonably likely to cause or
constitute a material breach of any of its representations, warranties or
covenants contained in the merger agreement.
DELISTING
Each of Integ and Inverness agreed to cooperate with each other in taking,
or causing to be taken, all actions necessary to delist Integ's common stock
from the Nasdaq National Market.
CONDITIONS TO THE MERGER
The obligations of Integ and Inverness to complete the merger and the other
transactions contemplated by the merger agreement depend on the following
conditions being fulfilled:
- the merger agreement and the transactions contemplated therein being
approved by the requisite vote of the shareholders of Integ;
- the absence of any preliminary or permanent injunction or other order,
decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission or any
statute, rule, regulation or executive order promulgated or enacted by any
governmental authority which would:
(1) make the consummation of the merger illegal; or
(2) otherwise restrict, prevent or prohibit the consummation of any of the
transactions, contemplated in the merger agreement; the registration
statement on Form S-4 being and remaining effective, and no proceeding
to suspend effectiveness having been initiated or threatened by the SEC;
- the registration statement on Form S-4 being declared and remaining
effective, and no proceeding to suspend effectiveness having been
initiated or threatened by the SEC; and
- Inverness will have obtained the approval for the listing of the shares of
Inverness common stock issuable in the merger and upon exercise of the
Integ options assumed by Inverness on the AMEX, subject to official notice
of issuance.
The obligations of Integ to complete the merger and the other transactions
contemplated by the merger agreement depend on the following conditions being
fulfilled:
- the representations and warranties of Inverness and Terrier being true and
correct in most cases at the effective date of the merger, except where
the failure of such representations and warranties to be true and correct,
without giving effect to any limitation as to materiality or material
adverse effect, individually or in the aggregate, does not have, and would
not reasonably be expected to have, a material adverse effect;
- performance in all material respects all obligations required to be
performed by Inverness;
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- absence of any change concerning Inverness or any of its subsidiaries that
individually or in the aggregate could reasonably be expected to have a
material adverse effect on the current business, results of operations or
financial condition of Inverness or its subsidiaries taken as a whole
other than any changes:
(1) generally affecting the industries in which Inverness operates,
including changes due to actual or proposed changes in law or
regulations;
(2) that are related to a general decline in stock prices in the United
States resulting from political or economic turmoil; or
(3) that are related to or result from the announcement or pendency of the
merger, including disruptions to Inverness' business or its
subsidiaries' businesses;
- delivery by Inverness of a closing certificate executed by the chief
executive officer or the president and the chief financial officer of
Inverness;
- receipt of all necessary consents, authorizations, orders and approvals of
(or filings or registrations with) any governmental commission, board,
other regulatory body or third parties required to be made or obtained by
Inverness and its subsidiaries and affiliates; and
- delivery of a written legal opinion from Dorsey & Whitney LLP, Integ's
outside tax and corporate counsel, to the effect that the merger will
constitute a tax free reorganization.
The obligations of Inverness to complete the merger and the other
transactions contemplated by the merger agreement depend on the following
conditions being fulfilled:
- the representations and warranties of Integ being true and correct in most
cases, except where the failure of such representations and warranties to
be true and correct (without giving effect to any limitation as to
materiality or material adverse effect), individually or in the aggregate,
does not have, and would not reasonably be expected to have a material
adverse effect;
- performance in all material respects all obligations required to be
performed by Integ;
- absence of any change concerning Integ that individually or in the
aggregate has or could reasonably be expected to have a material adverse
effect on Integ other than any:
(1) changes generally affecting the industries in which Integ operates,
including changes due to actual or proposed changes in law or
regulations;
(2) changes that are related to a general drop in stock prices in the
United States resulting from political or economic turmoil; or
(3) disruptions that are related to or result from the announcement or
pendency of the merger, including disruptions to Integ's business or any
action or as otherwise provided in the merger agreement;
- delivery by Integ of a closing certificate executed by the chief executive
officer or the president and the controller of Integ;
- receipt of all necessary consents, authorizations, orders and approvals of
(or filings or registrations with) any governmental commission, board,
other regulatory body or third parties required to be made or obtained by
Integ and affiliated entities;
- all outstanding shares of Integ's Series B preferred stock have been
redeemed for cash consideration in accordance with the terms of the Integ
Articles of Incorporation;
- delivery of a written legal opinion from Goodwin, Procter & Hoar LLP,
Inverness' outside tax and corporate counsel, to the effect that the
merger will constitute a tax-free reorganization; and
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- approval and adoption of the merger agreement and merger by Integ
shareholders, with receipt of notice of fewer than 5% of the outstanding
common stock exercising dissenters appraisal rights.
TERMINATION
The merger agreement may be terminated at any time prior to the closing of
the merger by mutual written consent. Either Inverness and Terrier, on one hand,
or Integ, on the other hand, may terminate the merger agreement if:
- any required approval of the Integ shareholders has not been obtained at
the special meeting;
- any governmental entity has issued an injunction taken or other action
that permanently enjoins the merger (provided that prior to March 31, 2001
Inverness, Terrier and Integ will use their best efforts to have any
non-final injunction stayed or reversed);
- the other party materially breaches any representation, warranty, covenant
or agreement contained in the merger agreement, which breach cannot be
cured within 15 business days of notice of the breach, except for those
breaches unlikely to have a material adverse effect on the business,
results of operations or financial condition of the breaching party; or
- if the merger has not occurred by March 31, 2001, without a material
breach by the terminating party of its obligations under the merger
agreement.
The merger agreement may be terminated by Integ if, prior to the special
meeting Integ concurrently enters into a definitive agreement with respect to a
superior proposal, provided that Integ:
- provides Inverness and Terrier with five business days prior notice of the
decision to terminate, which notice must include detail about the terms
and conditions of the superior proposal, during which time Inverness may
propose, and Integ must consider, any adjustment to the merger agreement;
and
- concurrently with the effectiveness of the termination, has paid to
Inverness or its designee the termination fee described below in
"--Termination Fees and Expenses."
The merger agreement may be terminated by Inverness or Terrier if:
- the Integ board does not make a recommendation of, or withdraws, amends,
modifies or changes its approval or recommendation of, the merger
agreement or the transactions contemplated thereby;
- the Integ board fails to include its favorable recommendation regarding
the merger in this proxy statement and prospectus;
- the Integ board recommends any superior proposal;
- the Integ board publicly expresses no opinion and remains neutral in
respect of any acquisition proposal or the merger and related
transactions;
- Integ enters into a definitive agreement with respect to a superior
proposal;
- Integ makes any proposal or announces of its intention to enter into an
agreement with respect to an acquisition proposal; or
- Integ or its board resolves to do any of the foregoing.
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TERMINATION FEES AND EXPENSES
The merger agreement requires Integ to pay Inverness a termination fee of
$2,000,000 in cash if:
- the merger agreement is terminated by Integ in order to effect a superior
proposal;
- the merger agreement is terminated by Inverness or Terrier if:
(1) the Integ board fails to make a recommendation of, or withdraws,
amends, modifies or changes its approval or recommendation, of the
merger agreement;
(2) the Integ board fails to include its favorable recommendation regarding
the merger in this proxy statement and prospectus;
(3) the Integ board recommends any superior proposal;
(4) the Integ board publicly expresses no opinion and remains neutral in
respect of any acquisition proposal or the merger and related
transactions;
(5) Integ enters into a definitive agreement with respect to a superior
proposal;
(6) Integ makes a proposal or announcement of its intention to enter into
an agreement with respect to an acquisition proposal; or
(7) Integ or its board resolves to do any of the foregoing.
Furthermore, if either party terminates the merger agreement because:
- the required approval of the Integ shareholders has not been obtained at
the special meeting; or
- the merger has not occurred by March 31, 2001, and the terminating party
is not in material breach of its obligations; or
- Inverness or Terrier terminates the merger agreement because Integ
materially breaches any representation, warranty, covenant or agreement
contained in the merger agreement;
and, if prior to one year from such termination, Integ enters into an
acquisition proposal, with any other entities with some exceptions, or the Integ
board recommends or resolves to recommend to Integ shareholders approval or
acceptance of an acquisition proposal with any party, with some exceptions;
then, Integ is required to pay Inverness a termination fee of $2,000,000.
Additionally, if Inverness or Terrier terminates the merger agreement
because Integ materially breaches any representation, warranty, covenant or
agreement contained in the merger agreement, and this breach is caused by a
willful act, omission or other willful misconduct of Integ, then Integ is
required to reimburse Inverness and Terrier for their out-of-pocket costs and
expenses incurred in connection with the merger agreement and the transactions
contemplated thereby, up to a maximum of $2,000,000.
Integ further agreed not to enter into any agreement relating to an
acquisition proposal within one year of termination of the merger agreement
without a provision requiring payment of the $2,000,000 termination fee.
Except as otherwise specified in the merger agreement or agreed by the
parties, each party will pay all fees and expenses it incurs in the merger.
AMENDMENTS
Inverness and Integ may amend the merger agreement at any time before or
after the necessary approval by the shareholders of Integ, but in any event
following authorization by the Integ board and the Inverness board. However,
after any required shareholder approval, no amendment will be made
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that by law requires further approval by the shareholders without obtaining
their approval. The merger agreement was amended for technical reasons by the
parties to the agreement on October 16, 2000.
REVISED TRANSACTION
Inverness and Terrier have retained the right to revise the method of
effecting the merger provided that:
- any breach of the merger agreement by Integ or a failure by Integ to
satisfy a condition of closing arising solely as a result of the revised
method will not be considered a breach or failure to satisfy that
condition to closing;
- the merger will continue to qualify as a tax-free reorganization; and
- the consideration to be received by Integ will not be altered, Integ will
not incur additional costs and Integ will not be exposed to additional
liability.
RELATED AGREEMENTS
VOTING AGREEMENT
In connection with the execution of the merger agreement, certain
shareholders of Integ who together hold approximately 15.4% of the voting power
of Integ's outstanding common stock, executed a voting agreement with Inverness,
dated as of October 3, 2000. These shareholders include all of Integ's directors
and executive officers.
In the voting agreement, these Integ shareholders agreed to:
- vote their shares in favor of the merger, the merger agreement and any
matter necessary for consummation of the merger;
- vote against any acquisition proposed and any action which would impair,
interfere with, delay, postpone or materially adversely effect
consummation of the transactions contemplated by the merger agreement;
- execute any documents necessary or appropriate in order to effect the
consummation of the transactions contemplated by the merger agreement or
permit Inverness to vote such shares directly; and
- grant, and did grant, Inverness irrevocable proxies to vote their shares
as required by the voting agreement.
Furthermore, each of these shareholders agreed not to:
- tender, sell, transfer, assign, pledge, encumber or otherwise dispose its
shares of Integ common stock;
- deposit its shares of Integ common stock into a voting trust or enter into
a voting agreement or arrangement with respect to such shares or grant any
party a power of attorney or authorization in or with respect to the
shares;
- enter into any contract, option or other agreement, arrangement,
understanding or undertaking with respect to the direct or indirect sale,
transfer, pledge, encumbrance, assignment or other disposition of any the
shares;
- exercise any Integ stock options or warrants prior to the closing of the
merger; or
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- take any action that would make any representation or warranty of the
shareholder in the voting agreement untrue or incorrect or have the effect
of preventing or disabling the shareholder from performing its obligations
under the voting agreement.
The voting agreement terminates upon the earliest to occur of:
- the closing of the transactions contemplated by the merger agreement;
- the date the merger agreement is terminated in accordance with its terms;
and
- mutual agreement of the parties to the voting agreement.
LOAN AGREEMENT
Concurrent with the signing of the merger agreement, Integ and Inverness
entered into a loan agreement which requires Inverness to provide Integ with
interim financing for general working capital purposes under certain limited
circumstances. In general, Inverness will only be required to lend Integ funds
if Amira Medical defaults on its obligations to provide similar funding to Integ
as provided by the terms of a preferred stock agreement dated February 16, 2000.
According to the loan agreement between Integ and Inverness, the maximum amount
of principal that may be loaned in any calendar month, other than the first
month, cannot exceed $550,000, and the aggregate amount of principal that may be
loaned at any time cannot exceed $3,330,000. Interest on borrowed amounts will
equal the prime rate plus 5% per annum, increasing to prime plus 7% after an
event of default, as defined in the loan agreement. The principal amount of all
loans, together with accrued interest, matures at the earliest of:
- the day after completion of the merger;
- the acceleration of the loan upon the occurrence of an event of default;
- the termination of the merger agreement; or
- March 31, 2001.
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ABOUT THE COMPANIES
INVERNESS MEDICAL TECHNOLOGY, INC.
For more information on the business and properties of Inverness, please
refer to Inverness' Current Report on Form 8-K, event date December 1, 2000,
filed with the Securities and Exchange Commission on December 4, 2000, and its
Annual Report on Form 10-K for the year ended December 31, 1999. Please refer to
the section of this proxy statement and prospectus entitled "Where You Can Find
More Information" in order to find out where you can obtain copies of these
documents as well as the other documents Inverness files with the Securities and
Exchange Commission.
INTEG INCORPORATED
Integ Incorporated is a development stage medical technology company focused
on developing an innovative glucose monitoring product to enable people with
diabetes to manage their disease more effectively and conveniently. Integ has
focused its efforts on developing methods to sample interstitial fluid, the
clear fluid found between the cells throughout the body, and methods of
presenting this sample to various types of glucose measurement systems in an
integrated fashion. Integ has developed and broadly patented what it believes is
a unique technology to collect interstitial fluid samples. Using this
technology, it has conducted extensive research on interstitial fluid. With
Integ's advancements in interstitial fluid sampling technology and knowledge of
interstitial fluid, it hopes to improve diabetes self-management by eliminating
the need to draw blood for glucose monitoring. Integ believes that its
technology, when combined with commercially available glucose measurement
technology, will create a handheld glucose monitoring product for use by people
with diabetes that will be simpler to use and less messy than current alternate
site blood based test systems, and less painful than traditional fingerstick
devices. Integ believes that this product, which Integ refers to as the
LIFEGuide-TM- System, will allow people with diabetes to frequently self-monitor
their glucose levels without repeatedly enduring the pain and mess associated
with lancing their fingers to obtain a blood sample. Integ is a Minnesota
corporation and was incorporated in April 1990.
Integ announced in April 1999 that it had formed an alliance and entered
into a development agreement with Amira Medical to jointly develop a new
generation of home glucose monitoring tests utilizing interstitial fluid. Upon
completion of the merger with Inverness, the alliance with Amira will be
terminated. The alliance called for products to be developed that combine
Integ's interstitial fluid collection technology with Amira's glucose
measurement technologies. The alliance contemplated both Integ and Amira
contributing resources to the development of these products, to be manufactured
by Integ and commercialized by Amira. Under the terms of the alliance, Integ's
responsibilities include:
- the development of a method to sample interstitial fluid using its
proprietary sampling technology;
- designing and manufacturing a means to integrate its sampling technology
with Amira's test strip technology; and
- the manufacture of a packaged and sterile LIFEGuide-TM- Key, including
Integ's interstitial fluid sampling technology incorporating Amira's test
strip.
Under the alliance, Amira responsibilities include:
- development and calibration of a sterilizable test strip;
- test strip manufacturing and scale-up and bulk shipping system
development;
- defining test strip environmental and packaging requirements inputs for
the LIFEGuide-TM- Key;
- development of meter electronics, optics, calibration and software;
- management of ongoing meter contract manufacturing;
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- filing and holding title to all regulatory submissions in its name in
connection with the strategic alliance; and
- labeling and packaging the LIFEGuide-TM- System for final sale and
marketing, sales, distribution and customer service of the LIFEGuide-TM-
System.
As part of the alliance, Integ has the option, at a future date, to be
acquired by Amira, subject to certain conditions. Total consideration payable to
Integ's shareholders, optionholders, and warrantholders in connection with any
acquisition by Amira is $20,000,000 in cash and 2,000,000 shares of common stock
of Amira, subject to reduction in certain circumstances. The complete terms of
the agreement are available as an exhibit to the Integ Current Report on
Form 8-K filed with the SEC on April 9, 1999.
Under the alliance, Integ and Amira established a joint product development
plan involving four product platform phases: feasibility, calibration, clinical
and commercial. Integ completed the feasibility phase of the plan, where it
demonstrated the ability to measure interstitial fluid glucose using the Amira
AtLast-TM- system in a non-integrated fashion, in September 1999. Integ
announced completion of the calibration phase in February 2000. On March 29,
2000 Integ announced that, based on discussions with Amira, it expected to do
additional development work on the LIFEGuide-TM- System before proceeding to
clinical trials. Integ has not established a new target date for entering
clinical trials.
INDUSTRY OVERVIEW
It is estimated that there are as many as 120 million people with diabetes
worldwide, and nearly 16 million Americans are affected. Diabetes is a chronic
disease affecting overall health, which can lead to severe complications and
requires active disease management on a daily basis.
The use of personal glucose monitors is a key factor in the management of
diabetes. Glucose levels are dynamic and vary throughout the day depending upon
food intake, insulin availability, exercise, stress and illness. People with
diabetes attempt to maintain their glucose levels within an acceptable range
through the use of insulin injections, oral glucose reducing agents called
hypoglycemic agents, diet, exercise or a combination of these activities. People
with diabetes often test their glucose levels at multiple times during the day,
including before eating meals and when their glucose levels are suspected to be
rising or falling faster than desired.
Integ believes that sales of personal blood glucose monitoring products have
increased significantly in recent years due to technological innovations, the
development of retail distribution channels and increasing awareness of the
benefits of frequent glucose monitoring. Historically, consumers have selected
devices that offer the greatest ease of use while providing fast and accurate
blood glucose measurements, and technological innovators have tended to capture
significant market share rapidly.
EXISTING PERSONAL BLOOD GLUCOSE MONITORING SYSTEMS AND NEW ALTERNATIVE
TECHNOLOGIES
Most of the current commercially available glucose monitoring systems
involve obtaining a patient's blood sample in order to measure glucose. In
conventional glucose monitoring systems, blood samples are taken from the
fingertips because of the high concentration of capillaries at that site and
because the blood produced at the fingertip can most easily be applied directly
to the test strips used in such devices. The primary drawbacks to this approach
are the pain associated with lancing a fingertip to produce the sample and the
mess and inconvenience of handling blood.
Most currently available personal blood glucose monitoring systems employ a
disposable test strip in conjunction with a battery-powered, handheld meter, and
a separate lancing device with its own disposable. These systems usually require
the user to:
- assemble the lancing device with a disposable lancet;
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- determine the calibration code from the test strip package and adjust the
meter as required to be properly calibrated to the test strip being used;
- insert the test strip into the meter;
- lance the finger or arm and form a drop of blood; and
- apply the blood sample to the test strip and wait for the meter to display
the results.
The goal of most recent glucose monitoring research has been to develop an
accurate system to monitor glucose without the pain of a finger lance or the
need to handle blood. Most of this research falls into five categories:
- non-invasive near-infrared spectroscopy;
- reverse iontophoresis;
- alternate site blood sampling techniques;
- implantable sensors; and
- interstitial fluid technologies.
Non-invasive near-infrared spectroscopic technology generally attempts to
estimate glucose levels by measuring light absorption when an infrared light
signal is transmitted through or reflected off of a body part. Every chemical
entity that absorbs infrared energy has a characteristic waveband where that
absorption occurs. This absorption is proportional to its concentration. It is
this characteristic waveband that allows a chemical entity to be identified and
measured. No devices of this type have yet successfully demonstrated safety and
effectiveness to the FDA.
Reverse iontophoretic technology uses electrical current to draw glucose
molecules out of the skin for measurement. Iontophoresis is a process by which
charged molecules are carried through intact skin by applying a small amount of
electrical current. Reversing that current can pull charged molecules from the
body; with those molecules comes fluid, and with that fluid comes uncharged
molecules like glucose. This fluid can be accumulated in a test chamber, in
which the glucose can be measured using traditional electrochemical means. At
this time, this technology is targeted toward continuous monitoring as a
supplement to finger-stick testing. One product of this type has been submitted
for FDA approval but not yet approved.
A newer class of products continues to involve the measurement of glucose in
blood but attempts to reduce pain by minimizing the volume of blood required and
broadening the sites available for sampling. The products currently available in
this category involve the same steps as current blood glucose systems, but allow
the user to lance their forearm or thigh rather than the fingertip. Three
products of this type are currently on the market. A blood sample is still
required, as is the time and mess associated with getting that sample. Many
people with diabetes are uncomfortable with routinely testing glucose levels in
the presence of others because of the negative perceptions associated with
visible blood. One company has discussed plans for a product that uses blood but
eliminates the separate handling step and has demonstrated models at recent
industry conferences.
Implantable sensors are targeted toward continuous monitoring of a patient's
glucose level. They generally involve implanting a three-day sensor in the
patient, which is attached through electrical leads to a monitoring device that
is worn externally. One such product has been approved by the FDA but its
intended use is limited to identifying trends for the physician retrospectively.
The patients must still use a blood glucose meter for monitoring their glucose
levels, taking therapeutic action, and calibrating the implanted sensor.
Interstitial fluid technology involves obtaining a sample of interstitial
fluid from the skin. Integ and other companies are currently pursuing
interstitial fluid technology. In addition to Integ's specific
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approach for collecting and measuring interstitial fluid, examples of other
approaches include creating an opening in the skin using a laser or other means,
drawing interstitial fluid through the opening and electrochemically measuring
the sample. Another example includes chemically enhancing the skin's
permeability and allowing interstitial fluid to flow into a patch for subsequent
colorimetric measurement.
THE INTEG SOLUTION
Integ is developing the LIFEGuide-TM- System to allow people with diabetes
to easily and accurately measure their glucose levels without the need for a
finger lance or the need to handle blood. The LIFEGuide-TM- System will consist
of two main components: Integ's proprietary interstitial fluid sampling
technology to collect a sample of interstitial fluid and a measuring technology
to measure the level of glucose present in the interstitial fluid sample. Under
the strategic alliance, the system being developed has focused on combining the
measurement technology components of the Amira AtLast-TM- blood glucose system,
both meter and test strip, with Integ's interstitial fluid sample extraction
technology of the LIFEGuide-TM- System. If the merger is completed, the system
will be developed by combining the measurement technology components of
Inverness with Integ's fluid sample extraction technology.
THE INTEG INTERSTITIAL FLUID TECHNOLOGY
Interstitial fluid is an extracellular fluid that is prevalent throughout
the body and skin. Interstitial fluid is the means through which proteins and
nutrients, including glucose, pass between capillaries and cells. The LIFEGuide
System extracts an interstitial fluid sample from the dermis, or external
surface, of the skin. The sample is comprised primarily of interstitial fluid,
but may also contain some intracellular fluid and red blood cells. Samples
extracted with the LIFEGuide-TM- method are very consistent. A clinical study
that compared the glucose levels in multiple samples taken from single patients
showed very tight precision, measured as coefficients of variation that averaged
3-5% for most subjects. The results of this study were published in CLINICAL
CHEMISTRY and were presented at the 1999 Oak Ridge Conference of the American
Association of Clinical Chemistry.
The LIFEGuide-TM- System is based on research indicating that interstitial
fluid glucose levels correlate closely with blood glucose levels. The
concentration of glucose in interstitial fluid is very similar to the
concentration of glucose in blood. However, it does take a little time for the
glucose to travel from blood into the interstitial fluid. This time is called
lag time. The magnitude of the lag varies somewhat depending on the study and
the collection or measurement techniques applied. In published literature, lag
times of 10 to 20 minutes are typically reported, with a few studies claiming as
little as no time lag, or as much as 45 minutes. Much research has been done
with microdialysis collection of interstitial fluid from the subcutaneous layer
of the skin. A review of the scientific literature shows that many researchers
see a good correlation between interstitial fluid glucose and blood glucose with
a short time lag when employing the microdialysis technique. Although this
sample collection method differs from the method employed by LIFEGuide-TM-, the
results are instructive for gaining a general understanding of the relationship
between interstitial fluid and blood glucose levels, and the results are similar
to internal studies conducted with LIFEGuide-TM-. Under the strategic alliance,
Integ has been conducting studies to further understand lag time in various
patient populations, particularly as glucose is rapidly falling.
THE LIFEGUIDE-TM- SYSTEM
Integ's LIFEGuide-TM- System will be comprised of (1) the LIFEGuide-TM-
Meter, a reusable glucose measuring device, and (2) the LIFEGuide-TM- Key, a
single-use, disposable interstitial fluid sample collection device.
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The proposed LIFEGuide-TM- System will be a simple-to-use, interstitial
fluid-based glucose testing system intended to be used by people with diabetes
in a similar manner to traditional blood glucose test systems. The system
extracts a small sample of interstitial fluid from the dermal layer of the skin
on the forearm and measures glucose in the sample with an integrated, one-piece,
disposable, named a "key." The LIFEGuide-TM- System will be calibrated to give
plasma-equivalent glucose results similar to those given by many blood glucose
meters. This is also the method used by laboratories.
The single-use, disposable LIFEGuide-TM- Key is designed to be easily
handled by the user and inserted into the LIFEGuide-TM- Meter. The design of
this key will allow for the capture of the required interstitial fluid sample
and the retention of the sample during the measurement and disposal process. The
key contains a very small needle that is used to extract a small sample of
interstitial fluid and present it in a very controlled fashion to the
measurement system. No user intervention is required to get the sample to the
measurement zone of the test strip. The LIFEGuide-TM- Key will be packaged in
individual sterile packages.
Integ believes the LIFEGuide-TM- System should offer advantages over
commercially available personal blood glucose monitoring systems and products
under development, including the following:
- Sampling Flexibility--The LIFEGuide-TM- System is designed to be used on
skin almost anywhere on the body, staying away from areas, such as the
fingertips, where blood capillaries and nerve endings are concentrated.
Initial company efforts are focused on forearm testing.
- Bloodless Approach--The LIFEGuide-TM- System is designed to allow for the
accurate measurement of glucose levels without drawing blood. This
approach eliminates the mess and inconvenience of handling a blood sample
and the negative perceptions associated with visible blood.
- Ease of Use--Integ's proposed LIFEGuide-TM- System will eliminate some of
the steps required by commercially available personal blood glucose
monitoring systems. With currently available systems, the user requires
two disposables, a lancet and a separate test strip. After lancing the
finger or alternate site, a drop of blood must be formed and directed to a
target zone on a strip. The LIFEGuide-TM- System requires only one
disposable, the LIFEGuide-TM- Key. The sampling procedure of the proposed
LIFEGuide-TM- System has been reduced to simply inserting the key into the
meter, holding the device against an area of exposed skin until an
adequate sample has been obtained and waiting briefly for a displayed
result. Integ believes this may represent the simplest to use system on
the market and may also reduce the possibility of user errors affecting
readings.
- User Safety--The user's safety is ensured in that each single-use key is
sterilized and packaged individually. The meter will not allow a test to
begin with a used sampler, eliminating the possibility that the sampling
device can be used more than once. Also, because the sample is
automatically captured in the key, there are fewer items requiring
disposal.
- Factory Calibration--Exactly like other commercial blood glucose makers,
the LIFEGuide-TM- System can be factory calibrated with a lot-specific
code. Other interstitial fluid systems which have been shown to the FDA
require at least one fingerstick blood glucose measurement daily for
calibration.
Because of these potential advantages, Integ believes that the proposed
LIFEGuide-TM- System may facilitate greater compliance with the recommendations
of the American Diabetes Association. However, it has not yet finalized the
development of its LIFEGuide-TM- System, and Integ cannot be sure that it will
be able to successfully develop a commercially acceptable product.
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RESEARCH AND DEVELOPMENT
Under the terms of its alliance with Amira, Integ is responsible for
research and development of interstitial fluid sampling technology, design and
manufacturing development of a means to integrate the interstitial fluid
sampling technology with a Amira's test strips and designing the interface
between Amira's metering system and Integ's interstitial fluid sampling
technology.
Since inception and through September 30, 2000, Integ has incurred
approximately $25.2 million in research and development expenses. Integ spent
approximately $2.3 million, $5.5 million and $5.3 million during fiscal years
1999, 1998 and 1997, respectively, on research and development.
Once the alliance with Amira was formed, 1999 research and development
activities were focused on the integration of Integ's interstitial fluid
collection technology with Amira's glucose measurement technology. By fourth
quarter of 1999 Integ had designed, built, and tested a new LIFEGuide-TM-
handheld prototype system that reliably collected a one microliter sample of
interstitial fluid and automatically delivered it directly to a test strip for
glucose measurement. Technical accomplishments during the year that were inputs
to this system design included:
- developing a consistently performing calibration of Integ interstitial
fluid to fingerstick blood reference values;
- further analytical work on the relationship between blood and Integ
interstitial fluid;
- development of test strip chemistries that may be sterilized along with
the tiny needle so that a single piece disposable design could be
implemented; and
- unique microfluidics concepts for handling small interstitial fluid sample
volumes.
This integrated prototype LIFEGuide-TM- System was then tested in a series
of internal trials on people with diabetes. These trials provided user feedback,
gathered data for finalizing factory calibration methods, verified interstitial
fluid collection proficiency, and assessed clinical accuracy and precision
performance. While not designed specifically as market research, the trials
indicated what user related improvements and features would be desirable in the
commercial product.
Integ's success is highly dependent upon its ability to combine its sampling
technology with the measurement technology of a third party and the successful
development, commercialization and market acceptance of the LIFEGuide-TM-
System, the development of which is ongoing and the complete efficacy of which
has not yet been demonstrated.
CLINICAL TESTING
Under the terms of the alliance, Amira is responsible for filing and holding
title to all regulatory submissions in its name in connection with the jointly
developed LIFEGuide System.
Integ conducted a series of method comparison studies in the third and
fourth quarter of 1999 on handheld prototype versions of the LIFEGuide-TM-
System using the Amira measurement technology. This data was used to complete
the calibration of the clinical handheld LIFEGuide-TM- System.
Also in 1999, Integ made presentations of two posters at the 1999 American
Association of Clinical Chemistry Oak Ridge Conference. One of the presentations
included a talk. One poster discussed the results of an internal clinical study
that demonstrated the tight correlation of glucose values gathered from multiple
sites on the forearm. The second described performance of our internal
electrochemical lab system.
Integ submitted clinical protocols to the FDA for review in late January of
2000. A meeting was held with the FDA on March 21, 2000 to review these
protocols. The FDA has requested modifications to the protocols submitted and
advised Integ that a Premarket Approval may be required. Integ has not
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<PAGE>
yet determined whether it will pursue a 510(k) or a Premarket Approval. These
options are discussed in more detail below, under the heading "--Government
Regulation."
Since that time, Integ has completed discussions with Amira. In the event
the merger with Inverness is not completed, Amira will be funding further
research and development of the product. Based on these discussions, Integ
expects to conduct additional research and pre-clinical trials to confirm the
protocol additions suggested by the FDA and to verify system performance and
intended use. Integ and Amira also expect to evaluate additional product changes
to improve user features before proceeding with clinical trials. As a result,
clinical trials have been delayed.
MANUFACTURING
Under the terms of the alliance with Amira, Integ is responsible for
manufacturing the LIFEGuide-TM- Keys consisting of a packaged and sterile
interstitial fluid disposable sampler, which incorporates Amira's test strip.
Integ anticipates that it will assemble the keys at its facilities from
components obtained from outside suppliers. In manufacturing the keys, Integ
will use assembly, testing and packaging equipment employing well-known
processes similar to those used for other high speed assembly applications.
Under the terms of the alliance, Amira is responsible for development of the
LIFEGuide-TM- Meter electronics, optics, calibration and software and management
of meter contract manufacturing.
SALES AND MARKETING
Under the alliance, Amira is responsible for marketing, sales, distribution
and customer service with respect to the LIFEGuide-TM- System. Integ is required
to market and sell the LIFEGuide-TM- System through Amira. Under the strategic
alliance, Integ receives a fixed percentage of profit over its costs up to a
certain cap in producing the LIFEGuide-TM- Key, which is not based upon the
LIFEGuide-TM- System selling price.
Amira is currently in the process of building its sales, marketing and
distribution capabilities. Many of Integ's potential competitors have already
entered into distribution and marketing agreements with major marketing
partners.
INTELLECTUAL PROPERTY
Integ believes that it is important for it to obtain patent protection for
its proposed products and processes, to preserve its trade secrets and to
operate without infringing the proprietary rights of third parties. Integ has
implemented a strategy of pursuing patent applications to provide both design
freedom and protection from competitors. This strategy includes evaluating and
seeking patent protection covering each of the areas of invention embodied in,
and the specific features of its LIFEGuide-TM- System as well as having the
breadth to cover features of competing alternatives. Integ has three issued
United States patents relating to its interstitial fluid sampling technology and
the method of drawing an interstitial fluid sample from the outer layers of the
skin, as well as two related US patents. Integ also has numerous other issued US
patents, and US patent applications covering various other aspects of its
technology. Integ has several US patents covering the design features of its
LIFEGuide-TM- Key. In addition to its US patent protection, Integ regularly
seeks corresponding patent coverage in other markets throughout the world. For
example, Integ has issued patent protection in numerous countries, including
member states of the European Union for its interstitial fluid sampling
technology.
Integ also relies upon trade secrets and proprietary know-how in its
manufacturing processes. It requires each of its employees, consultants,
advisors and certain of its vendors to execute a confidentiality agreement upon
the commencement of their relationship with Integ.
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There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry. Integ is not
currently a party to any patent or other litigation, and it routinely monitors
patent issuance by others in its industry.
Pursuant to the terms of the alliance and upon the completion of the merger
with Inverness, Integ will grant Amira two licenses for use in the field of
glucose monitoring using Integ's interstitial fluid sampling technology. The
first license will be a perpetual, transferable, co-exclusive and non-terminable
license, including the right to sublicense, to certain intellectual property
patents and know-how of Integ existing prior to April 2, 1999 that is useful for
glucose monitoring using interstitial fluid samples. This license will give
Amira the right to make, import, use, offer for sale and sell products
incorporating the technology covered by the license. The second license will be
an exclusive, perpetual, transferable and non-terminable license, including the
right to sublicense, to certain intellectual property of Integ developed after
April 2, 1999 that is useful for glucose monitoring using interstitial fluid
samples. This license will give Amira the right to make, have made, import, have
imported, use, offer for sale and sell products which incorporate the technology
by the license. These licenses do not cover Integ's infared technology.
COMPETITION
The glucose monitoring industry is characterized by intense competition and
is currently dominated by several companies with established products and
distribution channels. There are currently four significant competitors in the
worldwide blood glucose monitoring market: LifeScan, Inc., a subsidiary of
Johnson & Johnson, Inc.; Roche Diagnostics; Bayer Diagnostics, a division of
Bayer AG; and Medisense, Inc., a subsidiary of Abbott Laboratories.
Companies in the glucose monitoring market compete on the basis of
innovative technology, ease of use, price, product reliability and acceptance by
consumers and healthcare professionals. Price competition for the placement of
monitors in the glucose monitoring market is intense and involves marketing
tactics such as rebates, trade-in offers and volume purchase incentive programs.
Pursuant to the strategic allowance, if Amira is not able to offer the
LIFEGuide-TM- System at a competitive price, Integ will not be required to
supply as many LIFEGuide-TM- Keys to Amira, and may not be able to reach
profitability.
A number of entities are conducting research on possible non-invasive and
minimally invasive methods of determining glucose levels. Specific information
regarding the precise progress of these companies with respect to these
alternative technologies has not generally been made public. Using Inverness'
low volume FastTAKE product, LifeScan has introduced an alternate sampling site
blood product. ThereSense has also launched such a device, theirs requiring only
0.3 mircroliters of blood, the smallest available. Also, Abbott is planning to
offer an integrated alternate site blood glucose test system in the near future.
These companies' products may also affect the success of the LIFEGuide-TM-
System.
GOVERNMENT REGULATION
Government regulation in the United States and other countries is a
significant factor in the development of the LIFEGuide-TM- System. The
LIFEGuide-TM- System will be regulated by the FDA under a number of federal
statutes including the Federal Food, Drug and Cosmetic Act, the Safe Medical
Devices Act of 1990, the FDA Modernization Act of 1997, and other associated
regulations governing the development, testing, manufacturing, labeling,
marketing and distribution of medical devices as well as the reporting of
certain information regarding their safety. Sales of the LIFEGuide-TM- System
outside the United States will also be subject to comparable foreign regulatory
requirements.
FDA permission must be received to distribute a new medical device in the
United States and can be obtained in one of two ways. If a new or significantly
modified device is "substantially equivalent" to
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an existing legally marketed device, the new device can be commercially
introduced after filing a 510(k) premarket notification with the FDA and the
subsequent issuance by the FDA of an order permitting commercial distribution.
Changes to existing devices that do not significantly affect safety of
effectiveness of the device may be made without an additional 510(k)
notification.
The second path to market in the United States involves a more comprehensive
approval process known as a Premarket Approval. Premarket Approval applies to
new medical devices that are not substantially equivalent to a currently
marketed device. First, in a Premarket Approval application, Integ must conduct
clinical trials in accordance with testing protocols approved by an
Institutional Review Board for the participating research institution and the
investigational device exemption regulations promulgated by the FDA. Second,
Integ must submit a Premarket Approval application that contains the clinical
trial results, and other information required under the Food, Drug and Cosmetic
Act such as a full description of the device and its components, a full
description of the methods, facilities and controls used for manufacturing and
examples of proposed labeling. Finally, the manufacturing site(s) for the
medical device subject to the Premarket Approval process must operate under Good
Manufacturing Practices and pass an FDA Pre-Approval Inspection before the
product is approved.
A meeting was held with the FDA on March 21, 2000 in which the FDA advised
Integ that a Premarket Approval may be required for the LIFEGuide-TM- System.
Integ has not yet determined whether it will pursue a 510(k) or a Premarket
Approval. The FDA has granted Integ expedited review of its LIFEGuide-TM- System
application in either 510(k) or Premarket Approval form. Expedited review may
shorten the time between submission of clinical trial data and approval from the
FDA to market the LIFEGuide-TM- System. However, the time period to obtain FDA
approval may be longer due to unfamiliarity with interstitial fluid.
EMPLOYEES
As of September 30, 2000, Integ had a total of 31 full-time employees and
one part-time employee. Integ also employed 5 persons on a temporary or contract
basis, both full and part-time. Of the total work force, 14 persons were engaged
in research and development activities, 15 persons in manufacturing development
and 8 persons in administration. None of Integ's employees is covered by a
collective bargaining agreement. Integ believes that it maintains good relations
with its employees.
REAL PROPERTY
Integ currently leases approximately 38,000 square feet of space at 2800
Patton Road, St. Paul, Minnesota. The lease expires on September 30, 2005. Integ
believes its facilities will be adequate for its needs through completion of the
development of the LIFEGuide System. Integ is already subleasing a portion of
the property and, by year end, will be subleasing more than half of this
property.
LITIGATION
Integ is not a party to any legal proceedings.
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INVERNESS' MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For more information on Inverness' Management's Discussion and Analysis of
Financial Condition and Results of Operations, please refer to Inverness'
Current Report on Form 8-K, event date December 1, 2000, filed with the
Securities and Exchange Commission on December 4, 2000, and its Annual Report on
Form 10-K for the year ended December 31, 1999. Please refer to the section of
this proxy statement and prospectus entitled "Where You Can Find More
Information" in order to find out where you can obtain copies of these documents
as well as the other documents Inverness files with the Securities and Exchange
Commission.
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SELECTED FINANCIAL DATA OF INTEG
The following selected financial data should be read together with the
financial statements and related notes and "Integ's Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this proxy statement and prospectus. The selected statement of operations
data shown below for the years ended December 31, 1997, 1998 and 1999 and the
balance sheet data as of December 31, 1998 and 1999 are derived from Integ's
audited financial statements included elsewhere in this proxy statement and
prospectus. The selected statement of operations data shown below for the years
ended December 31, 1995 and 1996 and the balance sheet data as of December 31,
1995, 1996 and 1997 are derived from Integ's audited financial statements not
included elsewhere in this proxy statement and prospectus. The selected
financial data for the nine months ended September 30, 1999 and 2000 and for the
period from April 3, 1990 (inception) to September 30, 2000 has been derived
from Integ's unaudited financial statements which, in the opinion of Integ's
management, include all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the financial information
shown in these statements. The results for the nine months ended September 30,
2000 are not necessarily indicative of the results to be expected for the full
year or for any future period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------------------- -------------------------
1995 1996 1997 1998 1999 1999 2000
----------- ------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Operating expenses:
Research and
development...... $ 2,824,057 $ 4,802,773 $ 5,318,900 $ 5,455,999 $ 2,336,761 $ 1,828,079 $ 1,288,679
Manufacturing
development...... 805,413 1,623,122 2,513,224 2,171,087 1,880,521 1,495,334 1,425,102
General and
administrative... 1,651,381 3,494,060 4,629,534 3,243,901 3,285,948 2,609,684 1,249,784
----------- ------------ ------------ ------------ ----------- ----------- -----------
5,280,851 9,919,955 12,461,658 10,870,987 7,503,230 5,933,097 3,963,565
----------- ------------ ------------ ------------ ----------- ----------- -----------
Operating loss....... (5,280,851) (9,919, 955) (12,461,658) (10,870,987) (7,503,230) (5,933,097) (3,963,565)
Other income
(expense):
Interest income.... 580,840 1,306,460 1,564,190 890,120 342,006 290,232 81,523
Interest expense... (348,719) (226,959) (684,001) (1,203,218) (682,135) (532,194) (304,992)
Other (net)........ -- (242,978) 17,078 98,180 (1,019) (735) 33,346
----------- ------------ ------------ ------------ ----------- ----------- -----------
232,121 836,523 897,267 (214,918) (341,148) (242,697) (190,123)
----------- ------------ ------------ ------------ ----------- ----------- -----------
Net loss for the
period and deficit
accumulated during
the development
stage.............. $(5,048,730) $ (9,083,432) $(11,564,391) $(11,085,905) $(7,844,378) $(6,175,794) $(4,153,688)
=========== ============ ============ ============ =========== =========== ===========
Net loss per share:
Basic and
diluted.......... $ (11.65) $ (1.86) $ (1.24) $ (1.17) $ (0.81) $ (0.64) $ (0.42)
=========== ============ ============ ============ =========== =========== ===========
Weighted average
number of common
shares outstanding
Basic and
diluted.......... 433,333 4,889,245 9,305,332 9,477,390 9,649,424 9,643,833 9,827,211
=========== ============ ============ ============ =========== =========== ===========
<CAPTION>
PERIOD FROM
APRIL 3, 1990
(INCEPTION) TO
SEPTEMBER 30,
2000
--------------
<S> <C>
STATEMENT OF
OPERATIONS DATA:
Operating expenses:
Research and
development...... $ 25,167,588
Manufacturing
development...... 10,473,899
General and
administrative... 19,149,041
------------
54,790,528
------------
Operating loss....... (54,790,528)
Other income
(expense):
Interest income.... 4,852,527
Interest expense... (3,488,925)
Other (net)........ (95,393)
------------
1,268,209
------------
Net loss for the
period and deficit
accumulated during
the development
stage.............. $(53,522,319)
============
Net loss per share:
Basic and
diluted.......... $ (13.27)
============
Weighted average
number of common
shares outstanding
Basic and
diluted.......... 4,034,551
============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------ SEPTEMBER 30,
1995 1996 1997 1998 1999 2000
----------- ----------- ----------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $15,764,138 $33,879,608 $21,776,757 $11,175,695 $2,953,270 $1,564,375
Total assets................................ 17,375,756 37,715,900 29,216,293 18,154,601 8,635,997 6,562,490
Long-term debt, less current portion........ 447,162 1,298,484 3,029,734 2,686,196 1,273,920 333,293
Total shareholders' equity.................. 16,405,451 34,843,791 23,846,194 13,057,816 5,437,928 4,627,186
</TABLE>
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INTEG'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
From inception through September 30, 2000, Integ has incurred losses
totaling $53.5 million, consisting of $25.2 million of research and development
expenses, $10.5 million of manufacturing development expenses, and
$17.8 million of general and administrative and other expenses, net of interest
income. Integ's activities have consisted primarily of research and product
development, product design, development of the manufacturing equipment and
processes and marketing strategies needed for the introduction of the
LIFEGuide-TM- System. Integ has generated no revenue and has sustained
significant operating losses each year since inception. Integ expects such
losses to continue for the next several years.
On October 4, 2000, Inverness and Integ announced that they had signed a
definitive agreement to merge Integ into a subsidiary of Inverness. In
connection with the merger agreement between Inverness and Integ, Inverness and
Integ entered into a loan agreement pursuant to which Inverness agreed to
provide funding of the operational expenses of Integ in the event that an event
of default under Integ's current funding arrangement has occurred, and is
continuing, and certain other conditions have been met.
Integ announced in April 1999 that it had formed an alliance with Amira
Medical to jointly develop a new generation of home glucose monitoring tests
using interstitial fluid, or ISF. If the merger with Inverness is completed, the
alliance with Amira will be terminated. Under the terms of the alliance, Integ
is responsible for the development of a method to sample ISF using its
proprietary sampling technology, designing and manufacturing development of a
means to integrate Integ's sampling technology with Amira's test strip
technology, and manufacture of a packaged and sterile LIFEGuide-TM- Key,
including Integ's ISF sampling technology incorporating Amira's test strip. As
part of the alliance agreement, Integ has the option at a future date, to merge
with a subsidiary of Amira, subject to certain conditions. Total consideration
payable to Integ's shareholders, optionholders and warrantholders in connection
with any merger with Amira is $20 million in cash and 2,000,000 shares of common
stock of Amira, subject to reduction in certain circumstances.
In January 2000, Integ established a budget for the year 2000 in support of
the joint development plan, which took into account the contributions that Amira
is making toward completion of LIFEGuide product development. On February 15,
2000, Integ entered into a preferred stock agreement with Amira which is
intended to provide up to $5.6 million in funding to Integ for the continued
development of the LIFEGuide-TM- System through the year 2000. Since
April 2000, Integ has been dependent upon sales of Series B preferred stock to
Amira to meet its operating expenses. Through September 30, 2000, Integ had
raised $3.1 million through the sale of 1,771,236 shares of Series B preferred
stock.
On March 29, 2000 Integ announced that, based on discussions with Amira
Medical, it expected to do additional development work on the LIFEGuide-TM-
System before proceeding to clinical trials. Integ has not established a new
target date for entering clinical trials.
Integ is developing the LIFEGuide-TM- System, a handheld glucose monitoring
product for use by people with diabetes. The LIFEGuide System will allow people
with diabetes to frequently self-monitor their glucose levels without repeatedly
enduring the pain and mess associated with lancing their fingers to obtain a
blood sample. Frequent monitoring may allow people with diabetes to manage their
disease more effectively and conveniently.
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COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
GENERAL. Integ's net loss totaled $4.2 million for the nine months ended
September 30, 2000, as compared to $6.2 million for nine months ended
September 30, 1999. Integ expects net losses to continue for the next several
years.
In conjunction with the alliance formed with Amira in April 1999, Integ
began cross-charging Amira for certain expenses related to the joint development
of the LIFEGuide-TM- System. In April 2000, Integ began funding its operations
through sales of Series B preferred stock to Amira and discontinued
cross-charging expenses to Amira. These cross-charges are described in our
analysis as "allocated expenses to Amira" and had the effect of reducing Integ's
operating expenses.
Until her permanent appointment as President and CEO of Integ, Ms. Critzer
was accounted for in Manufacturing Development as she continued in her role as
Vice-president--Operations as well as Interim President and CEO. Since her
permanent appointment as President and CEO in April 1999, Ms. Critzer has been
accounted for in General and Administrative.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased to $1,289,000 during the nine months ended September 30, 2000 from
$1,828,000 for the nine months ended September 30, 1999. This decrease was
primarily attributable to decreased compensation expense of $147,000,
depreciation expense of $93,000, consulting fees of $216,000, contract fees of
$67,000, prototype expense of $68,000 and the allocation of expenses to Amira of
$17,000. These decreases were offset by increased patent related legal fees of
$20,000 and an increase in other expenses of $49,000.
MANUFACTURING DEVELOPMENT EXPENSES. For the nine months ended
September 30, 2000, manufacturing development expenses decreased to $1,425,000
from $1,495,000 during the nine months ended September 30, 1999. This decrease
was primarily attributable to decreased compensation expense of $121,000,
depreciation expense of $89,000 and prototype and prototype tooling expenses of
$12,000. These decreases were partially offset by increased contract fees of
$93,000, a reduction in the allocation of expenses to Amira of $22,000,
increased travel expenses of $19,000 and other expenses of $18,000.
GENERAL AND ADMINISTRATIVE EXPENSES. In accordance with the terms of the
alliance with Amira, Integ no longer incurs expenses categorized previously as
clinical and regulatory and sales and marketing. For presentation purposes,
prior period expenses have been reclassified as general and administrative. For
the nine months ended September 30, 2000, general and administrative expenses
decreased to $1,250,000 from $2,610,000 during the nine months ended
September 30, 1999. The decrease was primarily attributable to decreased
consulting fees of $1,075,000, insurance expense of $63,000, the allocation of
certain facility expenses to sub-lease tenant and Amira of $193,000, decreased
depreciation expense of $133,000, increased facility allocations to other
departments of $38,000, decreased Medical Advisory Board (MAB) expenses of
$21,000 and a decrease in other expenses of $59,000. The decrease was partially
offset by increased compensation expenses of $190,000, software expense of
$18,000 and printed supply expense of $14,000.
INTEREST INCOME. For the nine months ended September 30, 2000, interest
income decreased to $82,000 from $290,000 for the nine months ended
September 30, 1999. The decreases resulted from lower average balances of cash
and cash equivalents.
INTEREST EXPENSE. For the nine months ended September 30, 2000, interest
expense decreased to $305,000 from $532,000 during the nine months ended
September 30, 1999. The decrease in interest expense is attributable to payments
made on long-term debt and capital leases. On September 30, 2000 Integ's long
term liabilities, including current portions, were $1,635,000 as compared to
$3,067,000 on September 30, 1999.
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OTHER INCOME. For the nine months ended September 30, 2000, other income
increased to $33,000 from an expense of $1,000 for the nine months ended
September 30, 1999. The increases are primarily attributable to gains from the
sale of excess equipment.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEARS ENDED DECEMBER 31, 1998 AND 1997
GENERAL. Integ's net loss totaled $7.8 million during 1999 from
$11.1 million during 1998 and $11.6 million during 1997. Integ expects net
losses to continue for the next several years.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased to $2.3 million during 1999 from $5.5 million in 1998 and
$5.3 million from 1997. The decrease in research and development expense in 1999
was primarily due to $628,000 of decreased staffing costs, $665,000 of decreased
allocated pilot plant costs, $960,000 of decreased contractor and consulting
expenses, $376,000 of decreased prototype expense, the allocation of $226,000 of
expenses to Amira, a decrease of $188,000 in severance expense, a decrease of
$75,000 in depreciation expense and the decrease of other expenses totaling
$120,000 which were partially offset by increased legal expenses in the amount
of $56,000, allocated facility expenses in the amount of $46,000 and increased
travel expenses in the amount of $17,000. The increase in research and
development expense in 1998 when compared to 1997 is primarily attributable to a
$665,000 increase in the amount of pilot plant costs allocated to research and
development and a one-time $188,000 charge for the workforce reduction, which
were partially offset by $220,000 in decreased staffing costs, $346,000 in
decreased prototype expenses, $107,000 in decreased employee relocation costs,
and $60,000 in decreased lab supply expenses.
MANUFACTURING DEVELOPMENT EXPENSES. Manufacturing development expenses
decreased to $1.9 million during 1999 from $2.2 million in 1997 and
$2.5 million in 1997. The decrease in manufacturing development expenses during
1999 is primarily attributable to $132,000 in decreased staffing costs, $398,000
in decreased prototype expenses, the allocation of $279,000 of expenses to
Amira, $62,000 of decreased depreciation expenses, a decrease of $31,000 in
employee training expenses, a decrease of $39,000 in Travel, allocated facility
expenses of $38,000 and a $85,000 decrease in other expenses. These decreases
were partially offset by an increase of $665,000 in allocated pilot plant costs
to research and development and an increase of $99,000 in prototype tooling/test
fixtures. The decrease in manufacturing development expenses during 1998 is
primarily attributable to $208,000 of decreased staffing costs, the allocation
of $665,000 of pilot plant costs to research and development and a decrease of
$108,000 in prototype tooling expenses, a decrease of $93,000 in travel expenses
and a $66,000 decrease in the occupancy allocation, which were partially offset
by a $347,000 increase in depreciation expense, a $364,000 increase in samples
and prototype expenses and a one-time charge of $78,000 for workforce reduction.
GENERAL AND ADMINISTRATIVE EXPENSES. In accordance with the terms of the
strategic alliance with Amira, Integ no longer incurs expenses categorized
previously as clinical and regulatory and sales and marketing. For presentation
purposes, these expenses have been reclassified as general and administrative.
General and administrative expenses increased to $3.3 million during 1999 from
$3.2 million in 1998 and $4.6 million in 1997. The increase in general and
administrative expenses in 1999 is primarily attributable to a $1.1 million
increase in consulting expenses and a one-time $384,000 write-off due to
obsolescence of capital equipment. This was partially offset by a $1.1 million
decrease in staffing costs, a $103,000 decrease in travel, a decrease of
$136,000 in facility allocations to Amira and sub-lessee and a decrease of
$45,000 in miscellaneous expenses. The decrease in general and administrative
expenses in 1998 is primarily attributable to $482,000 of decreased staffing
costs and a special charge in 1997 for the resignation of Integ's President and
Chief Executive Officer effective in 1998 in the amount of $654,000, which were
partially offset by a $100,000 increase in legal and audit expenses, a $51,000
increase in recruitment expenses as well as the $28,000 one-time charge for
workforce reduction. The decrease in 1998 is also due to, what were previously
classified as clinical and
73
<PAGE>
regulatory expenses, $133,000 of decreased staffing costs, $55,000 of decreased
recruitment costs, $33,000 of decreased travel costs, $28,000 of decreased
clinical studies expenses and $9,000 of decreased consulting expenses, which
were partially offset by the one-time $222,000 charge for workforce reduction.
The decrease in 1998 is also due to, what were previously classified as sales
and marketing expenses, $297,000 of decreased staffing costs, $97,000 of
decreased advertising and promotion expenses, $55,000 of decreased website
development expense, $33,000 of decreased consulting expenses, $35,000 of
decreased product development expenses and $17,000 of decreased travel expenses,
which were partially offset by a $173,000 one-time charge for the workforce
reduction.
INTEREST INCOME. Interest income decreased to $342,000 during 1999 from
$890,000 in 1998 and $1.6 million during 1997. The decrease in 1999 and 1998 is
a direct result of lower average balances of cash and cash equivalents.
INTEREST EXPENSE. Interest expense decreased to $682,000 during 1999
compared to $1.2 million in 1998 and $684,000 in 1997. The decrease in interest
expense in 1999 is attributable to payments made on long-term debt and capital
leases. The increase in interest expense during 1998 is attributable to
increased borrowings under the equipment loan agreement.
OTHER INCOME (EXPENSE). Other expense totaled $1,000 in 1999. Other income
totaled $98,000 in 1998, which primarily consisted of a $26,000 receivable
written off in a prior year which was paid in full and $66,000 received from the
state of Minnesota for a sales tax refund claim filed for prior years.
QUARTERLY RESULTS OF OPERATIONS OF INTEG
The following table presents a summary of the unaudited quarterly operating
results of Integ for each of the four quarters in 1998 and 1999 and for each of
the three quarters in the nine-month period ended September 30, 2000. This
information was derived from unaudited interim financial statements that, in the
opinion of Integ's management, have been prepared on a basis consistent with the
financial statements contained elsewhere in this proxy statement and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of such information when read in conjunction with our audited
financial statements and related notes. The operating results for any quarter
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
1998 1998 1998 1998 1999 1999 1999 1999 2000
--------- -------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating expenses:
Research and
development....... $ 1,706 $ 1,597 $ 1,093 $ 1,060 $ 792 $ 586 $ 449 $ 509 $ 434
Manufacturing
development....... 680 603 472 415 590 496 410 385 415
General and
administrative.... 909 1,108 781 447 549 1,518 543 676 414
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating loss........ (3,295) (3,308) (2,346) (1,922) (1,931) (2,600) (1,402) (1,570) (1,263)
Other income
(expense):
Interest income..... 284 242 197 167 127 95 68 52 33
Interest expense.... (296) (310) (303) (294) (195) (180) (157) (150) (123)
Other................. 2 92 -- 4 -- -- -- (1) 12
------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss............ $(3,305) $(3,284) $(2,452) $(2,045) $(1,999) $(2,685) $(1,491) $(1,669) $(1,341)
======= ======= ======= ======= ======= ======= ======= ======= =======
Net loss per
share............. $ (0.35) $ (0.35) $ (0.26) $ (0.21) $ (0.21) $ (0.28) $ (0.15) $ (0.17) $ (0.14)
======= ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
THREE MONTHS ENDED
--------------------
JUNE 30 SEPT. 30
2000 2000
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Operating expenses:
Research and
development....... $ 416 $ 439
Manufacturing
development....... 528 482
General and
administrative.... 479 357
------- -------
Operating loss........ 1,423 (1,278)
Other income
(expense):
Interest income..... 24 24
Interest expense.... (97) (85)
Other................. 17 4
------- -------
Net loss............ $(1,479) $(1,335)
======= =======
Net loss per
share............. $ (0.15) $ (0.14)
======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Integ's operations since inception have been funded by net proceeds from the
sale of common and preferred stock totaling approximately $55 million and
proceeds from borrowings under an equipment
74
<PAGE>
loan agreement totaling $5.5 million. As of September 30, 2000 Integ had cash
and cash equivalents of $1.6 million and working capital of $100,000.
The equipment loan agreement contains covenants that place restrictions on
sales of assets, transactions with affiliates, creation of additional debt, and
other customary covenants. Borrowings under the equipment loan agreement are
collateralized by a large part Integ's assets.
On February 15, 2000, Integ entered into a preferred stock agreement with
Amira which is intended to provide up to $5.6 million in funding to Integ for
the continued development of the LIFEGuide System through the year 2000. Sales
of preferred stock to Amira only occur after Integ's cash balance has declined
to $1.5 million and Integ will then only sell preferred stock to Amira from time
to time in amounts sufficient for it to meet its expenses incurred in connection
with Integ's 2000 budget. Since April 2000, Integ has been dependent upon sales
of preferred stock to Amira to meet its operating expenses. As of September 30,
2000, Integ had raised a total of $3.1 million through the sale of 1,771,236
shares of Series B preferred stock. Integ believes that its cash and proceeds
from sales of Series B preferred stock will be sufficient to fund operations
through the first quarter of 2001. Under the terms of the Series B Preferred
Stock Agreement, upon closing of the merger with Inverness, Integ will be
required to redeem all outstanding shares of Series B preferred stock at a price
equal to the total purchase price paid for the outstanding shares of Series B
preferred stock plus a 10% premium, payable either in cash or shares of common
stock of Integ, at Integ's option. Under the terms of the merger agreement with
Inverness, Integ agreed to redeem the shares of Series B preferred stock for
cash, and Inverness agreed to fund the redemption of outstanding shares of
Series B preferred stock.
In connection with the merger agreement between Inverness and Integ,
Inverness and Integ entered into a loan agreement pursuant to which Inverness
agreed to provide funding of the operational expenses of Integ in the event that
Integ's an event of default under current funding arrangement has occurred and
is continuing and certain other conditions have been met.
As part of the alliance with Amira, Integ agreed that it would not take any
actions outside the ordinary course of business which would result in a
liability or an obligation to make payments, and would not issue any debt or
debt securities without Amira's consent, and that the amount of any of these
types of liabilities would be deducted from the consideration payable by Amira
in connection with the merger of Integ with a subsidiary of Amira. Integ also
agreed that it would not incur any liabilities or obligations to make payments
in excess of $1,000,000 in the ordinary course of business without Amira's
consent. Integ cannot predict whether these agreements will adversely affect its
ability to meet its future liquidity and capital requirements.
If the merger is not consummated, Integ's future liquidity and capital
requirements will depend on numerous factors, including when or if the
performance of the LIFEGuide System meets the required performance
specifications, whether the merger with Inverness is completed, the ability of
Integ to successfully maintain its alliance with Amira, the ability and desire
of Inverness or Amira to provide additional funding, the extent to which Integ's
LIFEGuide System gains market acceptance, the timing of regulatory actions
regarding the LIFEGuide System, and the results of clinical trials and
competition.
75
<PAGE>
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of material anticipated federal income tax
consequences of the merger to Integ shareholders who hold Integ common stock as
a capital asset. The summary is based on the Internal Revenue Code, referred to
herein as the Code, treasury regulations under the Code and administrative
rulings and court decisions in effect as of the date of the proxy statement and
prospectus, all of which are subject to change at any time, possibly with
retroactive effect. This summary does not consider the particular facts and
circumstances of the tax situation of each shareholder of Integ. Furthermore,
this summary does not discuss all of the consequences that may be relevant to
Integ shareholders subject to special treatment under United States federal
income tax law, including, for example, foreign persons, financial institutions,
dealers in securities, insurance companies, tax-exempt entities, holders who
acquired their Integ common stock pursuant to the exercise of employee stock
options or otherwise as compensation and holders who hold Integ common stock as
part of a hedge, straddle or conversion transaction. The following summary does
not purport to be a complete analysis of all potential tax effects of the
transactions contemplated by the merger agreement or the merger itself. No
information is provided in this summary with respect to the tax consequences, if
any, of the merger under state, local or foreign tax laws.
EACH HOLDER OF INTEG COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN TAX
ADVISOR AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER, AND ALSO AS TO
ANY STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES, BASED ON SUCH HOLDER'S OWN
PARTICULAR FACTS AND CIRCUMSTANCES.
GENERAL
Inverness and Integ expect that the merger will be treated as a tax-free
reorganization within the meaning of section 368(a) of the Code and that for
federal income tax purposes no gain or loss will be recognized by Integ
shareholders who exchange their shares of Integ common stock solely for shares
of Inverness common stock pursuant to the merger (except upon the receipt of
cash by an Integ shareholder in lieu of fractional shares of Inverness common
stock). The Internal Revenue Service has not been and will not be asked to rule
upon the tax consequences of the merger. Instead, Integ will rely upon the
opinion of Dorsey & Whitney LLP, its counsel, as to certain federal income tax
consequences of the merger and Inverness will rely on the opinion of Goodwin,
Procter & Hoar LLP, its counsel, as to certain federal income tax consequences
of the merger. It is a condition to the completion of the merger that each of
Inverness and Integ receive such a tax opinion. These tax opinions will be on
various representations and covenants made by Integ, Inverness and Terrier, and
are subject to various assumptions and qualifications. The tax opinions are also
based upon the Code, regulations now in effect under the Code, current
administrative rulings and practice, and judicial authority, all of which are
subject to change, possibly with retroactive effect. Unlike a ruling from the
Internal Revenue Service, an opinion of counsel is not binding on the IRS and
there can be no assurance, and none is hereby given, that the IRS will not take
a position contrary to the tax opinions or to one or more positions reflected in
this summary or that the tax opinions will be upheld by the courts if challenged
by the IRS.
Based upon the facts described in this proxy statement and prospectus,
various representations and covenants made by Integ, Inverness and Terrier, and
subject to various assumptions and qualifications, each of Dorsey & Whitney LLP
and Goodwin, Procter & Hoar LLP will opine, as of the effective time of the
merger, that the merger will constitute a reorganization within the meaning of
section 368(a) of the Code and Integ, Inverness and Terrier each will be a party
to the reorganization within the meaning of section 368(b) of the Code. Assuming
the merger qualifies as a reorganization for purposes of the Code, the merger
will result in the following federal income tax consequences:
- No income, gain or loss will be recognized by Integ, Inverness or Terrier
as a result of the consummation of the merger.
76
<PAGE>
- Subject to the last bullet point below no gain or loss will be recognized
by the holders of Integ common stock upon the exchange of Integ common
stock solely for Inverness common stock pursuant to the merger.
- The tax basis of the Inverness common stock received by an Integ
shareholder pursuant to the merger, including any fractional shares deemed
received as described in the last point below, will be the same as the tax
basis of the Integ common stock surrendered in exchange therefor.
- The holding period of the Inverness common stock received by a shareholder
of Integ pursuant to the merger will include the period during which the
Integ common stock surrendered in exchange therefor was held by such Integ
shareholder, provided the Integ common stock is a capital asset in the
hands of the Integ shareholder at the time of the merger.
- Cash received by an Integ shareholder in lieu of a fractional share
interest in Inverness common stock will generally be treated as received
in redemption of such fractional share interest, and an Integ shareholder
will generally recognize gain or loss, subject to the provisions and
limitations of section 302 of the Code, which gain or loss will be capital
gain or loss provided the Integ common stock was a capital asset in the
hands of the Integ shareholder at the time of the merger. For United
States federal income tax purposes, the gain or loss is measured by the
difference between the amount of cash received and the portion of the tax
basis of the share of Integ common stock allocable to such fractional
share interest.
77
<PAGE>
INVERNESS MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
On October 3, 2000, Inverness entered into an Agreement and Plan of Merger
with Integ for an aggregate of 1,900,000 shares of common stock of Inverness in
consideration for all of the outstanding capital stock, warrants and stock
options of Integ, and $5,500,000 to redeem all of Integ's preferred stock. The
acquisition will be accounted for as a purchase of assets. Accordingly, the
operating results of Integ will be included in the Inverness' financial results
from the date of acquisition. The allocation of the purchase price to the fair
value of the assets acquired will be based upon an independent appraisal of the
fair value of the assets of Integ. The computations of the value of Inverness'
common stock to be issued and the redemption value to be paid to the Integ
preferred stockholders will be revised upon consummation of the merger to
reflect actual amounts at the closing date. The preliminary purchase price
allocation included in the accompanying Unaudited Pro Forma Financial Statements
is based upon estimates made by management and will be revised upon completion
of the appraisal and consummation of the merger. The unaudited pro forma
combined condensed financial statements combine (i) the historical consolidated
balance sheets of the Company and Integ as of September 30, 2000 and (ii) the
historical statements of operations for the year ended December 31, 1999 and the
nine months ended September 30, 1999 and 2000 as if the acquisition was
consummated on January 1, 1999. The pro forma information is not necessarily
indicative of either the results which would have actually been reported if the
acquisition of Integ occurred on January 1, 1999 or results which may be
reported in the future.
78
<PAGE>
INVERNESS MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------- --------------------------------
COMPANY
INVERNESS INTEG ADJUSTMENTS COMBINED
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 6,139,848 $ 1,564,375 $ (5,500,000)(1) $ 2,204,223
Accounts receivable................................... 25,150,308 -- 25,150,308
Inventories........................................... 13,430,146 -- 13,430,146
Prepaid expenses and other current assets............. 1,565,276 127,085 1,692,361
------------ ----------- ------------- ------------
Total current assets.................................. 46,285,578 1,691,460 (5,500,000) 42,477,038
------------ ----------- ------------- ------------
PROPERTY AND EQUIPMENT, AT COST:
Leasehold improvements................................ 790,031 -- 790,031
Buildings............................................. 1,033,001 -- 1,033,001
Machinery & Equipment................................. 15,569,957 -- 15,569,957
Furniture and Fixtures................................ 789,971 8,438,016 9,227,987
Computer Equipment and Software....................... 1,895,572 -- 1,895,572
------------ ----------- ------------- ------------
20,078,532 8,438,016 -- 28,516,548
Less accumulated depreciation......................... (7,706,951) (3,571,626) (11,278,577)
------------ ----------- ------------- ------------
PROPERTY AND EQUIPMENT, NET............................. 12,371,581 4,866,390 -- 17,237,971
------------ ----------- ------------- ------------
GOODWILL, TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET... 59,473,407 12,155,703 71,629,110
IN PROCESS RESEARCH AND DEVELOPMENT..................... -- -- 36,467,111 (3) --
(36,467,111)(3)
DEFERRED FINANCING COSTS AND OTHER ASSETS, NET.......... 1,725,885 4,640 1,730,525
------------ ----------- ------------- ------------
$119,856,451 $ 6,562,490 $ 6,655,703 $133,074,644
============ =========== ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable...................... $ 33,966,158 $ 1,331,831 $ 35,297,989
Accounts payable...................................... 14,643,718 34,806 14,678,524
Accrued expenses and other current liabilities........ 13,864,305 235,374 250,000 (2) 14,349,679
Current portion of deferred revenue................... 356,536 -- 356,536
------------ ----------- ------------- ------------
Total current liabilities............................. 62,830,717 1,602,011 250,000 64,682,728
------------ ----------- ------------- ------------
LONG-TERM LIABILITIES:
Deferred revenue...................................... 305,912 -- 305,912
Other long-term liabilities........................... 139,000 -- 139,000
Notes payable, net of current portion................. 18,894,535 333,293 19,227,828
------------ ----------- ------------- ------------
Total long-term liabilities........................... 19,339,447 333,293 -- 19,672,740
------------ ----------- ------------- ------------
MANDATORILY REDEEMABLE PREFERRED STOCK OF A
SUBSIDIARY............................................ 4,327,561 -- 4,327,561
------------ ----------- ------------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock....................................... -- 3,091,908 (3,091,908)(4) --
Common stock.......................................... 25,832 98,591 (98,591)(4) 27,732
1,900 (1)
Additional paid-in capital............................ 131,247,747 55,039,048 (55,039,048)(4) 178,745,847
47,498,100 (1)
Less--Treasury stock, at cost......................... (3,724,900) -- (3,724,900)
Accumulated deficit................................... (93,338,312) (53,522,319) 53,522,319 (4) (129,805,423)
(36,467,111)(5)
Accumulated other comprehensive income (loss)......... (851,641) (80,042) 80,042 (4) (851,641)
------------ ----------- ------------- ------------
Total stockholders' equity............................ 33,358,726 4,627,186 6,405,703 44,391,615
------------ ----------- ------------- ------------
Total liabilities and stockholders' equity............ $119,856,451 $ 6,562,490 $ 6,655,703 $133,074,644
============ =========== ============= ============
</TABLE>
79
<PAGE>
INVERNESS MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(UNAUDITED)
The accompanying unaudited pro forma condensed balance sheet has been prepared
by combining the historical results of Inverness and Integ as of September 30,
2000 and reflects the following pro forma adjustments:
(1) Represents the issuance of 1,900,000 shares of Inverness common stock and
the payment of $5,500,000 in exchange for all of the outstanding common
stock, preferred stock, options and warrants of Integ.
(2) Represents the accrual of estimated direct acquisition costs.
(3) Represents the estimated allocation of the purchase price to in-process
research and development and other intangible assets and the related charge
to operations for the estimated value assigned to in-process research and
development.
(4) Represents the elimination of the Integ equity accounts.
80
<PAGE>
INVERNESS MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
-------------------------- --------------------------------
COMBINED
INVERNESS INTEG ADJUSTMENTS COMPANY
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
Net product sales....................................... $125,131,088 $ -- $ $125,131,088
Grants and other revenue................................ 742,415 -- 742,415
------------ ----------- ------------- ------------
Net revenues............................................ 125,873,503 -- -- 125,873,503
Cost of sales........................................... 83,246,433 -- 83,246,433
------------ ----------- ------------- ------------
Gross profit............................................ 42,627,070 -- -- 42,627,070
------------ ----------- ------------- ------------
Operating Expenses:
Research and development................................ 6,905,900 4,217,282 11,123,182
Charge for in-process research and development.......... -- -- 36,467,111 (2) --
(36,467,111)(3)
Selling, general and administrative..................... 35,390,211 3,285,948 1,215,570 (1) 39,891,729
------------ ----------- ------------- ------------
Total operating expenses................................ 42,296,111 7,503,230 1,215,570 51,014,911
------------ ----------- ------------- ------------
Operating income (loss)................................. 330,959 (7,503,230) (1,215,570) (8,387,841)
Interest expense, including amortization of original
issue discount........................................ (8,092,611) (682,135) (8,774,746)
Interest and other (expense) income, net................ (532,470) 340,987 (191,483)
------------ ----------- ------------- ------------
Loss before dividends and accretion on mandatorily
redeemable preferred stock of a subsidiary............ (8,294,122) (7,844,378) (1,215,570) (17,354,070)
Dividends and accretion on mandatorily redeemable
preferred stock of a subsidiary....................... (225,996) -- (225,996)
------------ ----------- ------------- ------------
Loss before extraordinary loss and income taxes......... (8,520,118) (7,844,378) (1,215,570) (17,580,066)
Extraordinary loss on modification of notes payable..... (306,092) -- (306,092)
------------ ----------- ------------- ------------
Loss before income taxes................................ (8,826,210) (7,844,378) (1,215,570) (17,886,158)
Provision for income taxes.............................. 245,342 -- 245,342
------------ ----------- ------------- ------------
Net loss................................................ $ (9,071,552) $(7,844,378) $ (1,215,570) $(18,131,500)
============ =========== ============= ============
Net loss per common share--basic........................ $ (0.66) $ (0.81) $ (0.97)
============ =========== ============
Net loss per common share--diluted...................... $ (0.66) $ (0.81) $ (0.97)
============ =========== ============
Weighted average shares--basic.......................... 16,819,731 9,649,424 (7,749,424)(4) 18,719,731
============ =========== ============= ============
Weighted average shares--diluted........................ 16,819,731 9,649,424 (7,749,424)(4) 18,719,731
============ =========== ============= ============
</TABLE>
81
<PAGE>
INVERNESS MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
The accompanying unaudited pro forma condensed statement of operations has been
prepared by combining the historical results of Inverness and Integ for the year
ended December 31, 1999 and reflects the following pro forma adjustments:
(1) Reflects amortization expense on acquired intangible assets based on their
estimated useful life of 10 years.
(2) Represents charge to operations for the estimated fair values of certain in
process research and development projects.
(3) Represents reversal of nonrecurring charges, in accordance with Securities
and Exchange Commission regulations.
(4) Represents a reduction of Integ shares to reflect the equivalent number of
Inverness shares, based on the terms of the related Agreement and Plan of
Merger.
82
<PAGE>
INVERNESS MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL --------------------------------
------------------------------- COMBINED
INVERNESS INTEG ADJUSTMENTS COMPANY
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net product sales.............................. $89,004,945 $ -- $ $ 89,004,945
Grants and other revenue....................... 641,750 -- 641,750
----------- ----------- ----------- ------------
Net revenues................................... 89,646,695 -- -- 89,646,695
Cost of sales.................................. 60,957,161 -- 60,957,161
----------- ----------- ----------- ------------
Gross profit................................. 28,689,534 -- -- 28,689,534
----------- ----------- ----------- ------------
Operating Expenses:
Research and development....................... 4,356,715 3,323,413 7,680,128
Charge for in-process research and
development.................................. -- -- 36,467,111 (2) --
(36,467,111)(3) --
Selling, general and administrative............ 26,839,432 2,609,684 911,678 (1) 30,360,794
----------- ----------- ----------- ------------
Total operating expenses..................... 31,196,147 5,933,097 911,678 38,040,922
----------- ----------- ----------- ------------
Operating loss................................. (2,506,613) (5,933,097) (911,678) (9,351,388)
Interest expense, including amortization of
original issue discount...................... (6,002,891) (532,194) (6,535,085)
Interest and other income, net................. 169,839 289,497 459,336
----------- ----------- ----------- ------------
Loss before dividends and accretion on
mandatorily redeemable preferred stock of a
subsidiary................................. (8,339,665) (6,175,794) (911,678) (15,427,137)
Dividends and accretion on mandatorily
redeemable preferred stock of a subsidiary... (169,513) -- (169,513)
----------- ----------- ----------- ------------
Loss before extraordinary loss and income
taxes...................................... (8,509,178) (6,175,794) (911,678) (15,596,650)
Extraordinary loss on modification of notes
payable...................................... (306,092) -- (306,092)
----------- ----------- ----------- ------------
Loss before income taxes..................... (8,815,270) (6,175,794) (911,678) (15,902,742)
Provision for income taxes..................... 348,516 -- 348,516
----------- ----------- ----------- ------------
Net loss..................................... $(9,163,786) $(6,175,794) $ (911,678) $(16,251,258)
=========== =========== =========== ============
Net loss per common share--basic............... $ (0.64)(5) $ (0.64) $ (0.88)
=========== =========== ============
Net loss per common share--diluted............. $ (0.64)(5) $ (0.64) $ (0.88)
=========== =========== ============
Weighted average shares--basic................. 16,503,290 9,643,883 (7,743,883)(4) 18,403,290
=========== =========== =========== ============
Weighted average shares--diluted............... 16,503,290 9,643,883 (7,743,883)(4) 18,403,290
=========== =========== =========== ============
</TABLE>
83
<PAGE>
INVERNESS MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
The accompanying unaudited pro forma condensed statement of operations has been
prepared by combining the historical results of Inverness and Integ for the nine
months ended September 30, 1999 and reflects the following pro forma
adjustments:
(1) Reflects amortization expense on acquired intangible assets based on their
estimated useful life of 10 years.
(2) Represents charge to operations for the estimated fair values of certain in
process research and development projects.
(3) Represents reversal of nonrecurring charges, in accordance with Securities
and Exchange Commission regulations.
(4) Represents a reduction of Integ shares to reflect the equivalent number of
Inverness shares, based on the terms of the related Agreement and Plan of
Merger.
(5) Historical basis and diluted net loss per common share is computed as
described in Inverness' filing on Form 10-Q as of and for the three and nine
months ended September 30, 1999, which is incorporated by reference herein.
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<PAGE>
INVERNESS MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL --------------------------------
-------------------------------- COMBINED
INVERNESS INTEG ADJUSTMENTS COMPANY
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net product sales............................. $121,070,826 $ -- $ $121,070,826
Grants and other revenue...................... 246,959 -- 246,959
------------ ----------- ----------- ------------
Net revenues.................................. 121,317,785 -- -- 121,317,785
Cost of sales................................. 70,595,222 -- 70,595,222
------------ ----------- ----------- ------------
Gross profit................................ 50,722,563 -- -- 50,722,563
------------ ----------- ----------- ------------
Operating Expenses:
Research and development...................... 9,478,396 2,713,781 12,192,177
Selling, general and administrative........... 28,910,281 1,249,784 911,678 (1) 31,071,743
------------ ----------- ----------- ------------
Total operating expenses.................... 38,388,677 3,963,565 911,678 43,263,920
------------ ----------- ----------- ------------
Operating income (loss)....................... 12,333,886 (3,963,565) (911,678) 7,458,643
Interest expense, including non-cash interest
expense relating to issuance of warrants and
amortization of original issue discount..... (5,898,188) (304,992) (6,203,180)
Interest and other income, net................ 2,422,877 114,869 2,537,746
------------ ----------- ----------- ------------
Income (loss) before dividends and accretion
on mandatorily redeemable preferred stock
of a subsidiary........................... 8,858,575 (4,153,688) (911,678) 3,793,209
Dividends and accretion on mandatorily
redeemable preferred stock of a
subsidiary.................................. (383,314) -- (383,314)
------------ ----------- ----------- ------------
Income (loss) before extraordinary loss and
income taxes.............................. 8,475,261 (4,153,688) (911,678) 3,409,895
Extraordinary loss on modification of notes
payable..................................... (799,729) -- (799,729)
------------ ----------- ----------- ------------
Income (loss) before income taxes........... 7,675,532 (4,153,688) (911,678) 2,610,166
Provision for income taxes.................... 434,761 -- 434,761
------------ ----------- ----------- ------------
Net income (loss)........................... $ 7,240,771 $(4,153,688) $ (911,678) $ 2,175,405
============ =========== =========== ============
Net income (loss) per common share--basic..... $ 0.30(3) $ (0.42) $ 0.09
============ =========== ============
Net income (loss) per common share--diluted... $ 0.26(3) $ (0.42) $ 0.07
============ =========== ============
Weighted average shares--basic................ 22,618,417 9,827,211 (7,927,211)(2) 24,518,417
============ =========== =========== ============
Weighted average shares--diluted.............. 27,346,752 9,827,211 (7,927,211)(2) 29,246,752
============ =========== =========== ============
</TABLE>
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<PAGE>
INVERNESS MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
The accompanying unaudited pro forma condensed statement of operations has been
prepared by combining the historical results of Inverness and Integ for the six
months ended September 30, 2000 and reflects the following pro forma
adjustments:
(1) Reflects amortization expense on acquired intangible assets based on their
estimated useful life of 10 years.
(2) Represents a reduction of Integ shares to reflect the equivalent number of
Company shares, based on the terms of the related Agreement and Plan of
Merger.
(3) Historical basic and diluted net income per common share is computed as
described in Inverness' filing on Form 10-Q as of and for the three and nine
months ended September 30, 2000, which is incorporated by reference herein.
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<PAGE>
MANAGEMENT OF INVERNESS
EXECUTIVE OFFICERS AND DIRECTORS
The composition of Inverness' management and board of directors will not
change as a result of the merger. Key staff position within the surviving
corporation have not yet been finally determined. From time to time before the
merger, decisions may be made with respect to the management and operations of
the surviving company after the merger, including its officers and manager.
The following table provides information about the directors and executive
officers of Inverness as of November 21, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- -------------------------------------------------------
<S> <C> <C>
Ron Zwanziger.................. 46 President, Chief Executive Officer, Chairman and
Director
Ernest A. Carabillo, Jr........ 62 Director
Carol R. Goldberg(1)........... 69 Director
John F. Levy(2)................ 53 Director
Robert M. Oringer.............. 40 Director and Executive Vice President
Edward B. Roberts, Ph.D.(2).... 64 Director
Peter Townsend(2).............. 66 Director
Willard L. Umphrey(1).......... 59 Director
Kenneth Legg, Ph.D............. 57 Executive Vice President and Secretary
John P. Alberico............... 42 Managing Director-Inverness Medical Limited
Anthony Benardo................ 48 Vice President of New Business Development
Duane L. James................. 40 Vice President of Finance and Treasurer
Keith May, Ph.D................ 46 Vice President, Research and Development, Inverness
Medical Limited
Jerry McAleer, Ph.D............ 47 Vice President of Research and Development, Inverness
Medical Technology, Inc. and Inverness Medical
Limited
David Scott, Ph.D.............. 43 Chairman, Inverness Medical Limited
Otto Wahl...................... 51 Managing Director, Inverness Medical Europe GmbH
John Yonkin.................... 40 Vice President and General Manager, Inverness
Medical, Inc.
</TABLE>
------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Inverness' board currently consists of nine directors. Inverness'
certificate of incorporation provides for a classified board of directors
divided into three classes, each of whose members serve for a staggered
three-year term. At each annual meeting of shareholders, a class of directors
will be elected for a three-year term to succeed the directors of the same class
whose terms are then expiring. The board currently consists of eight members.
Messrs. Oringer, Umphrey and Zwanziger serve as Class I directors with terms
expiring in 2002, Ms. Goldberg and Mr. Roberts serve as Class II directors with
terms expiring in 2003 and Messrs. Carbillo, Townsend and Levy serve as
Class III directors with terms expiring in 2001.
RON ZWANZIGER has served as Inverness' Chairman, Chief Executive Officer and
President since its inception in 1992. From 1981 until 1991, he was chairman and
chief executive officer of MediSense, a medical device company.
ERNEST A. CARABILLO, JR. has served on the Board of Directors since
May 2000. He is the founder and president of EXPERTech Associates, Inc., which
provides regulatory, clinical and quality management consulting services to
medical device companies where he has served as president since 1990. He has
also served in management positions at Baxter Healthcare, C.R. Bard and the
medical
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<PAGE>
device/pharmaceutical division of Union Carbide. Mr. Carabillo has served as the
head of three separate divisions of the Food and Drug Administration and as
Associate Director of Regulatory Affairs for the President's Office of Drug
Policy.
CAROL R. GOLDBERG has served on the Board of Directors since August 1992.
Since December 1989, she has served as president of the AVCAR Group, Ltd., an
investment and management consulting firm in Boston, Massachusetts.
Ms. Goldberg is a director of American Service Group, Inc., a managed healthcare
company, and The Gillette Company, a consumer products company.
JOHN F. LEVY has served on the Board of Directors since August 1996. Since
1993, he has been an independent consultant. Mr. Levy served as president and
chief executive officer of Waban, Inc., a warehouse merchandising company, from
1989 to 1993.
ROBERT M. ORINGER joined the Board of Directors on February 18, 1998 upon
the consummation of Inverness' acquisition of Can-Am Care Corporation. He has
served as president of Can-Am since he first joined that company in 1989. Can-Am
was engaged in the distribution of diabetes care products, primarily to the U.S.
market. He was appointed Executive Vice President in October 2000.
EDWARD B. ROBERTS, PH.D. has served on the Board of Directors since
April 1992. He is the David Sarnoff Professor of Management of Technology at the
Massachusetts Institute of Technology, where he has been a faculty member since
1961. Dr. Roberts was General Partner of Zero Stage Capital and First Stage
Capital Equity Funds, two venture capital funds, from 1991 to 1999. Dr. Roberts
was co-founder and chairman of Pugh-Roberts Associates, an international
management consulting firm specializing in strategic planning and technology
management, now a division of PA Consulting Group. He co-founded and is a
director of Medical Information Technology, Inc., a producer of hospital
information systems. He is a director of Advanced Magnetics, Inc., a medical
imaging company, Pegasystems, Inc., a developer of customer management software,
NETsilicon, Inc., a developer of semiconductor devices and software and
Sohu.com, Inc., a Chinese Internet portal.
PETER TOWNSEND has served on the Board of Directors since August 1996.
Mr. Townsend served as chief executive officer and a director of Enviromed, plc,
a medical products company, from 1991 to 1995, when he retired.
WILLARD L. UMPHREY has served on the Board of Directors since
December 1992. He was the co-founder, chairman and CEO of the Quantitative Group
of Funds, an investment management company. He also served as president and
treasurer of U.S. Boston Capital Corporation, a broker-dealer, prior to
resigning in July 1999.
KENNETH D. LEGG, PH.D. became Inverness' Secretary and Vice President in
charge of U.S. Operations in November 1991. In May 1999, Dr. Legg assumed the
position of Executive Vice President of Inverness.
JOHN P. ALBERICO joined Inverness Medical Limited in July 1999 to serve as
its Managing Director. From December 1998 to July 1999, Mr. Alberico served as
Vice President of Operations for Bionostics Inc., a privately held biotechnology
company based in the United States. Prior to December 1998, Mr. Alberico served
as Vice President of Manufacturing for Nova Biomedical Inc., another
biotechnology company. Nova Biomedical is a world technology leader in the
development of fast, whole blood analyzers.
ANTHONY BENARDO joined Inverness as Vice-President of New Business
Development in April 2000. He served as Senior Vice President and Director of
Operations for a division of Polaroid Corporation from 1997 to the present. From
1991 to 1997, Mr. Benardo was Vice President of Site Operations for Paramax
Chemistry, a unit of Dade Behring, Inc., During his tenure at Paramax,
Mr. Benardo oversaw the acquisition and integration of an in vitro diagnostics
business unit purchased from DuPont.
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<PAGE>
DUANE L. JAMES has served as Corporate Controller since February 1996 and
Chief Accounting Officer since August 1998. Mr. James became Treasurer and Vice
President of Finance in October 2000. From June 1991 to February 1996, he held
positions at Aquila Biopharmaceutical, Inc. with increasing management
responsibility ranging from Accounting Manager to Corporate Controller.
KEITH MAY, PH.D. joined Inverness Medical Limited in December 1999. Prior to
joining Inverness Medical, Dr. May served, since 1987, as Vice President of
Research and Development for Unipath, a leader in women's health products and
technologies. Unipath is a wholly owned subsidiary of Unilever, an international
consumer products conglomerate.
JERRY MCALEER, PH.D. joined Inverness as Director of Development of
Inverness Medical Limited in 1995 and heads the development of the
electrochemical glucose strips. He recently became Vice President of Research
and Development for Inverness and Inverness Medical Limited. Prior to joining
Inverness, Dr. McAleer held senior research and development positions at
MediSense from 1985 to 1993 and more recently, at Ecossensors, Inc., an
environmental research company, where he was responsible for the development of
electrochemically based assay systems.
DAVID SCOTT, PH.D. has served as Managing Director of Inverness Medical
Limited from June 1995 to July 1999, when he assumed the position of Chairman.
Dr. Scott served as Managing Director from October 1993, to April 1995, of Great
Alarm Limited, a consulting company. Previously, Dr. Scott held several
positions from October 1984 to September 1993 at MediSense UK, most recently as
its managing director where he was responsible for managing product development,
as well as the mass manufacture of one of its principal products, ExacTech.
OTTO WAHL has been Managing Director of Inverness Medical Europe GmbH since
April 1995. Prior to joining Inverness Medical, Mr. Wahl was the managing
director for MediSense in Germany, Austria and Switzerland and area manager for
Eastern Europe from January 1990 to March 1995.
JOHN YONKIN joined Inverness in October of 1997 as Manager of Product
Development. In October of 1998, he was appointed Vice President of U.S. Sales
and, in January 2000, General Manager. From January 1995 to September 1998,
Mr. Yonkin was Director of National Accounts for Genzyme Genetics, a subsidiary
of Genzyme, Inc, a leader in genetic testing services for hospitals, physicians
and managed healthcare companies. Previously, Mr. Yonkin worked for MediSense, a
medical device company, in a number of marketing and sales capacities.
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<PAGE>
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
INVERNESS COMMON STOCK
The following table sets forth information regarding the beneficial
ownership of Inverness' common stock as of September 30, 2000 by:
- all persons known by Inverness to own beneficially 5% or more of the
common stock,
- each of the Inverness directors,
- each of Inverness' five most highly compensated executive officers, and
- all of Inverness' directors and executive officers as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares of common stock beneficially owned
by the stockholder. The address for the listed stockholders is c/o Inverness
Medical Technology, Inc., 200 Prospect Street, Waltham, Massachusetts 02453. The
number of shares beneficially owned by each stockholder is determined under
rules issued by the Securities and Exchange Commission and includes voting or
investment power with respect to securities. Under these rules, beneficial
ownership includes any shares as to which the individual or entity has sole or
shared voting power or investment power and includes any shares as to which the
individual or entity has the right to acquire beneficial ownership within
60 days after September 30, 2000 through the exercise of any warrant, stock
option or other right. The inclusion in this proxy statement and prospectus of
these shares, however, does not constitute an admission that the named
stockholder is a direct or indirect beneficial owner of these shares.
The numbers presented give effect to the follow-on public offering of shares
of Inverness' common stock by Inverness and certain selling stockholders of
Inverness, which was consummated on November 27, 2000, and the exercise of the
overallotment option, which was consummated on November 28, 2000.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS(1)
------------------------ -------------------- ----------
<S> <C> <C>
Ron Zwanziger................................... 2,259,698(2) 7.28%
Ernest A. Carabillo, Jr......................... 23,084(3) *
Carol R. Goldberg............................... 242,963(4) *
John F. Levy.................................... 535,587(5) 1.73%
Robert M. Oringer............................... 381,114(6) 1.23%
Edward B. Roberts, Ph.D......................... 174,992(7) *
Peter Townsend.................................. 49,833(8) *
Willard L. Umphrey.............................. 1,229,811(9) 3.96%
Kenneth D. Legg, Ph.D. ......................... 308,408(10) *
John P. Alberico................................ --(11) *
Jerry McAleer, Ph.D. ........................... 176,657(12) *
David Scott, Ph.D. ............................. 340,872(13) 1.10%
John Yonkin..................................... 34,636(14) *
All executive officers and directors (14
persons)...................................... 5,771,265 18.59%
</TABLE>
------------------------
* Represents less than 1%
(1) The number of shares of Inverness common stock outstanding used in
calculating the percentage for each listed person and the directors and
executive officers as a group includes the number of shares of common stock
underlying options, warrants and convertible securities held by such person
or group that were exercisable or convertible within 60 days from
September 30, 2000, the
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<PAGE>
date of the above table, but excludes shares of Inverness common stock
underlying options, warrants or convertible securities held by any other
person.
(2) Includes options and warrants that were currently exercisable, or
exercisable within 60 days of September 30, 2000, to purchase up to
1,069,676 shares of Inverness common stock. Mr. Zwanziger disclaims
beneficial ownership of the following shares included in the table:
(1) 109,754 shares of common stock owned by his spouse, (2) 390,000 shares
of common stock held in trust for the benefit of his children where he, his
spouse and an unrelated individual serve as co-trustees, and (3) 191,916
shares of common stock all held in a trust for the benefit of
Mr. Zwanziger's children where his spouse is the sole trustee. The table
excludes 221,651 shares of Inverness common stock and a warrant to purchase
up to 279,500 shares of Inverness common stock held in trust for the
benefit of Mr. Zwanziger's family where neither he nor his spouse serve as
trustee. Mr. Zwanziger holds options to purchase an additional 500,000
shares of Inverness common stock which were not exercisable within 60 days
of September 30, 2000 and which were not included in the number of shares
set forth in this table. Gives effect to the sale of 300,000 shares by
Mr. Zwanziger in Inverness' recently completed public offering.
(3) Represents options and warrants to purchase up to 23,084 shares of
Inverness common stock which were currently exercisable or were exercisable
within 60 days of September 30, 2000. Mr. Carabillo holds options to
purchase an additional 4,666 shares of Inverness common stock which were
not exercisable within 60 days of September 30, 2000 and which are not
included in the number of shares set forth in this table.
(4) Includes options and warrants to purchase up to 124,836 shares of Inverness
common stock that were currently exercisable or were exercisable within
60 days of September 30, 2000. Ms. Goldberg holds options to purchase an
additional 11,907 shares of Inverness common stock which were not
exercisable within 60 days of September 30, 2000 and which are not included
in the number of shares set forth in this table.
(5) Includes options and warrants to purchase up to 30,696 shares of Inverness
common stock that were currently exercisable or were exercisable within
60 days of September 30, 2000. Mr. Levy holds options to purchase an
additional 11,907 shares of Inverness common stock which were not
exercisable within 60 days of September 30, 2000 and which are not included
in the number of shares set forth in this table.
(6) Mr. Oringer holds options to purchase an additional 6,000 shares of
Inverness common stock which were not exercisable within 60 days of
September 30, 2000 and which are not included in the number of shares set
forth in this table.
(7) Includes options to purchase up to 123,748 shares of Inverness common stock
that were currently exercisable or were exercisable within 60 days of
September 30, 2000. Also includes 36,244 shares of Inverness common stock
held by the Roberts Family Trust, an irrevocable trust, of which
Dr. Roberts is a co-trustee, and 15,000 shares held in trust for the
benefit of Dr. Roberts' three children, of which Dr. Roberts is a
co-trustee. On November 3, 2000, the Roberts Family Trust distributed all
of the 36,244 shares of Inverness common stock held by it to its
beneficiaries. Dr. Roberts disclaims beneficial ownership of all of the
shares held by the Roberts Family Trust and held in trust for the benefit
of his children. Dr. Roberts holds options to purchase an additional 11,907
shares of Inverness common stock which were not exercisable within 60 days
of September 30, 2000 and which were not included in the number of shares
set forth in this table.
(8) Represents options to purchase up to 49,833 shares of Inverness common
stock which were currently exercisable or were exercisable within 60 days
of September 30, 2000. Mr. Townsend holds options to purchase an additional
10,667 shares of Inverness common stock which were not exercisable within
60 days of September 30, 2000 and which are not included in the number of
shares set forth in this table.
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<PAGE>
(9) Includes options and warrants that were currently exercisable or were
exercisable within 60 days of September 30, 2000 to purchase up to 167,231
shares of Inverness common stock. Mr. Umphrey disclaims beneficial
ownership of 149,346 shares of Inverness common stock and warrants to
purchase an additional 20,193 shares of Inverness common stock all owned by
his spouse. Mr. Umphrey also disclaims beneficial ownership of 195,909
shares of Inverness common stock and warrants to purchase an additional
5,291 shares of Inverness common stock held in a retirement account for the
benefit of Mr. Leon Okurowski where Mr. Umphrey is a co-trustee.
Mr. Umphrey holds options to purchase an additional 11,907 shares of
Inverness common stock which were not exercisable within 60 days of
September 30, 2000 and which are not included in the number of shares set
forth in this table.
(10) Includes options to purchase up to 221,446 shares of Inverness common
stock that were currently exercisable or were exercisable within 60 days
of September 30, 2000. Dr. Legg holds options to purchase an additional
185,000 shares of Inverness common stock which were not exercisable within
60 days of September 30, 2000 and which are not included in the number of
shares set forth in this table. Gives effect to the sale by Dr. Legg of
123,100 shares of Inverness common stock in Inverness' recently completed
public offering.
(11) Represents options to purchase up to 20,000 shares of Inverness common
stock which were currently exercisable or were exercisable within 60 days
of September 30, 2000. Mr. Alberico holds options to purchase an
additional 80,000 shares of Inverness common stock which were not
exercisable within 60 days of September 30, 2000 and which are not
included in the number of shares set forth in this table. Gives effect to
the sale by Mr. Alberico of 20,000 shares of Inverness common stock in
Inverness' recently completed public offering.
(12) Includes options to purchase up to 221,500 shares of Inverness common
stock that were currently exercisable or were exercisable within 60 days
of September 30, 2000. Dr. McAleer holds options to purchase an additional
235,000 shares of Inverness common stock which were not exercisable within
60 days of September 30, 2000 and which are not included in the number of
shares set forth in this table. Gives effect to the sale by Dr. McAleer of
75,000 shares of Inverness common stock in Inverness' recently completed
public offering.
(13) Includes options and warrants to purchase up to 334,909 shares of
Inverness common stock that were currently exercisable or were exercisable
within 60 days of September 30, 2000. Dr. Scott holds options to purchase
an additional 285,000 shares of Inverness common stock which were not
exercisable within 60 days of September 30, 2000 and which are not
included in the number of shares set forth in this table. Gives effect to
the sale by Dr. Scott of 90,000 shares of Inverness common stock in
Inverness' recently completed public offering.
(14) Includes options to purchase up to 19,019 shares of Inverness common stock
which were currently exercisable or were exercisable within 60 days of
September 30, 2000. Mr. Yonkin holds options to purchase an additional
30,000 shares of Inverness common stock which were not exercisable within
60 days of September 30, 2000 and which are not included in the number of
shares set forth in this table. Gives effect to the sale by Mr. Yonkin of
6,800 shares of Inverness common stock in Inverness' recently completed
public offering.
INTEG COMMON STOCK
For more information about the beneficial ownership of Integ's common stock,
please refer to Integ's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999. Please refer to the section of this proxy statement and
prospectus entitled "Where You Can Find More Information" on page 107 in order
to find out where you can obtain copies of Integ's Annual Report.
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<PAGE>
DESCRIPTION OF INVERNESS CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The certificate of incorporation of Inverness authorizes the issuance of up
to 40,000,000 shares of common stock, par value $.001 per share, and 5,000,000
shares of undesignated preferred stock, par value $.001 per share, issuable in
series by the board of directors of Inverness. The following is a summary
description of the capital stock of Inverness as provided in its amended and
restated certificate of incorporation and amended and restated bylaws. The
certificate of incorporation and bylaws have been adopted by the stockholders
and/or the board of directors of Inverness.
COMMON STOCK
Holders of common stock are entitled to one vote per share on all matters to
be voted on by stockholders. Holders of common stock are not entitled to
cumulative voting rights. Therefore, the holders of a majority of the shares
voted in the election of directors can elect all of the directors then standing
for election, subject to the rights of the holders of preferred stock, if and
when issued. The holders of common stock have no preemptive or other
subscription rights.
The holders of common stock are entitled to receive dividends, if any, as
may be declared from time to time by the board of directors from funds legally
available therefor, with each share of common stock sharing equally in these
dividends. The possible issuance of preferred stock with a preference over
common stock as to dividends could impact the dividend rights of holders of
common stock.
There are no redemption or sinking fund provisions with respect to the
common stock. All outstanding shares of common stock are fully paid and
nonassessable.
The bylaws provide, subject to the rights of the holders of the preferred
stock, if and when issued, that the number of directors shall be fixed by the
board of directors. The directors, other than those who may be elected by the
holders of preferred stock, if and when issued, are divided into three classes,
as nearly equal in number as possible, with each class serving for a three-year
term. Subject to any rights of the holders of preferred stock, if and when
issued, to elect directors, and to remove any director whom the holders of any
such stock had the right to elect, any director of Inverness may be removed from
office only for cause and by the affirmative vote of at least two-thirds of the
total votes that would be eligible to be cast by stockholders in the election of
such director.
UNDESIGNATED PREFERRED STOCK
The board of directors of Inverness is authorized, without further action of
the stockholders of Inverness, to issue up to 5,000,000 shares of currently
undesignated preferred stock in classes or series and to fix the designations,
powers, preferences and the relative, participating, optional or other special
rights of the shares of each series and any qualifications, limitations and
restrictions thereon as set forth in the certificate of incorporation. Any such
preferred stock issued by Inverness may rank prior to the common stock as to
dividend rights, liquidation preference or both, may have full or limited voting
rights and may be convertible into shares of common stock.
The purpose of authorizing the board of directors to issue preferred stock
is, in part, to eliminate delays associated with a stockholder vote on specific
issuances. The issuance of preferred stock could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring or seeking to acquire, a significant portion of the outstanding
stock of Inverness.
As of December 15, 2000, Inverness did not have any preferred stock
outstanding.
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CERTAIN PROVISIONS OF INVERNESS' CERTIFICATE OF INCORPORATION AND BYLAWS
GENERAL. A number of provisions of the certificate of incorporation and
bylaws of Inverness concern matters of corporate governance and the rights of
stockholders. Certain of these provisions, as well as the ability of the board
of directors of Inverness to issue shares of preferred stock and to set the
voting rights, preferences and other terms thereof, may be deemed to have an
anti-takeover effect and may discourage takeover attempts not first approved by
the board of directors, including takeovers that certain stockholders may deem
to be in their best interests. To the extent takeover attempts are discouraged,
temporary fluctuations in the market price of the Inverness common stock, which
may result from actual or rumored takeover attempts, may be inhibited.
The certificate of incorporation provides for the board of directors to be
divided into three classes, as nearly equal in size as possible, of directors
serving staggered three-year terms. As a result, approximately one-third of the
board of directors will be elected each year. In addition, the certificate of
incorporation provides that stockholders may remove a director only for cause
and only by the vote of the holders of two-thirds of the common stock of
Inverness. This provision, when coupled with the provision of the certificate of
incorporation authorizing only the board of directors to fill vacant
directorships, will:
- preclude stockholders from removing incumbent directors without cause and
simultaneously gaining control of the board of directors by filling the
vacancies created by such removal with their own nominees, and
- will make more difficult, and therefore may discourage, a proxy contest to
change control of Inverness.
These provisions, together with the ability of the board to issue preferred
stock without further stockholder action, also could delay or frustrate the
removal of incumbent directors or the assumption of control by stockholders,
even if the removal or assumption would be beneficial to stockholders of
Inverness. In addition, these provisions could discourage or make more difficult
a merger, tender offer or proxy contest, even if they could be favorable to the
interests of stockholders, and could potentially depress the market price of the
common stock. The board of directors of Inverness believes that these provisions
are appropriate to protect the interests of Inverness and all of its
stockholders. The board of directors has no present plans to adopt any other
measures or devices that may be deemed to have an anti-takeover effect.
MEETINGS OF STOCKHOLDERS. Inverness' bylaws provide that a special meeting
of stockholders may be called only by the board of directors unless otherwise
required by law and subject to the rights, if any, of any series of preferred
stock of Inverness. Inverness' bylaws provide that only those matters set forth
in the notice of the special meeting may be considered or acted upon at that
special meeting, unless otherwise provided by law. In addition, Inverness'
bylaws set forth certain advance notice and informational requirements and time
limitations on any director nomination or any new business which a stockholder
wishes to propose for consideration at an annual meeting of stockholders.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT. The certificate of incorporation
provides that any action required or permitted to be taken by the stockholders
of Inverness at an annual or special meeting of stockholders must be effected at
a duly called meeting and may not be taken or effected by a written consent of
stockholders in lieu thereof.
INDEMNIFICATION AND LIMITATION OF LIABILITY. The bylaws of Inverness
provide that directors and officers of Inverness will be, and in the discretion
of the board of directors, non-officer employees may be, indemnified by
Inverness to the fullest extent authorized by Delaware law, as it now exists or
may in the future be amended, against all expenses and liabilities reasonably
incurred in connection with service for or on behalf of Inverness. The bylaws of
Inverness also provide that the right of directors
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and officers to indemnification shall be a contract right and shall not be
exclusive of any other right now possessed or hereafter acquired under any
bylaw, agreement, vote of stockholders or otherwise. The certificate of
incorporation also contains a provision permitted by Delaware law that generally
eliminates the personal liability of directors for monetary damages for breaches
of their fiduciary duty, including breaches involving negligence or gross
negligence in business combinations, unless the director has breached his or her
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or a knowing violation of law, paid a dividend or approved a stock repurchase in
violation of the Delaware General Corporation Law or obtained an improper
personal benefit. This provision does not alter a director's liability under the
federal securities laws. In addition, this provision does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty. Inverness believes that this provision will assist
Inverness in attracting and retaining qualified individuals to serve as
directors.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION. The certificate of
incorporation provides that an amendment thereof must first be approved by a
majority of the board of directors and, with certain exceptions, thereafter
approved by the holders of a majority of the total votes eligible to be cast by
holders of voting stock with respect to such amendment or repeal and the
affirmative vote of a majority of the outstanding shares of each class entitled
to vote thereon as a class. However, the affirmative vote of two-thirds of the
total votes eligible to be cast by holders of voting stock, voting together as a
single class, and the affirmative vote of two-thirds of the outstanding shares
of each class entitled to vote thereon as a class, is required to amend
provisions relating to the establishment of the board of directors and
amendments to the certificate of incorporation.
AMENDMENT OF BYLAWS. The certificate of incorporation provides that the
bylaws may be amended or repealed by the board of directors or by the
stockholders. Such action by the board of directors requires the affirmative
vote of a majority of the directors then in office. Such action by the
stockholders requires the affirmative vote of the holders of at least two-thirds
of the total votes eligible to be cast by holders of voting stock with respect
to the amendment or repeal at an annual meeting of stockholders or a special
meeting called for the purpose, unless the board of directors recommends that
the stockholders approve the amendment or repeal at the meeting, in which case
the amendment or repeal shall only require the affirmative vote of a majority of
the total votes eligible to be cast by holders of voting stock with respect to
the amendment or repeal.
STATUTORY BUSINESS COMBINATION PROVISION
Inverness is subject to the provisions of section 203 of the Delaware
General Corporation Law. Section 203 provides, with certain exceptions, that a
Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate or associate of such person, who is an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder, unless:
- the transaction resulting in a person becoming an interested stockholder,
or the business combination, is approved by the board of directors of the
corporation before the person becomes an interested stockholder;
- the interested stockholder acquired 85% or more of the outstanding voting
stock of the corporation in the same transaction that makes it an
interested stockholder, excluding shares owned by persons who are both
officers and directors of the corporation and shares held by certain
employee stock ownership plans; or
- on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors
and by the holders of at least two-thirds of the corporation's outstanding
voting stock at an annual or special meeting, excluding shares owned by
the interested stockholder.
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Under section 203, an "interested stockholder" is defined, with certain
limited exceptions, as any person that is:
- the owner of 15% or more of the outstanding voting stock of the
corporation, or
- an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within
the three-year period immediately prior to the date on which it is sought
to be determined whether the person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
section 203 by amending its certificate of incorporation or by-laws by action of
its stockholders to exempt itself from coverage, provided that such bylaw or
charter amendment shall not become effective until 12 months after the date it
is adopted. Neither the certificate of incorporation nor the bylaws of Inverness
contains any such exclusion.
TRANSFER AGENT AND REGISTRAR
Inverness' transfer agent and registrar for the Inverness common stock is
Equiserve.
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COMPARISON OF RIGHTS OF SHAREHOLDERS OF INTEG AND STOCKHOLDERS OF INVERNESS
THIS SECTION OF THE PROXY STATEMENT AND PROSPECTUS DESCRIBES SOME
DIFFERENCES BETWEEN THE RIGHTS OF HOLDERS OF INTEG SHARES AND THE RIGHTS OF
HOLDERS OF INVERNESS SHARES. WHILE WE BELIEVE THAT THE DESCRIPTION COVERS THE
MATERIAL DIFFERENCES BETWEEN THE RIGHTS OF THE HOLDERS, THIS SUMMARY MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD CAREFULLY
READ THIS ENTIRE DOCUMENT AND REFER TO THE OTHER DOCUMENTS DISCUSSED BELOW FOR A
MORE COMPLETE UNDERSTANDING OF THE DIFFERENCES BETWEEN YOUR RIGHTS AS A HOLDER
OF INTEG SHARES AND YOUR RIGHTS AS A HOLDER OF INVERNESS SHARES.
As a shareholder of Integ, a Minnesota corporation, your rights will be
governed by Minnesota law, Integ's articles of incorporation, as currently in
effect, and Integ's amended bylaws, as currently in effect. After completion of
the merger, you will become a stockholder of Inverness, a Delaware corporation.
Inverness' common stock is quoted on the American Stock Exchange under the
symbol "IMA." As an Inverness stockholder, your rights will be governed by
Delaware law, Inverness' second amended and restated certificate of
incorporation, as amended, and Inverness' amended and restated bylaws. The
rights and privileges of stockholders of a Delaware corporation are in many
instances comparable to those of shareholders of a Minnesota corporation,
although there are also differences.
The following discussion of similarities and material differences between
the rights of Integ shareholders under the articles of incorporation and bylaws
of Integ and the rights of Inverness stockholders under the certificate of
incorporation and bylaws of Inverness is only a summary of some provisions and
is not a complete description of these similarities and differences. This
discussion is qualified in its entirety by reference to Minnesota law and
Delaware law, the common law thereunder and the full texts of the certificate of
incorporation and bylaws of Inverness and the articles of incorporation and
bylaws of Integ. A holder of shares of a Minnesota corporation is termed a
"shareholder," and a holder of shares of a Delaware corporation is termed a
"stockholder." There is no material difference between the use of these terms.
SHAREHOLDER MEETINGS
Bylaws governed by Delaware law require Delaware corporations to provide
stockholders with prior written notice no more than 60 days nor less than
10 days prior to the date of any meeting of stockholders. Delaware law provides
that notice must be given to stockholders at least 20 days prior to a meeting at
which the stockholders will be asked to approve and adopt an agreement relating
to the merger of a Delaware corporation.
Under Minnesota law, shareholders are entitled to at least 10 days' prior
written notice for each regular meeting and special meeting to consider any
matter, unless a shorter time is provided for in the articles or bylaws. The
bylaws of Integ require that the shareholders be given at least 5 days' written
notice prior to each regular meeting and special meeting. However, Minnesota law
also requires that notice of a meeting at which an agreement of merger or
exchange is to be considered shall be mailed to all shareholders of record,
whether or not entitled to vote, at least 14 days prior to this meeting.
RIGHT TO CALL SPECIAL MEETINGS
Under Delaware law, a special meeting of stockholders may be called by the
board of directors or by the person or persons who may be authorized by the
certificate of incorporation or by the bylaws. Inverness' bylaws authorize the
calling of a special meeting of stockholders only by the board of directors, and
no other person is authorized by Inverness' certificate of incorporation or
bylaws to call a special meeting. Therefore, stockholders of Inverness do not
have the right to call a special meeting of stockholders.
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Under Minnesota law and Integ's bylaws, a special meeting of shareholders
may be called by the chief executive officer, the chief financial officer, any
two or more directors, a person authorized in the articles or bylaws to call
special meetings, or a shareholder or shareholders holding 10% or more of the
voting power of all shares entitled to vote, except that a special meeting
called by a shareholder for the purpose of considering any action to directly or
indirectly facilitate or affect a business combination, including any action to
change or otherwise affect the composition of the board of directors for that
purpose, must be called by 25% or more of the voting power of all shares
entitled to vote. No person is specifically designated in Integ's articles or
bylaws to call a special meeting of shareholders.
ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS
Under Delaware law, unless otherwise provided in the certificate of
incorporation, stockholders may act by a written consent in lieu of a meeting
provided the written consent is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. Inverness' certificate of incorporation,
however, provides that all actions required or permitted to be taken by the
stockholders of the corporation must be effected at a duly called annual or
special meeting of stockholders of the corporation and may not be effected by
any consent in writing of stockholders.
Under Minnesota law, any action required or permitted to be taken at a
meeting of shareholders may be taken without a meeting by a written action
signed by all shareholders entitled to vote on that action.
RIGHTS OF DISSENTING SHAREHOLDERS
Under both Delaware and Minnesota law, stockholders and shareholders may,
under certain circumstances, exercise a right of dissent from certain limited
corporate actions and obtain payment for the fair value of their shares.
Generally, under Minnesota law, the categories of transactions subject to
dissenters' rights are broader than those under Delaware law.
Appraisal rights are available under Delaware law with respect to the shares
of any class of stock of a constituent corporation to a merger unless these
shares were listed on a national securities exchange, designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than 2,000
stockholders. Notwithstanding the foregoing, appraisal rights are available
under Delaware law with respect to the shares of any class of stock of a
constituent corporation if the terms of a merger or consolidation require the
holders of the stock to exchange their stock for anything other than:
- shares of the surviving corporation;
- shares of another corporation that will be listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
- cash in lieu of fractional shares of any such corporation; or
- any combination of such shares and cash in lieu of fractional shares.
Appraisal rights are also available under Delaware law, to the extent so
provided in the certificate of incorporation, in connection with amendments to
the certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation, or sales of all or substantially all
of the assets of a corporation. Inverness' certificate of incorporation and
bylaws do not grant any dissenters' rights in addition to the statutorily
prescribed rights. Stockholders who desire to exercise their dissenters' rights
must satisfy all of the conditions and requirements as set forth in the Delaware
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General Corporation Law in order to maintain these rights and obtain any payment
due in respect of the exercise of these rights.
Shareholders of a Minnesota corporation may exercise dissenter's rights in
connection with:
- an amendment of the articles of incorporation that materially and
adversely affects the rights and preferences of the shares of the
dissenting shareholder in certain respects;
- a sale, lease, transfer or other disposition of all or substantially all
of the assets of the corporation;
- a plan of merger to which the corporation is a constituent organization;
- a plan of exchange of shares to which the corporation is a party as the
corporation whose shares will be acquired, if the shares are entitled to
be voted on the plan of exchange; and
- any corporate action taken pursuant to a shareholder vote which the
corporation's articles of incorporation, bylaws or resolution approved by
the board of directors grants dissenting shareholders the right to obtain
payment for their shares.
Unless the articles, the bylaws or a resolution approved by the board of
directors otherwise provide, these dissenters' rights do not apply to a
shareholder of (a) the surviving corporation in a merger with respect to shares
that are not entitled to be voted on the merger and are not canceled or
exchanged in the merger, or (b) the corporation whose shares will be acquired by
the acquiring corporation in a plan of exchange with respect to shares that are
not entitled to be voted on the plan of exchange and are not exchanged in the
plan of exchange. Integ's articles of incorporation, bylaws and approved board
resolutions do not grant any other dissenters' rights. Shareholders who desire
to exercise their dissenters' rights must satisfy all of the conditions and
requirements as set forth in the Minnesota Business Corporation Act in order to
maintain these rights and obtain any payment due in respect of the exercise of
these rights.
BOARD OF DIRECTORS
Delaware law states that the board of directors must consist of one or more
members with the number of directors to be fixed as provided in the bylaws of
the corporation, unless the certificate of incorporation fixes the number of
directors, in which case a change in the number of directors shall be made only
by amendment of the certificate. Inverness' certificate of incorporation and
bylaws provide that the number of directors to constitute the whole board of
directors shall be fixed from time to time by resolution of the board of
directors. Inverness' board currently consists of eight directors.
Delaware law also states that any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors, with an exception for
corporations with cumulative voting. In the case of a corporation whose board is
divided into classes, holders only may remove a director for cause unless the
certificate of incorporation provides otherwise. Inverness' certificate of
incorporation provides for a classified board of directors in which the board of
directors is divided into three classes as nearly equal in number as may be
possible, with the term of office of one class expiring each year. Inverness'
certificate of incorporation does not provide for cumulative voting of
directors.
Inverness' certificate of incorporation provides that a director may be
removed only for cause and only by the affirmative vote of the holders of
two-thirds of the shares entitled to vote at an election of directors. The
certificate defines "cause" to include:
- conviction of a felony;
- declaration of unsound mind by order of court;
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- gross dereliction of duty;
- commission of any action involving moral turpitude; or
- commission of an action that constitutes intentional misconduct or a
knowing violation of law if such action in either event results in both an
improper substantial personal benefit and a material injury to Inverness.
Minnesota law provides that the board of directors of a Minnesota
corporation must consist of one or more directors as fixed by the articles of
incorporation or bylaws. Integ's bylaws provide that the Integ board of
directors shall consist of one or more directors and shall be increased or
decreased from time to time by resolution of the board of directors or the
shareholders. Integ's bylaws provide that the board is divided into three
classes, to be as nearly equal in number as reasonably possible. Integ currently
has six directors.
Minnesota law provides that, unless modified by the articles or bylaws of
the corporation or by shareholder agreement, any one or all of the directors may
be removed with or without cause by the affirmative vote of the holders of a
majority of the voting power of all shares entitled to vote at an election of
directors, with an exception for corporations with cumulative voting. Integ's
articles and bylaws do not alter the statutory provisions regarding removal of
directors. Integ's articles of incorporation state that shareholders shall not
have any cumulative voting rights.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Delaware law provides that, unless otherwise provided in the certificate of
incorporation or bylaws, vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled with
directors elected by all the stockholders having the right to vote as a class or
by a majority of the directors then in office, although less than a quorum, or
by a sole remaining director. Further, if the directors then in office
constitute less than a majority of the whole board at the time of filling any
vacancy or newly created directorship, upon application of any stockholder or
stockholders holding at least 10% of the total number of the shares at the time
outstanding having the right to vote for directors, the Court of Chancery may
summarily order an election to be held to fill any vacancies or newly created
directorships or to replace the directors chosen by the directors then in
office. Inverness' certificate of incorporation provides that in case of any
vacancies, by reason of an increase in the number of directors or otherwise,
each additional director shall be elected by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the board of
directors, to serve until the end of the remainder of the term of the class to
which that director is assigned and until his or her successor has been elected
and qualified or until earlier resignation or removal. Furthermore, when the
number of directors is changed, any newly created directorships or any decrease
in directorships must be so apportioned among the classes by a majority of the
directors then in office.
Under Minnesota law, unless different rules for filling vacancies are
provided for in the articles of incorporation or bylaws, vacancies resulting
from the death, resignation, removal or disqualification of a director may be
filled by the affirmative vote of a majority of the remaining directors, even
though less than a quorum, and vacancies resulting from a newly created
directorship may be filled by the affirmative vote of a majority of the
directors serving at the time of the increase. Each director elected to fill a
vacancy holds office until the shareholders elect a successor at the next annual
or special meeting. New directors may be elected at a meeting at which directors
are removed. Integ's bylaws provide that vacancies on the board of directors
resulting from death, resignation, removal or disqualification are to be filled
by a majority vote of the remaining directors, even if less than a quorum.
Integ's bylaws also provide that newly created directorships due to increases in
the size of the board of directors shall be filled by the majority vote of the
existing directors. Furthermore, all
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directors filling vacancies or newly created directorships shall hold office
until their successors are elected at the next regular or special meeting of the
shareholders.
PREEMPTIVE RIGHTS
A preemptive right allows a shareholder to maintain its proportionate share
of ownership of that corporation by permitting the shareholder to purchase a
proportionate share of any new stock issuances. Preemptive rights protect the
shareholders from dilution of value and control upon new stock issuances.
Unless the certificate of incorporation of a Delaware corporation provides
otherwise, stockholders of a corporation have no preemptive rights. Inverness'
certificate does not provide for preemptive rights.
Minnesota law provides that all shareholders are entitled to preemptive
rights unless the articles of incorporation specifically deny or limit
preemptive rights. Integ's articles of incorporation provide that shareholders
do not have preemptive rights.
ADVANCE NOTICE REQUIREMENT OF SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Inverness' bylaws provide that for a proposal to be properly brought before
an annual meeting by a stockholder, the stockholder must give proper written
notice of his or her intent to bring a matter before the annual meeting and must
also be present at this meeting. The bylaws state that notice is timely if it is
mailed to and received by Inverness' principal executive office no less than
75 days nor more than 120 days prior to the anniversary date of the preceding
annual meeting.
Inverness' bylaws provide that any stockholder who is a holder of record,
both as of the time notice of the nomination is given and as of the record date
for the annual meeting in question, and who is entitled to vote in the election
of directors generally may nominate one or more persons for election as a
director if certain timing, informational and other requirements set out in the
bylaws are met. Furthermore, the stockholder proposing the nomination and each
person so nominated shall be present at the meeting in order for the nomination
to be properly before the meeting at which the nominations are to be considered.
Inverness' bylaws also provide that, with certain exceptions, notice of
nomination is timely, if it is received in writing by the secretary of the
corporation no less than 75 days nor more than 120 days prior to the anniversary
date of the annual meeting of the previous year. The bylaws require that this
notice provide certain detailed information about both the nominating
stockholder and the nominated individual or individuals.
Integ's bylaws provide that for a shareholder proposal to be properly made
by a shareholder at a regular meeting, the matter must be proper for shareholder
action, and the shareholder must be entitled to vote at the meeting, must give
prior notice of the matter and must be a shareholder of record at the time of
giving notice. The bylaws require that the shareholder give written notice of
the proposal containing the information required by Rule 14a-8 under the
Securities Exchange Act to the chief executive officer or secretary of the
corporation no later than the end of the fifteenth business day following the
day on which the notice of the regular meeting was mailed to shareholders.
Integ's bylaws also provide that for a nomination of a director to be properly
made by a shareholder at a regular meeting, the shareholder must be entitled to
vote at the meeting, must give prior written notice of the nomination to the
secretary of the corporation no later than the end of the fifteenth business day
following the day on which the notice of the shareholder meeting was mailed to
shareholders and must be a shareholder of record at the time of giving notice.
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AMENDMENTS TO BYLAWS AND ARTICLES
In order to amend the certificate of incorporation of a Delaware
corporation, Delaware law requires the approval of the corporation's board of
directors followed by the affirmative vote of a majority of the outstanding
stock of each class entitled to vote, unless the certificate of incorporation
requires a greater level of approval. Further, Delaware law states that if an
amendment would increase or decrease the aggregate number of authorized shares
of a particular class, increase or decrease the par value of shares of a
particular class or alter or change the powers, preferences or special rights of
a particular class or series of stock so as to affect them adversely, the class
shall be given the power to vote as a class notwithstanding the absence of any
specifically enumerated power in the certificate of incorporation. If any
proposed amendment would alter or change the powers, preferences or special
rights of one or more series of any class so as to affect them adversely, but
shall not so affect the entire class, then only the shares of the series so
affected by the amendment shall be considered a separate class for the purposes
of this paragraph. Inverness' certificate of incorporation states that Inverness
cannot amend or otherwise modify or repeal certain provisions of the Inverness
certificate relating to stockholder action, election and terms of directors,
breach of director fiduciary duties and liability, and amending its certificate
of incorporation without the affirmative vote of the holders of record of
two-thirds of all the shares outstanding and entitled to vote and the approval
of two-thirds of each class of shares.
Delaware law also states that the stockholders have the power to adopt,
amend or repeal the bylaws of a corporation, provided that the corporation in
its certificate of incorporation may confer such powers on the board of
directors in addition to the stockholders. Inverness' certificate of
incorporation and bylaws permit the board of directors to adopt, amend, alter
and repeal the bylaws of the corporation. Inverness' certificate of
incorporation provides that the bylaws also may be altered, amended or repealed
at any regular meeting of stockholders or special meeting called for that
purpose, by the affirmative vote of two-thirds of the shares present and
entitled to vote. Inverness' certificate of incorporation provides that this
requirement of the vote of two-thirds of the shares is reduced to the
requirement of the vote of a majority of the shares if the board recommends that
stockholders approve the amendment or repeal at such a meeting.
Minnesota law provides that unless reserved by the articles of incorporation
to the shareholders, the power to adopt, amend or repeal the bylaws is vested in
the board, subject to the power of the shareholders to adopt, amend or repeal
bylaws adopted, amended or repealed by the board. Under Minnesota law, a
shareholder or shareholders holding 3% or more of the voting shares entitled to
vote may propose a resolution to adopt, amend or repeal bylaws adopted, amended
or repealed by the board, in which event the resolutions must be brought before
the shareholders for their consideration pursuant to the procedures for amending
the articles of incorporation. Under Minnesota law and Integ's bylaws, the board
of directors are not permitted to adopt, amend or repeal any bylaws once adopted
that fix a quorum for meetings of shareholders, prescribe procedures for
removing directors or fill vacancies in the board of directors, or fix the
number of directors or their classifications, qualifications or terms of office.
These actions are reserved to the shareholders. However, Minnesota law does
provide that the board of directors may adopt or amend a bylaw to increase the
number of directors, and Integ's bylaws permit this action without amendment of
the bylaws. Integ's bylaws and articles are silent as to amendment of its
bylaws.
Minnesota law provides that a proposal to amend the articles of
incorporation may be presented to the shareholders of a Minnesota corporation by
a resolution either approved by the affirmative vote of a majority of the
directors present or proposed by a shareholder or shareholders holding 3% or
more of the voting shares entitled to vote thereon. Under Minnesota law, any
such amendment must be approved by the affirmative vote of a majority of the
shareholders entitled to vote thereon, except that the articles may provide for
a specified proportion or number greater than a majority.
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In addition, under Minnesota law, the holders of the outstanding shares of a
class or series are entitled to vote as a class or series on a proposed
amendment to the articles of incorporation, whether or not that class or series
would otherwise be entitled to vote, if the amendment would:
- alter the aggregate number of authorized shares of the applicable class or
series;
- effect an exchange, reclassification or cancellation of all or part of the
class or series;
- effect an exchange or create a right of exchange of all or a part of
another class or series for the shares of the applicable class or series;
- change the rights or preferences of the shares of the applicable class or
series;
- change the shares of the class or series into the same or a different
number of shares of another class or series;
- create a new class or series with rights or preferences prior and superior
to the shares of the applicable class or series or increase the rights and
preferences or the number of authorized shares, of a class or series
having rights and preferences prior or superior to the shares of the
applicable class or series;
- divide the shares of the applicable class into series and determine the
designation of each series and the variations in the relative rights and
preferences between the shares of each series, or authorize the board to
do so;
- limit or deny any existing preemptive rights of the shares of the
applicable class or series; or
- cancel or otherwise affect distributions on the shares of the applicable
class or series that have accrued but have not been declared.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Minnesota law and Delaware law both contain provisions setting forth
conditions under which a corporation may indemnify its directors, officers and
employees. Specifically, the person to be indemnified must have acted in good
faith and in a manner the person reasonably believed to be in, or not opposed
to, the best interests of the corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that the conduct was
unlawful. Minnesota and Delaware law differ, however, with respect to whether
indemnification is permissive or mandatory, where there is a distinction between
third-party actions and actions by or in the right of the corporation, and
whether, and to what extent, reimbursement of judgments, fines, settlements and
expenses is allowed. The primary difference between Minnesota law and Delaware
law is that while indemnification of officers, directors and employees is
mandatory under Minnesota law, indemnification is permissive under Delaware law,
except that a Delaware corporation must indemnify a present or former director
or officer who is successful on the merits or otherwise in the defense of some
specified actions, suits or proceedings for expenses, including attorney's fees,
actually and reasonably incurred in connection therewith.
Although indemnification is permissive in Delaware, a corporation may,
through its certificate of incorporation, bylaws or other intracorporate
agreements, make indemnification mandatory. Pursuant to this authority,
Inverness' bylaws provide that any person who serves or has served as a director
or officer of the corporation or in any other office filled by election or
appointment by the stockholders or the board of directors of the corporation and
any heirs, executors, administrators or personal representatives of such person
shall be indemnified and held harmless by the corporation to the fullest extent
authorized by the Delaware General Corporation Law. This indemnification is to
cover all related expenses incurred by the person in connection with any
proceeding in which the person is involved. Additionally, pursuant to the merger
agreement entered into between Integ and Inverness,
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Inverness will maintain a liability insurance policy providing coverage for the
directors and officers of Integ.
The bylaws of Inverness also permit the board of directors, in its
discretion, to permit the corporation to indemnify to the fullest extent
authorized by the Delaware General Corporation Law any other employee of the
company. The indemnification can be for any expenses incurred by the employee in
connection with any proceeding in which he or she is involved as a result of
serving or having served (a) as an employee of the corporation who is neither a
director nor officer, (b) as a director, officer or employee of any subsidiary
of the corporation, or (c) in any capacity with any other corporation,
organization, partnership, joint venture, trust or any other entity at the
request or direction of the corporation.
However, Inverness' bylaws also provide that no indemnification may be
provided for any person unless a determination has been made that the person
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, the best interests of the corporation, and with respect to any
criminal proceeding, the person had no reasonable cause to believe his or her
conduct was unlawful. The bylaws provide that this determination shall be made
(a) by a majority vote of disinterested directors, (b) by the stockholders or
(c) at the direction of a majority of disinterested directors, by independent
legal counsel in a written opinion.
Minnesota law requires a corporation to indemnify any director, officer or
employee who is made or threatened to be made a party to a proceeding by reason
of the former or present official capacity of the director, officer or employee,
against judgments, penalties, fines, settlements and reasonable expenses.
Minnesota law permits a corporation to prohibit indemnification by so providing
in its articles of incorporation or its bylaws. Integ's bylaws provide that all
officers and directors of the corporation shall be indemnified by the
corporation for those expenses and liabilities, in that manner, under those
circumstances and to the fullest extent permitted by Minnesota law. However,
Integ's bylaws prohibit indemnification of any other employees of the company,
unless otherwise approved by Integ's board of directors.
LIABILITIES OF DIRECTORS
Under Delaware law, a certificate of incorporation may contain a provision
limiting or eliminating a director's personal liability to the corporation or
its stockholders for monetary damages for a director's breach of fiduciary duty,
subject to certain limitations. Pursuant to this authority, Inverness'
certificate of incorporation provides that the directors of Inverness shall not
be personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to the corporation or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
- under section 174 of the Delaware General Corporation Law, which provides
for unlawful payment of dividend or unlawful stock purchase or redemption;
or
- for any transaction from which the director derived an improper personal
benefit.
Inverness' certificate of incorporation also provides that if Delaware law
is amended to eliminate or limit the liability of directors further, then the
liability of Inverness' directors shall be limited to the fullest extent
permitted by Delaware law, as so amended.
104
<PAGE>
Under Minnesota law, a director's personal liability to the corporation or
its shareholders for monetary damages for breach of fiduciary duty as a director
may be eliminated or limited in the articles except that the articles cannot
limit the liability of a director:
- for any breach of the director's duty of loyalty to the corporation or its
shareholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of the law;
- under section 302A.559 of the Minnesota Business Corporation Act or
section 80A.23 of the Minnesota Regulation of Securities Act, which
provide for liability for illegal distributions and civil liability,
respectively;
- for any transaction from which the director derived an improper benefit;
or
- for any act or omission occurring prior to the date when the provision in
the articles eliminating liability becomes effective.
Integ's articles provide that directors of the corporation are to be
protected from personal liability to the corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director to the fullest
extent permitted by the Minnesota Business Corporation Act.
SHAREHOLDER APPROVAL OF A MERGER
In order to effect a merger under Delaware law, a corporation's board of
directors must adopt an agreement of merger or consolidation and recommend it to
the stockholders. The agreement must be approved and adopted by holders of a
majority of the outstanding shares of the corporation entitled to vote thereon,
unless a higher percentage is specified in the corporation's certificate of
incorporation.
Minnesota law provides that a resolution containing a plan of merger or
exchange must be approved by the affirmative vote of a majority of the directors
present at a meeting and submitted to the shareholders and approved by the
affirmative vote of the holders of a majority of the voting power of all shares
entitled to vote. Unlike Delaware law, Minnesota law requires that any class of
shares of a Minnesota corporation must be given the right to approve the plan if
it contains a provision which, if contained in a proposed amendment to the
corporation's articles of incorporation, would entitle such a class to vote as a
class.
BUSINESS COMBINATIONS, CONTROL SHARE ACQUISITIONS AND ANTI-TAKEOVER PROVISIONS
Delaware law prohibits, in some circumstances, a "business combination"
between the corporation and an "interested stockholder" within three years of
the stockholder becoming an "interested stockholder." An "interested
stockholder" is a holder who, directly or indirectly, owns 15% or more of the
outstanding voting stock or is an affiliate of the corporation and was the owner
of 15% or more of the outstanding voting stock at any time within the prior
three-year period. A "business combination" includes a merger or consolidation,
a sale or other disposition of assets having an aggregate market value equal to
10% or more of the consolidated assets of the corporation or the aggregate
market value of the outstanding stock of the corporation, any transaction
resulting in the issuance or transfer of stock by the corporation, or certain of
its subsidiaries, with exceptions, and certain transactions that would increase
the interested stockholder's proportionate share ownership in the corporation.
This provision does not apply where:
- either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder is approved by the
corporation's board of directors prior to the date the interested
stockholder acquired a 15% interest;
105
<PAGE>
- upon the consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the outstanding voting stock of the corporation excluding,
for the purposes of determining the number of shares outstanding, those
shares held by persons who are directors and also officers and by employee
stock plans in which participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered;
- the business combination is approved by a majority of the board of
directors and the affirmative vote of two-thirds of the outstanding votes
entitled to be cast by disinterested stockholders at an annual or special
meeting;
- the corporation does not have a class of voting stock that is listed on a
national securities exchange, authorized for quotation on the Nasdaq Stock
Market, or held of record by more than 2,000 stockholders unless any of
the foregoing results from action taken, directly or indirectly, by an
interested stockholder or from a transaction in which a person becomes an
interested stockholder;
- the stockholder acquires a 15% interest inadvertently and divests itself
of such ownership and would not have been a 15% stockholder in the
preceding 3 years but for the inadvertent acquisition of ownership;
- the stockholder acquired the 15% interest when these restrictions did not
apply; or
- the corporation has opted out of this provision. Inverness has not opted
out of this provision.
Minnesota law prohibits certain "business combinations," as defined in the
Minnesota Business Corporation Act, between a Minnesota corporation with at
least 100 shareholders, or a publicly held corporation that has at least 50
shareholders, and an "interested shareholder" for a four-year period following
the share acquisition date by the interested shareholder, unless certain
conditions are satisfied or an exemption is found. An "interested shareholder"
is generally defined to include a person who beneficially owns at least 10% of
the voting power of the outstanding shares entitled to vote of the issuing
public corporation. Minnesota law also limits the ability of a shareholder who
acquires beneficial ownership of more than certain thresholds of the percentage
voting power of a Minnesota corporation, starting at 20%, from voting those
shares in excess of the threshold unless such acquisition has been approved in
advance by a majority of the voting power held by shareholders unaffiliated with
the interested shareholder.
Minnesota law provides that during any tender offer, a publicly held
corporation may not enter into or amend an agreement, whether or not subject to
contingencies, that increases the current or future compensation of any officer
or director. In addition, under Minnesota law, a publicly held corporation is
prohibited from purchasing any voting shares owned for less than two years from
a 5% shareholder for more than the market value unless the transaction has been
approved by the affirmative vote of the holders of a majority of the voting
power of all shares entitled to vote or unless the corporation makes a
comparable offer to all holders of shares of the class or series of stock held
by the 5% shareholder and to all holders of any class or series into which such
securities may be converted.
The provisions of Integ's bylaws providing for a staggered board of
directors and requiring the request of holders of at least 25% of the
outstanding shares to call a special meeting of shareholders involving a
business combination, or any change in the composition of the board of directors
as a result of such business combination, make it more difficult to effect a
change in control of Integ and may discourage or deter a third party from
attempting a takeover.
The foregoing discussion of certain similarities and material differences
between the rights of Inverness stockholders and the rights of Integ
shareholders under Inverness' certificate of incorporation
106
<PAGE>
and bylaws and Integ's articles of incorporation and bylaws is only a summary of
certain provisions and does not purport to be a complete description of the
similarities and differences, and is qualified in its entirety by reference to
Delaware law and Minnesota law, the common law thereunder and the full text of
the certificate of incorporation and bylaws of Inverness and the articles of
incorporation and bylaws of Integ.
LEGAL MATTERS
Goodwin, Procter & Hoar LLP, Boston, Massachusetts will pass upon the
validity of the shares of Inverness common stock offered by this proxy statement
and prospectus for Inverness. Dorsey & Whitney LLP, Minneapolis, Minnesota, on
behalf of Integ, and Goodwin, Procter & Hoar LLP, on behalf of Inverness, will
pass upon certain legal matters to the effect that the merger will constitute a
tax-free reorganization within the meaning of section 368(a) of the Internal
Revenue Code. The presidents of two professional corporations which are partners
in the firm of Goodwin, Procter & Hoar LLP beneficially own an aggregate of
approximately 42,442 shares of Inverness common stock and 4,000 shares of
Inverness common stock, respectively.
EXPERTS
The consolidated financial statements of Inverness Medical Technology, Inc.
(formerly Selfcare, Inc.) and subsidiaries as of December 31, 1999 and 1998, and
for each of the years in the three-year period ended December 31, 1999,
incorporated by reference in this proxy statement and prospectus and elsewhere
in the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated by reference herein upon the authority of said
firm as experts in giving said reports.
The financial statements of Integ Incorporated at December 31, 1999 and
1998, and for each of the three years ended December 31, 1999, included in the
proxy statement, which is referred to in and made part of this prospectus and
registration statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Inverness and Integ file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that
Inverness and Integ file with the SEC at the SEC's public reference rooms at the
following locations:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
</TABLE>
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. These SEC filings are also available to the public from
commercial document retrieval services and at the Internet world wide web site
maintained by the SEC at "http://www.sec.gov." Reports, proxy statements and
other information concerning Inverness and Integ may also be inspected at the
offices of the American Stock Exchange and the Nasdaq Stock Market, both of
which are located at 1735 K Street, N.W., Washington, D.C. 20006. Inverness' SEC
file number is 000-20871 and Integ's SEC file number is 0-28420.
107
<PAGE>
Inverness has filed a registration statement on Form S-4 to register with
the SEC the Inverness stock to be issued to Integ shareholders in the merger.
This proxy statement and prospectus is a part of that registration statement and
constitutes a prospectus of Inverness in addition to being a proxy statement of
Integ. As allowed by SEC rules, this proxy statement and prospectus does not
contain all the information you can find in Inverness' registration statement or
the exhibits to the registration statement. Statements made in this proxy
statement and prospectus as to the content of any contract, agreement or other
document referenced to are not necessarily complete. With respect to each of
those contracts, agreements or other documents to be filed or incorporated by
reference as an exhibit to the registration statement, you should refer to the
corresponding exhibit, when it is filed, for a more complete description of the
matter involved of the matter involved and read all statements in this proxy
statement and prospectus in light of that exhibit.
The SEC allows Inverness to incorporate by reference the information that
Inverness files with them as well as some of the information that Integ files
with them. Incorporation by reference means that Inverness can disclose
important information to you by referring you to other documents that are
legally considered to be part of this proxy statement and prospectus, and later
information that Inverness files with the Securities and Exchange Commission
will automatically update and supersede the information in this proxy statement
and prospectus and the documents listed below. Inverness incorporates by
reference the specific documents listed below and any future filings Inverness
makes with the Securities and Exchange Commission, under sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, after the date of this proxy
statement and prospectus and prior to the date of the special meeting and the
date all of the transactions contemplated in this proxy statement and prospectus
are completed:
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000,
June 30, 2000 and September 30, 2000,
- Annual Report on Form 10-K for the year ended December 31, 1999,
- Current Reports on Form 8-K filed on October 6, 2000 (and amendments
thereto), November 1, 2000 (and amendments thereto), and December 4, 2000,
and
- The description of Inverness common stock contained in its Registration
Statement on Form 8-A filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, and all amendments and
reports updating the description.
Integ incorporates by reference its Annual Report on Form 10-K for the year
ended December 31, 1999 with respect to information contained in the Annual
Report discussed under the section of this proxy statement and prospectus
entitled "Security Ownership of Directors, Executive Officers and Principal
Stockholders--Integ Common Stock" on page 92. You may request a copy of this
filing, at no cost by writing or telephoning Integ at the following address:
Integ Incorporated, 2800 Patton Road, St. Paul, Minnesota 55113,
(651) 639-8816.
You may request a copy of these filings, and any exhibits specifically
incorporated by reference as an exhibit in this proxy statement and prospectus,
at no cost, by writing or telephoning Inverness at the following address:
Inverness Medical Technology, Inc., 200 Prospect Street, Waltham, Massachusetts
02453, Attention: Corporate Secretary. Telephone requests may be directed to the
Corporate Secretary at (781) 647-3900.
You should rely only on the information contained or incorporated by
reference in this proxy statement and prospectus. Inverness has supplied all
information contained or incorporated by reference in this proxy statement and
prospectus relating to Inverness and Terrier, and Integ has supplied all such
information relating to Integ. We have not authorized anyone to provide you with
information that is different from what is contained in this proxy statement and
prospectus. This proxy statement and prospectus is dated December 15, 2000. You
should not assume that the information
108
<PAGE>
contained in this proxy statement and prospectus is accurate as of any date
other than that date. Neither the mailing of this proxy statement and prospectus
to Integ shareholders nor the issuance of Inverness stock in the merger creates
any implication to the contrary.
FUTURE SHAREHOLDER PROPOSALS
Integ will hold an annual meeting in the year 2001 only if the merger is not
completed. If such meeting is held, the deadline for receipt of a proposal to be
considered for inclusion in Integ's proxy statement for the 2001 annual meeting
will be 120 days prior to the 2001 annual meeting, or approximately
February 15, 2001.
109
<PAGE>
INDEX TO FINANCIAL STATEMENTS
INTEG INCORPORATED (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND
1997 AND THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000
and 1999
Report of Independent Auditors.............................. F-2
Balance Sheets as at December 31, 1998 and 1999 and
September 30, 2000........................................ F-3
Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999, for the period April 3, 1990
(inception) to December 31, 1999, for the nine month
periods ended September 30, 1999 and 2000 and for the
period from April 3, 1990 (inception) to September 30,
2000...................................................... F-4
Statement of Shareholders' Equity from April 3, 1990
(inception) to September 30, 2000......................... F-5
Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999, for the period April 3, 1990
(inception) to December 31, 1999, for the nine month
periods ended September 30, 1999 and 2000 and for the
period from April 3, 1990 (inception) to September 30,
2000...................................................... F-7
Notes to Financial Statements............................... F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS
INTEG INCORPORATED
We have audited the accompanying balance sheets of Integ Incorporated (a
development stage company) as of December 31, 1999 and 1998 and the related
statements of operations, changes in shareholders' equity (deficiency) and cash
flows for each of the three years in the period ended December 31, 1999, and for
the period from April 3, 1990 (inception) to December 31, 1999. 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 auditing standards generally
accepted in the United States. 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 Integ Incorporated at
December 31, 1999 and 1998 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, and for the
period from April 3, 1990 (inception) to December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 17, 2000
F-2
<PAGE>
INTEG INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1998 1999 2000
------------ ------------ --------------
UNAUDITED
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 11,175,695 $ 2,953,270 $ 1,564,375
Prepaid expenses.................................. 132,229 82,755 --
Accounts receivable--related party................ -- 181,669 127,085
------------ ------------ ------------
Total current assets................................ 11,307,924 3,217,694 1,691,460
Furniture and equipment............................. 9,538,478 8,498,173 8,438,016
Less accumulated depreciation....................... (2,715,684) (3,088,449) (3,571,626)
------------ ------------ ------------
6,822,794 5,409,724 4,866,390
Other assets........................................ 23,883 8,579 4,640
------------ ------------ ------------
Total assets........................................ $ 18,154,601 $ 8,635,997 $ 6,562,490
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 195,148 $ 18,334 $ 34,806
Accrued employee compensation and related
expenses........................................ 726,077 436,570 188,792
Other accrued expenses............................ 92,356 56,969 46,582
30,432
Current portion of capital lease obligations...... 145,761 14,178 --
Current portion of long-term debt................. 1,251,247 1,398,098 1,301,399
------------ ------------ ------------
Total current liabilities........................... 2,410,589 1,924,149 1,602,011
Long-term liabilities:
Capital lease obligations, less current portion... 14,178 -- --
Long-term debt, less current portion.............. 2,672,018 1,273,920 333,293
------------ ------------ ------------
Total long-term liabilities......................... 2,686,196 1,273,920 333,293
Shareholders' equity:
Preferred stock, par value, $.01 per share,
Series B, Authorized shares--3,000,000, Issued
and outstanding shares--1,771,236 at
September 30, 2000.............................. -- -- 3,091,908
Common Stock, par value $.01 per share: Authorized
shares--20,000,000 Issued and outstanding
shares--9,580,704 in 1998, 9,728,624 in 1999 and
9,859,078 in 2000............................... 95,807 97,286 98,591
Additional paid-in capital........................ 54,616,721 54,786,327 55,039,048
Deficit accumulated during the development
stage........................................... (41,524,253) (49,368,631) (53,522,319)
13,188,275 5,514,982 4,707,228
Deferred compensation............................... (130,459) (77,054) (80,042)
------------ ------------ ------------
Total shareholders' equity.......................... 13,057,816 5,437,928 4,627,186
------------ ------------ ------------
Total liabilities and shareholders' equity.......... $ 18,154,601 $ 8,635,997 $ 6,562,490
============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
INTEG INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 3, 1990 NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, (INCEPTION) TO SEPTEMBER 30,
----------------------------------------- DECEMBER 31, -------------------------
1997 1998 1999 1999 1999 2000
------------ ------------ ----------- -------------- ----------- -----------
UNAUDITED
<S> <C> <C> <C> <C> <C> <C>
Operating expenses:
Research and development..... $ 5,318,900 $ 5,455,999 $ 2,336,761 $ 23,878,909 $ 1,828,079 $ 1,288,679
Manufacturing development.... 2,513,224 2,171,087 1,880,521 9,048,797 1,495,334 1,425,102
General and administrative... 4,629,534 3,243,901 3,285,948 17,899,257 2,609,684 1,249,784
------------ ------------ ----------- ------------ ----------- -----------
12,461,658 10,870,987 7,503,230 50,826,963 5,933,097 3,963,565
------------ ------------ ----------- ------------ ----------- -----------
Operating loss............... (12,461,658) (10,870,987) (7,503,230) (50,826,963) (5,933,097) (3,963,565)
Other income (expense):
Interest income............ 1,564,190 890,120 342,006 4,771,004 290,232 81,523
Interest expense........... (684,001) (1,203,218) (682,135) (3,183,933) (532,194) (304,992)
Other...................... 17,078 98,180 (1,019) (128,739) (735) 33,346
------------ ------------ ----------- ------------ ----------- -----------
897,267 (214,918) (341,148) 1,458,332 (242,697) (190,123)
------------ ------------ ----------- ------------ ----------- -----------
Net loss for the period and
deficit accumulated during
development stage.......... $(11,564,391) $(11,085,905) $(7,844,378) $(49,368,631) $(6,175,794) $(4,153,688)
============ ============ =========== ============ =========== ===========
Net loss per share
Basic and diluted.......... $ (1.24) $ (1.17) $ (.81) $ (14.79) $ (0.64) $ (0.42)
============ ============ =========== ============ =========== ===========
Weighted average number of
common shares outstanding
Basic and diluted.......... 9,305,332 9,477,390 9,649,424 3,338,724 9,643,883 9,827,211
============ ============ =========== ============ =========== ===========
<CAPTION>
PERIOD FROM
APRIL 3, 1990
(INCEPTION) TO
SEPTEMBER 30,
2000
--------------
UNAUDITED
<S> <C>
Operating expenses:
Research and development..... $ 25,167,588
Manufacturing development.... 10,473,899
General and administrative... 19,149,041
------------
54,790,528
------------
Operating loss............... (54,790,528)
Other income (expense):
Interest income............ 4,852,527
Interest expense........... (3,488,925)
Other...................... (95,393)
------------
1,268,209
------------
Net loss for the period and
deficit accumulated during
development stage.......... $(53,522,319)
============
Net loss per share
Basic and diluted.......... $ (13.27)
============
Weighted average number of
common shares outstanding
Basic and diluted.......... 4,034,551
============
</TABLE>
See accompanying notes.
F-4
<PAGE>
INTEG INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
CONVERTIBLE PREFERRED COMMON STOCK ADDITIONAL DURING THE
----------------------- -------------------- PAID-IN DEVELOPMENT DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE COMPENSATION
---------- ---------- --------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Founders' Common Stock issued during
April 1990 at $.015 per share........ -- $ -- 250,000 $ 2,500 $ 1,250 $ -- $ --
Net loss for the period................ -- -- -- -- -- (290,900) --
---------- ---------- --------- ------- ----------- ------------ ---------
Balance at December 31, 1990........... -- -- 250,000 2,500 1,250 (290,900) --
Net loss for the year.................. -- -- -- -- -- (622,016) --
---------- ---------- --------- ------- ----------- ------------ ---------
Balance at December 31, 1991........... -- -- 250,000 2,500 1,250 (912,916) --
Net loss for the year.................. -- -- -- -- -- (653,934) --
---------- ---------- --------- ------- ----------- ------------ ---------
Balance at December 31, 1992........... -- -- 250,000 2,500 1,250 (1,566,850) --
Net loss for the year.................. -- -- -- -- -- (682,725) --
---------- ---------- --------- ------- ----------- ------------ ---------
Balance at December 31, 1993........... -- -- 250,000 2,500 1,250 (2,249,575) --
Deferred compensation related to
restricted stock grant............... -- -- 183,333 1,833 149,417 -- (151,250)
Net loss for the year.................. -- -- -- -- -- (2,492,220) --
---------- ---------- --------- ------- ----------- ------------ ---------
Balance at December 31, 1994........... -- -- 433,333 4,333 150,667 (4,741,795) (151,250)
Previously issued redeemable
convertible preferred stock; all
shareholders agreed to cancel their
respective redemption privileges
during June 1995:
Series A Convertible Preferred,
authorized 928,571 shares,
liquidating preference of $.56 per
share, sold during April and November
1990................................. 928,571 9,286 -- -- 510,714 -- --
Series B Convertible Preferred,
authorized 800,000 shares,
liquidating preference of $1.00 per
share, sold during May 1991.......... 800,000 8,000 -- -- 792,000 -- --
Series C Convertible Preferred,
authorized 356,000 shares,
liquidating preference of $2.50 per
share, sold during January 1992 to
May 1993............................. 346,000 3,460 -- -- 861,540 -- --
Series D Convertible Preferred,
authorized 1,209,731 shares,
liquidating preference of $2.75 per
share, less offering expenses of
$7,245, sold during February and May
1994................................. 1,074,372 10,743 -- -- 2,936,534 -- --
Series E Convertible Preferred Class 1,
authorized 5,879,655, liquidating
preference of $4.00 per share, less
offering expenses of $1,861,168, sold
during June 1995..................... 5,604,655 56,047 -- -- 20,501,405 -- --
Value of warrants to purchase Preferred
Stock issued in connection with
bridge loan financing................ -- -- -- -- 179,800 -- --
Value of stock options to purchase
Common Stock issued for consulting
services............................. -- -- -- -- 24,000 -- --
Value of options and warrants to
purchase Common Stock issued in
connection with guarantee of
leases............................... -- -- -- -- 104,841 -- --
Value related to the extension of the
exercise period of certain stock
options previously granted to
individuals.......................... -- -- -- -- 6,750 -- --
Deferred compensation related to stock
options.............................. -- -- -- -- 960,208 -- (960,208)
Amortization of deferred
compensation......................... -- -- -- -- -- -- 187,106
Net loss for the year.................. -- -- -- -- -- (5,048,730) --
---------- ---------- --------- ------- ----------- ------------ ---------
<CAPTION>
TOTAL
------------
<S> <C>
Founders' Common Stock issued during
April 1990 at $.015 per share........ $ 3,750
Net loss for the period................ (290,900)
------------
Balance at December 31, 1990........... (287,150)
Net loss for the year.................. (622,016)
------------
Balance at December 31, 1991........... (909,166)
Net loss for the year.................. (653,934)
------------
Balance at December 31, 1992........... (1,563,100)
Net loss for the year.................. (682,725)
------------
Balance at December 31, 1993........... (2,245,825)
Deferred compensation related to
restricted stock grant............... --
Net loss for the year.................. (2,492,220)
------------
Balance at December 31, 1994........... (4,738,045)
Previously issued redeemable
convertible preferred stock; all
shareholders agreed to cancel their
respective redemption privileges
during June 1995:
Series A Convertible Preferred,
authorized 928,571 shares,
liquidating preference of $.56 per
share, sold during April and November
1990................................. 520,000
Series B Convertible Preferred,
authorized 800,000 shares,
liquidating preference of $1.00 per
share, sold during May 1991.......... 800,000
Series C Convertible Preferred,
authorized 356,000 shares,
liquidating preference of $2.50 per
share, sold during January 1992 to
May 1993............................. 865,000
Series D Convertible Preferred,
authorized 1,209,731 shares,
liquidating preference of $2.75 per
share, less offering expenses of
$7,245, sold during February and May
1994................................. 2,947,277
Series E Convertible Preferred Class 1,
authorized 5,879,655, liquidating
preference of $4.00 per share, less
offering expenses of $1,861,168, sold
during June 1995..................... 20,557,452
Value of warrants to purchase Preferred
Stock issued in connection with
bridge loan financing................ 179,800
Value of stock options to purchase
Common Stock issued for consulting
services............................. 24,000
Value of options and warrants to
purchase Common Stock issued in
connection with guarantee of
leases............................... 104,841
Value related to the extension of the
exercise period of certain stock
options previously granted to
individuals.......................... 6,750
Deferred compensation related to stock
options.............................. --
Amortization of deferred
compensation......................... 187,106
Net loss for the year.................. (5,048,730)
------------
</TABLE>
F-5
<PAGE>
INTEG INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
CONVERTIBLE PREFERRED COMMON STOCK ADDITIONAL DURING THE
----------------------- -------------------- PAID-IN DEVELOPMENT DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE COMPENSATION
---------- ---------- --------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995........... 8,753,598 $ 87,536 433,333 $ 4,333 $27,028,459 $ (9,790,525) $(924,352)
Value of warrants to purchase Common
Stock issued in connection with
equipment loan agreement............. -- -- -- -- 874,416 -- --
Shares issued in connection with
initial public offering less offering
expenses of $2,375,706............... -- -- 3,000,000 30,000 26,094,294 -- --
Conversion of preferred stock.......... (8,753,598) (87,536) 5,835,705 58,357 29,179 -- --
Shares issued pursuant to exercise of
stock options........................ -- -- 6,666 67 7,056 -- --
Deferred compensation related to stock
options.............................. -- -- -- -- 56,329 -- (56,329)
Value of options granted to purchase
Common Stock issued for consulting
services............................. -- -- -- -- 179,600 -- (179,600)
Amortization of deferred
compensation......................... -- -- -- -- -- -- 515,939
Net loss for the year.................. -- -- -- -- -- (9,083,432) --
---------- ---------- --------- ------- ----------- ------------ ---------
Balance at December 31, 1996........... -- -- 9,275,704 92,757 54,269,333 (18,873,957) (644,342)
Shares issued pursuant to employee
stock purchase plan and exercise of
stock options........................ -- -- 69,154 692 111,624 -- --
Shares issued pursuant to exercise of
warrants, net of 9,303 redeemed...... -- -- 21,808 218 66,444 -- --
Amortization of deferred
compensation......................... -- -- -- -- -- -- 294,484
Deferred compensation adjustment for
cancellation of stock options........ -- -- -- -- (22,062) -- 22,062
Value related to the acceleration of
vesting and extension of the exercise
period of certain stock options
previously granted to an officer and
director............................. -- -- -- -- 93,332 -- --
Net loss for the year.................. -- -- -- -- -- (11,564,391) --
---------- ---------- --------- ------- ----------- ------------ ---------
Balance at December 31, 1997........... -- -- 9,366,666 93,667 54,518,671 (30,438,348) (327,796)
Shares issued pursuant to employee
stock purchase plan and exercise of
stock options........................ -- -- 211,351 2,113 237,648 -- (35,425)
Shares issued pursuant to exercise of
warrants, net of 6,201 redeemed...... -- -- 2,687 27 (27) -- --
Amortization of deferred
compensation......................... -- -- -- -- -- -- 93,191
Deferred compensation adjustment for
cancellation of stock options........ -- -- -- -- (139,571) -- 139,571
Net loss for the year.................. -- -- -- -- -- (11,085,905) --
---------- ---------- --------- ------- ----------- ------------ ---------
Balance at December 31, 1998........... -- -- 9,580,704 95,807 54,616,721 (41,524,253) (130,459)
Shares issued pursuant to employee
stock purchase plan and exercise of
stock options........................ -- -- 72,006 720 79,187 -- --
Shares issued in lieu of employee
compensation......................... -- -- 75,914 759 94,134 -- --
Value of options to purchase common
stock issued for consulting
services............................. -- -- -- -- 4,920 -- (4,920)
Amortization of deferred
compensation......................... -- -- -- -- -- -- 49,690
Deferred compensation adjustment for
cancellation of stock options........ -- -- -- -- (8,635) -- 8,635
Net loss for the year.................. -- -- -- -- -- (7,844,378) --
---------- ---------- --------- ------- ----------- ------------ ---------
Balance at December 31, 1999........... -- -- 9,728,624 97,286 54,786,327 (49,368,631) (77,054)
Shares issued pursuant to exercise of
employee stock options............... -- -- 105,454 1,055 113,352 -- --
Shares issued in lieu of employee
compensation......................... -- -- 25,000 250 101,312 -- --
Preferred stock issued under Series B
Purchase Agreement................... 1,771,236 3,091,908 -- -- -- -- --
Value of options to purchase common
stock issued for consulting
services............................. -- -- -- -- 39,890 -- (39,890)
Deferred compensation adjustment for
cancellation of stock options........ -- -- -- -- (1,833) -- 1,833
Amortization of deferred
compensation......................... -- -- -- -- -- -- 35,069
Net loss for the period................ -- -- -- -- -- (4,153,688) --
---------- ---------- --------- ------- ----------- ------------ ---------
Balance at September 30, 2000
(unaudited).......................... 1,771,236 $3,091,908 9,859,078 $98,591 $55,039,048 $(53,522,319) $ (80,042)
========== ========== ========= ======= =========== ============ =========
<CAPTION>
TOTAL
------------
<S> <C>
Balance at December 31, 1995........... $ 16,405,451
Value of warrants to purchase Common
Stock issued in connection with
equipment loan agreement............. 874,416
Shares issued in connection with
initial public offering less offering
expenses of $2,375,706............... 26,124,294
Conversion of preferred stock.......... --
Shares issued pursuant to exercise of
stock options........................ 7,123
Deferred compensation related to stock
options.............................. --
Value of options granted to purchase
Common Stock issued for consulting
services............................. --
Amortization of deferred
compensation......................... 515,939
Net loss for the year.................. (9,083,432)
------------
Balance at December 31, 1996........... 34,843,791
Shares issued pursuant to employee
stock purchase plan and exercise of
stock options........................ 112,316
Shares issued pursuant to exercise of
warrants, net of 9,303 redeemed...... 66,662
Amortization of deferred
compensation......................... 294,484
Deferred compensation adjustment for
cancellation of stock options........ --
Value related to the acceleration of
vesting and extension of the exercise
period of certain stock options
previously granted to an officer and
director............................. 93,332
Net loss for the year.................. (11,564,391)
------------
Balance at December 31, 1997........... 23,846,194
Shares issued pursuant to employee
stock purchase plan and exercise of
stock options........................ 204,336
Shares issued pursuant to exercise of
warrants, net of 6,201 redeemed...... --
Amortization of deferred
compensation......................... 93,191
Deferred compensation adjustment for
cancellation of stock options........ --
Net loss for the year.................. (11,085,905)
------------
Balance at December 31, 1998........... 13,057,816
Shares issued pursuant to employee
stock purchase plan and exercise of
stock options........................ 79,907
Shares issued in lieu of employee
compensation......................... 94,893
Value of options to purchase common
stock issued for consulting
services............................. --
Amortization of deferred
compensation......................... 49,690
Deferred compensation adjustment for
cancellation of stock options........ --
Net loss for the year.................. (7,844,378)
------------
Balance at December 31, 1999........... 5,437,928
Shares issued pursuant to exercise of
employee stock options............... 114,407
Shares issued in lieu of employee
compensation......................... 101,562
Preferred stock issued under Series B
Purchase Agreement................... 3,091,908
Value of options to purchase common
stock issued for consulting
services............................. --
Deferred compensation adjustment for
cancellation of stock options........ --
Amortization of deferred
compensation......................... 35,069
Net loss for the period................ (4,153,688)
------------
Balance at September 30, 2000
(unaudited).......................... $ 4,627,186
============
</TABLE>
See accompanying notes.
F-6
<PAGE>
INTEG INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 3, 1990 NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 (INCEPTION) TO SEPTEMBER 30
----------------------------------------- DECEMBER 31, -------------------------
1997 1998 1999 1999 1999 2000
------------ ------------ ----------- -------------- ----------- -----------
UNAUDITED
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net loss........................ $(11,564,391) $(11,085,905) $(7,844,378) $(49,368,631) $(6,175,794) $(4,153,688)
Adjustments to reconcile net
loss to cash used in
operating activities:
Depreciation.................. 824,348 1,072,299 1,056,723 3,809,238 847,637 531,800
Deferred compensation
amortization................ 294,484 93,191 49,690 1,140,410 31,761 35,070
Amortization of loan
commitment fee.............. 77,463 -- -- 250,074 -- --
Impairment of fixed assets.... -- -- 384,160 384,160 -- 6,936
(Gain) loss on sale of
equipment and deposit
write-off................... 27,436 -- (1,029) 94,616 (901) (24,533)
Value of options, warrants and
stock related to debt
financing, lease guarantee,
extension of options,
compensation and consulting
services.................... 116,334 -- 94,893 466,029 106,370 105,500
Changes in operating assets
and liabilities:
Receivables................... 84,425 -- (181,669) (210,498) -- 181,669
Prepaid expenses and other
assets...................... (7,213) 462,532 64,778 297,303 (143,542) (44,330)
Notes payable................. -- -- -- -- -- 30,432
Accounts payable and accrued
expenses.................... 148,203 (370,970) (501,708) 511,873 (294,481) (241,693)
------------ ------------ ----------- ------------ ----------- -----------
Net cash used in operating
activities...................... (9,998,911) (9,828,853) (6,878,540) (42,625,426) (5,628,950) (3,572,837)
------------ ------------ ----------- ------------ ----------- -----------
Investing activities:
Purchase of furniture and
equipment..................... (4,756,243) (1,075,312) (78,169) (8,948,196) (48,240) (12,576)
Proceeds from sale of furniture
and equipment................. 3,750 1,111 51,385 99,325 3,500 41,707
------------ ------------ ----------- ------------ ----------- -----------
Net cash used in investing
activities.................... (4,752,493) (1,074,201) (26,784) (8,848,871) (44,740) 29,131
------------ ------------ ----------- ------------ ----------- -----------
Financing activities:
Proceeds from sale of
Convertible Preferred Stock... -- -- -- 22,789,732 -- 3,091,908
Proceeds from bridge loan
debt.......................... -- -- 2,900,000 -- --
Proceeds from borrowings under
loan agreement................ 2,995,879 1,138,293 -- 5,486,446 -- --
Payments on long-term debt...... (383,533) (885,002) (1,251,247) (2,667,112) (891,369) (1,037,326)
Payments on capital lease
obligations................... (142,771) (155,635) (145,761) (679,887) (124,797) (14,178)
Proceeds from sale of Common
Stock......................... 178,978 204,336 79,907 26,598,388 962 114,407
------------ ------------ ----------- ------------ ----------- -----------
Net cash (used in) provided by
financing activities.......... 2,648,553 301,992 (1,317,101) 54,427,567 (1,015,204) 2,154,811
------------ ------------ ----------- ------------ ----------- -----------
(Decrease) increase in cash and
cash equivalents.............. (12,102,851) (10,601,062) (8,222,425) 2,953,270 (6,688,894) (1,388,895)
Cash and cash equivalents at
beginning of period........... 33,879,608 21,776,757 11,175,695 -- 11,175,695 2,953,270
------------ ------------ ----------- ------------ ----------- -----------
Cash and cash equivalents at end
of period..................... $ 21,776,757 $ 11,175,695 $ 2,953,270 $ 2,953,270 $ 4,486,801 $ 1,564,375
============ ============ =========== ============ =========== ===========
<CAPTION>
PERIOD FROM
APRIL 3, 1990
(INCEPTION) TO
SEPTEMBER 30
2000
--------------
UNAUDITED
<S> <C>
Operating activities:
Net loss........................ $(53,522,319)
Adjustments to reconcile net
loss to cash used in
operating activities:
Depreciation.................. 4,341,038
Deferred compensation
amortization................ 1,175,480
Amortization of loan
commitment fee.............. 250,074
Impairment of fixed assets.... 391,096
(Gain) loss on sale of
equipment and deposit
write-off................... 70,083
Value of options, warrants and
stock related to debt
financing, lease guarantee,
extension of options,
compensation and consulting
services.................... 571,529
Changes in operating assets
and liabilities:
Receivables................... (28,831)
Prepaid expenses and other
assets...................... 252,973
Notes payable................. 30,432
Accounts payable and accrued
expenses.................... 270,180
------------
Net cash used in operating
activities...................... (46,198,265)
------------
Investing activities:
Purchase of furniture and
equipment..................... (8,960,772)
Proceeds from sale of furniture
and equipment................. 141,032
------------
Net cash used in investing
activities.................... (8,819,740)
------------
Financing activities:
Proceeds from sale of
Convertible Preferred Stock... 25,881,640
Proceeds from bridge loan
debt.......................... 2,900,000
Proceeds from borrowings under
loan agreement................ 5,486,446
Payments on long-term debt...... (3,704,437)
Payments on capital lease
obligations................... (694,065)
Proceeds from sale of Common
Stock......................... 26,712,795
------------
Net cash (used in) provided by
financing activities.......... 56,582,379
------------
(Decrease) increase in cash and
cash equivalents.............. 1,564,375
Cash and cash equivalents at
beginning of period........... --
------------
Cash and cash equivalents at end
of period..................... $ 1,564,375
============
</TABLE>
F-7
<PAGE>
INTEG INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS PERIOD FROM
APRIL 3, 1990 ENDED APRIL 3, 1990
YEAR ENDED DECEMBER 31 (INCEPTION) TO SEPTEMBER 30 (INCEPTION) TO
------------------------------ DECEMBER 31, ------------------- SEPTEMBER 30,
1999 1998 1997 1999 1999 2000 2000
-------- -------- -------- -------------- -------- -------- --------------
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Fixed assets capitalized under capital
lease and loan agreements........... $ -- $ -- $11,182 $ 141,442 $ -- $ -- $ 141,442
The Company converted $2,900,000 of
debt into Series E Convertible
Preferred Stock..................... $ -- $ -- $ -- $2,900,000 $ -- $ -- $2,900,000
</TABLE>
See accompanying notes.
F-8
<PAGE>
INTEG INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. DESCRIPTION OF BUSINESS
Integ Incorporated was formed in April 1990 and is a development stage
company engaged in the development of a handheld glucose monitoring product for
use by people with diabetes that avoids the pain and blood associated with
conventional "finger-stick" technology. Utilizing the Company's proprietary
interstitial fluid sampling technology, the LifeGuide System will allow people
with diabetes to frequently monitor their glucose levels without repeatedly
enduring the pain of lancing their fingers to obtain a blood sample.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less when purchased to be cash equivalents. At
December 31, 1999 and 1998, the Company's cost of investments in marketable
securities and government securities, respectively, approximated market value,
with no resulting unrealized gains and losses recognized. The cash equivalents
are considered available-for-sale.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost and depreciated primarily on a
straight-line basis over estimated useful lives of three to five years.
INCOME TAXES
The Company accounts for income taxes under the liability method. Deferred
income taxes are provided for temporary differences between the financial
reporting and tax bases of assets and liabilities.
STOCK COMPENSATION PLANS
The Company follows Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), and related interpretations in
accounting for its stock options. Under APB 25, when the exercise price of stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
The Company follows the disclosure only provisions of Financial Accounting
Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("Statement 123").
Accordingly, the Company has made pro forma disclosures of what net loss and
loss per share would have been had the provisions of Statement 123 been applied
to the Company's stock options.
NET LOSS PER SHARE
Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding during the periods presented. Diluted loss
per share is the same as basic loss because the effect of all options and
warrants is anti-dilutive.
F-9
<PAGE>
INTEG INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
AUTOMATIC CONVERSION OF PREFERRED STOCK
Upon the closing of the initial public offering on July 1, 1996, all
outstanding shares of convertible preferred stock were automatically converted
into an aggregate of 5,835,705 shares of common stock.
RECLASSIFICATIONS
Certain amounts in the 1997 and 1998 financial statements have been
reclassified to conform with the 1999 presentation.
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 those estimates.
INTERIM FINANCIAL INFORMATION
The accompanying financial statements as of September 30, 2000, and for the
nine month periods ended September 30, 2000, and 1999, and the period from
April 3, 1990 (inception) to September 30, 2000, are unaudited and do not
include all the information and notes required by Generally Accepted Accounting
Principles for complete financial statements. In the opinion of management,
these financial statements reflect all adjustments, consisting only of normal
and recurring adjustments necessary for a fair presentation of the financial
statements. The results of operations for the nine month period ended September
30, 2000, are not necessarily indicative of the results that may be expected for
the full year ending December 31, 2000.
3. CAPITAL AND OPERATING LEASES
The Company leases its office facility and certain office equipment under
operating leases. Rent expense of $400,958, $377,485 and $432,686 was recorded
for noncancelable operating leases and sub-leases for the years ended
December 31, 1999, 1998 and 1997, respectively. Future minimum lease commitments
for operating leases with remaining terms in excess of one year, excluding
executory costs such as real estate taxes, insurance and maintenance expense,
are payable as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000...................................................... $301,865
2001...................................................... 2,694
2002...................................................... 1,347
--------
$305,906
========
</TABLE>
F-10
<PAGE>
INTEG INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
3. CAPITAL AND OPERATING LEASES (CONTINUED)
The Company leases certain furniture and laboratory and office equipment
under other leases which are accounted for as capital leases for financial
statement purposes. The cost of furniture and equipment in the accompanying
balance sheets includes the following amounts under capital leases:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Cost.................................................. $ 665,499 $ 665,499
Less accumulated amortization......................... (660,432) (575,436)
--------- ---------
$ 5,067 $ 90,063
========= =========
</TABLE>
Future minimum lease payments required under capital leases together with
the present value of the net future minimum lease payments at December 31, 1999
are as follows:
<TABLE>
<S> <C>
Total minimum lease payments................................ 14,178
Less amount representing interest........................... --
--------
Present value of net minimum payments....................... 14,178
Less current portion........................................ (14,178)
--------
Capital lease obligations, net of current portion........... $ --
========
</TABLE>
4. LONG-TERM DEBT
During 1996, the Company entered into an equipment loan agreement which
provided for borrowings up to $12.5 million to finance the purchase of equipment
and fixtures including automated manufacturing equipment and tooling. Loans are
paid back monthly over a four-year period. The
F-11
<PAGE>
INTEG INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. LONG-TERM DEBT (CONTINUED)
obligation of the lender to make additional loans expired December 31, 1998. The
Company borrowed $-0- and $1,138,293 in 1999 and 1998, respectively, under this
agreement.
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
10.65% note payable for equipment loan, due in monthly
installments of $26,495 through February 2000, and
$138,962 due April 2000................................... $ 164,051 $ 430,881
10.65% note payable for equipment loan, due in monthly
installments of $12,082 through November 2000, and $63,879
due January 2001.......................................... 168,001 268,585
10.65% note payable for equipment loan, due in monthly
installments of $49,636 through February 2001, and
$262,439 due April 2001................................... 793,497 1,196,551
10.90% note payable for equipment loan, due in monthly
installments of $35,507 through August 2001, and $186,943
due October 2001.......................................... 714,700 974,044
10.20% note payable for equipment loan, due in monthly
installments of $21,510 through January 2002, $35,507 due
February 2002, and $113,248 due April 2002................ 527,597 670,756
10.15% note payable for equipment loan, due in monthly
installments of $11,443 through May 2002, and $60,976.71
due July 2002............................................. 304,172 382,448
----------- -----------
2,672,018 3,923,265
Less current portion........................................ (1,398,098) (1,251,247)
----------- -----------
Long-term debt, net of current portion...................... $ 1,273,920 $ 2,672,018
=========== ===========
Aggregate maturities of long-term are as follows:
2000...................................................... $ 1,398,098
2001...................................................... 1,025,633
2002...................................................... 248,287
-----------
$ 2,672,018
===========
</TABLE>
5. LICENSE AND DEVELOPMENT AGREEMENT
On April 2, 1999, the Company entered into a Development and License and
Agreement ("License Agreement") with Amira Medical ("Amira"). Under the License
Agreement, the companies have formed a strategic alliance to jointly develop a
new generation of home glucose monitoring tests utilizing interstitial fluid
("ISF"). Products to be developed will combine the Company's ISF collection
technology with Amira's glucose measurement technologies. Both the Company and
Amira will contribute resources to the development of the product, which will be
manufactured by the Company and commercialized by Amira. As part of each party's
contribution to the development process, each party shall independently bear the
costs and contribute the resources necessary for the development activities for
which each party is responsible. In the event Integ exhausts its resources,
Amira will lend Integ minimum funding required to retain listing on one of
NASDAQ's markets. Any such loan will be unsecured. (See Note 12 for further
developments related to this agreement.)
F-12
<PAGE>
INTEG INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. LICENSE AND DEVELOPMENT AGREEMENT (CONTINUED)
In connection with the License Agreement, the Company and Amira entered into
an Option Agreement dated as of April 2, 1999, pursuant to which Amira granted
to the Company, an option, exercisable at a future date, to merge under certain
circumstances with a wholly-owned, newly formed subsidiary of Amira for a total
consideration of 2 million shares of Amira common stock and $20 million cash,
subject to certain conditions. The Option Agreement was entered into as a
condition and inducement to the Company's and Amira's willingness to enter into
the License Agreement.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND PREFERRED STOCK
Series A, B, C, D and E Convertible Preferred Shares issued in 1995 were
automatically converted three shares of preferred into two shares of common
stock upon the closing of the public offering of the Company's securities on
July 1, 1996.
7. REVERSE STOCK SPLIT
On April 24, 1996, the Board of Directors approved a reverse stock split of
2-for-3 for the Company's common stock. Accordingly, all share, per share,
weighted average share, and stock option information was restated to reflect the
split. The reverse stock split impacted the conversion prices of the preferred
stock and the numbers of shares of common stock into which the preferred stock
would convert but had no effect upon the numbers of preferred stock warrants and
shares of preferred stock issued and outstanding. Accordingly, all preferred
stock and preferred stock price amounts have not been adjusted for the reverse
stock split.
8. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS AND RESTRICTED STOCK GRANT
The Company has 1990, 1991 and 1994 stock option plans which provide for the
issuance of incentive and nonqualified stock options and restricted stock grants
to employees and consultants. Under the plans, the exercise price of options
granted is determined by the Company's Board of Directors, but incentive stock
options must be granted at exercise prices greater than or equal to the fair
market value of the Company's stock as of the grant date. A total of 3,213,333
shares of the Company's common stock have been reserved for issuance under all
three plans as of December 31, 1999.
During 1998, the Company repriced all outstanding employee options and those
held by consultants who were actively engaged in consulting activities as of
September 22, 1998 to an exercise price of $.81 per share. The Company valued
the repricing of the consultant options at $35,425 and is recognizing the
expense over the vesting period of the options.
F-13
<PAGE>
INTEG INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
Options outstanding were granted as follows:
<TABLE>
<CAPTION>
SHARES PLAN NON-PLAN WEIGHTED AVERAGE
AVAILABLE OPTIONS OPTIONS EXERCISE PRICE
FOR GRANT OUTSTANDING OUTSTANDING PER SHARE
--------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996................ 863,556 1,159,778 42,993 $4.66
Granted at market price................... (618,625) 618,625 -- 6.26
Exercised................................. -- (47,953) -- 0.84
Canceled.................................. 15,483 (15,483) -- 3.01
--------- --------- ------
Balance at December 31, 1997................ 260,414 1,714,967 42,993 5.34
Shares reserved........................... 1,000,000 -- -- --
Granted at market price................... (922,012) 922,012 -- 1.54
Exercised................................. -- (166,923) -- 0.98
Canceled.................................. 922,504 (922,504) -- 5.93
--------- --------- ------
Balance at December 31, 1998................ 1,260,906 1,547,552 42,993 3.06
Granted at market price................... (677,240) 677,240 -- 1.71
Exercised................................. -- (89,330) -- 0.13
Canceled.................................. 112,224 (112,224) -- 2.20
--------- --------- ------
Balance at December 31, 1999................ 695,890 2,023,238 42,993 $2.89
========= ========= ======
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING ----------------------------
WEIGHTED AVERAGE WEIGHTED
NUMBER REMAINING WEIGHTED AVERAGE NUMBER AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------------------ ----------- ------------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.00-$2.99........... 1,606,649 7.89 years $1.30 619,922 $ .92
3.00-8.99............ 140,750 3.72 years 5.42 119,707 5.36
9.00-11.00........... 318,832 3.50 years 9.77 280,749 9.78
--------- ---------
2,066,231 6.90 years $2.89 1,020,378 $3.88
========= =========
</TABLE>
During 1991 and 1993, the Company granted options outside the plans to
purchase 42,993 shares of the Company's common stock at $.83 per share to
Medical Innovation Fund ("MIF"), a significant shareholder of the Company (see
Note 11).
Options outstanding expire at various dates during the period from
October 2000 through December 2009. The number of options exercisable as of
December 31, 1999, 1998 and 1997 was 1,020,378, 703,093 and 710,982,
respectively, at weighted average prices of $3.88, $3.00 and $3.92 per share,
respectively.
The weighted average grant date fair value of options granted at market
prices during the years ended December 31, 1999, 1998 and 1997 was $1.93, $1.43
and $4.92 per share, respectively. The
F-14
<PAGE>
INTEG INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
weighted average grant date fair value of options granted below market prices
during the years ended December 31, 1995 and 1996 was $4.01 and $6.93 per share,
respectively.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("Statement 123"),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, if the exercise price of the
Company's employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net 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 Statement 123. The fair value for
these options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions for 1999, 1998 and
1997: risk free interest rates of 5.60%, 5.31% and 6.33%, respectively; no
dividend yield; volatility factor of the expected market price of the Company's
common stock of .560, 1.047 and .656, respectively; and a weighted-average life
of the option of 10 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. 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 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Pro forma net loss................................... $(8,530,183) $(12,151,311) $(13,535,200)
Pro forma net loss per common share--basic and
diluted............................................ $ (.88) $ (1.28) $ (1.45)
</TABLE>
The pro forma effect on net loss for 1997, 1998 and 1999 is not
representative of the pro forma effect on net loss in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to 1995.
During 1995 and 1996, options were granted to purchase a total of 433,710
shares of the Company's common stock at exercise prices below the current market
price. The Company recognized $960,208 and $56,329 during the years ended 1995
and 1996, respectively, as deferred compensation for the excess of the deemed
value of the underlying common stock over the aggregate exercise price of such
options. The deferred compensation is amortized ratably over the vesting period
of the options. For the years ended 1996, 1997 and 1998, $477,076, $314,096 and
$225,365, respectively, was expensed.
F-15
<PAGE>
INTEG INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
During 1996, the Company granted 30,000 options to certain advisors of the
Company. In accordance with FASB 123, the Company recognized $179,600 as
deferred compensation. The deferred compensation is amortized ratably over the
vesting period of the options. In 1996, 1997 and 1998, $65,279, $87,835 and
$26,486 was charged to expense, respectively.
Unamortized deferred compensation at December 31, 1999 is related to the
other options granted for services and is expected to be charged to operations
as follows:
<TABLE>
<S> <C>
2000........................................................ $23,071
2001........................................................ 15,220
2002........................................................ 12,840
2003........................................................ 9,193
2004........................................................ 9,193
Thereafter.................................................. 7,537
-------
$77,054
=======
</TABLE>
WARRANTS
In connection with the sale of Series C Convertible Preferred Stock during
1992 and 1993, the Company issued warrants to the holders for the purchase of
46,665 shares (including warrants for 13,333 shares issued to MIF (see
Note 11), and warrants for 17,778 shares issued to Artesian Capital Limited
Partnership) of its common stock exercisable immediately at a price of $3.75 per
share. These MIF and Artesian Capital Limited Partnership warrants were
exercised in 1997, and 8,888 of the remaining warrants were exercised and 6,666
expired at various dates during the period from January 1998 through May 1998.
During May 1994, the Company issued warrants which expired during May 1999 to a
consultant/stockholder for the purchase of 6,666 shares of common stock
exercisable immediately at a price of $4.13 per share. The value of these
warrants was determined to be $24,000, based on the value of the services
received, and was expensed. In addition, during March and December of 1994 and
June 1995, the Company issued warrants for the purchase of 159,042 shares of
Series D Convertible Preferred Stock (convertible into 106,027 shares of common
stock at $4.13 per share) to MIF II, exercisable immediately at $2.75 per share
(see Note 11). Warrants for the purchase of 27,273 shares expired during
February 1999, warrants for the purchase of 108,085 shares expire during
December 2004, and warrants for the purchase of 23,684 shares expire during
June 2005.
In connection with the bridge loan arrangement during January 1995, the
Company issued warrants to investors for the purchase of 429,630 shares of
Series E Convertible Preferred Stock, Class 2, at $3.375 per share (convertible
into 286,414 shares of common stock at $5.06 per share). These warrants expire
in January 2005. The value of these warrants was determined to be $179,800 based
on the difference between the stated interest rate and the Company's estimated
effective borrowing rate for the term of the notes and was expensed as
additional interest expense during 1995.
In consideration of the equipment loan agreement discussed in Note 4, the
Company has agreed to issue warrants for the purchase of common stock equal to
8.8% of the total dollar value of the credit line available under the agreement.
The value of these warrants was determined to be $874,416 and
F-16
<PAGE>
INTEG INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
was expensed over the term of the loan agreement. Each warrant is exercisable
initially at $6.00 per share or, subsequent to any equity financing, at 80% of
the per share price of each subsequent financing, if such occurs. Warrants for
the purchase of 18,318, 34,689 and 94,390 shares of common stock were issued in
1996, 1997 and 1998, respectively. The weighted average exercise price of these
warrants was $7.45. These warrants expire in December 2003.
9. EMPLOYEE STOCK PURCHASE PLAN
The 1997 Employee Stock Purchase Plan (the Purchase Plan), as approved by
the shareholders on June 4, 1997, is a qualified plan pursuant to Internal
Revenue Code Section 423. The Purchase Plan allows eligible employees an
opportunity to purchase an aggregate of 300,000 shares of the Company's common
stock through a series of annual offerings for each calendar year (except for
the initial purchase period of the Purchase Plan which was for a six month
period beginning July 1, 1997). Payroll deductions between 1% and 10% of an
employee's eligible compensation may be used to purchase stock at a price per
share equal to 85% of the lesser of the fair market value of the Company's
common stock at the beginning or end of each purchase period. Under terms of the
Purchase Plan, no participant may acquire more than 10,000 shares of the
Company's common stock or more than $10,000 in aggregate fair market value of
common stock (as determined at the beginning of each purchase period) during any
purchase period. Common shares sold to employees under the Purchase Plan in 1998
and 1999 totaled 44,428 and 58,590, respectively.
10. INCOME TAXES
The Company has incurred net operating losses since inception. As of
December 31, 1999, the Company had net operating losses (NOL) and research and
development tax credit carryforwards of approximately $17,203,000 and
$1,079,000, respectively, available to offset its future income tax liability.
The NOL and tax credit carryforwards begin to expire in the year 2005. No
benefit has been recorded for such loss carryforwards, and utilization in future
years may be limited, if significant ownership changes have occurred.
Components of deferred tax assets at December 31 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net operating loss and credit carry forward................. $ 7,444,000 $ 6,530,000
Start-up costs.............................................. 11,284,000 9,025,000
Valuation allowance......................................... (18,728,000) (15,555,000)
------------ ------------
Net deferred tax assets..................................... $ -- $ --
============ ============
</TABLE>
11. RELATED PARTY TRANSACTIONS
Laboratory and office furniture and equipment used by the Company with an
original cost of approximately $801,000 as of December 31, 1998 and 1999 are
leased under sublease arrangements with FIM, Inc. and FIM II, Inc., both
entities related to the Company through MIF and MIF II, which
F-17
<PAGE>
INTEG INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
11. RELATED PARTY TRANSACTIONS (CONTINUED)
are significant shareholders of the Company. These leases are accounted for as
capital leases for financial statement purposes. In addition, MIF and MIF II
have guaranteed future lease payments, of which approximately $12,760 is payable
as of December 31, 1999. In consideration of such guarantee by MIF, the Company
issued nonqualified options to MIF for the purchase of 42,993 shares of common
stock exercisable immediately at a price of $.83 per share. Options for 30,523
shares expire during May 2001 and options for 12,470 shares expire during
April 2003. The value of these options was determined to be $20,878 based on the
difference between the stated interest rate and the Company's estimated
effective borrowing rate for the term of the lease and was fully amortized by
December 31, 1998. In consideration of such guarantee by MIF II, the Company
issued warrants to MIF II for the purchase of 131,769 shares of Series D
Convertible Preferred Stock exercisable immediately at a price of $2.75 per
share which are convertible into 87,845 shares of common stock at $4.13 per
share. These warrants expire during the period from December 2004 through
June 2005. The value of these warrants was determined to be $83,962 based on the
difference between the stated interest rate and the Company's estimated
effective borrowing rate for the term of the lease. Approximately $15,304,
$18,267 and $22,689 was charged to interest expense during the years ended
December 31, 1999, 1998 and 1997, respectively, and the remainder will be
amortized over the term of the lease.
In consideration of the bridge loan arrangement during January 1995
discussed in Note 8, the Company issued to MIF II warrants for the purchase of
222,222 shares of Series E Convertible Preferred Stock, Class 2, exercisable
immediately at a price of $3.375 per share and convertible into 148,148 shares
of common stock at $5.06 per share. The value of these warrants was determined
to be $93,000 of the $179,800 total discussed in Note 8. These warrants expire
during January 2005.
From inception through December 31, 1995, the Company made payments under
consulting agreements with two directors, one of which is a limited partner of
MIF's general partner, and one shareholder. In 1995, the total expense under
these agreements was $129,000. In 1997, 1998 and 1999, the Company made payments
under a consulting agreement with a director who is a limited partner of MIF's
general partner totaling $81,000 per year.
Beginning in September 1999, the Company subleased office space and provided
certain administrative services to a company whose principals include several
directors and shareholders. Total sublease rental received in 1999 was
approximately $66,000.
12. SERIES B PREFERRED STOCK PURCHASE AGREEMENT
On February 16, 2000, the Company and Amira Medical entered into a preferred
stock purchase agreement which is intended to provide funding to Integ at its
current operational level for the continued development of the LIFEGuide-TM-
System through 2000. Under the agreement, Amira will provide Integ with up to
$5.6 million in funding through the purchase of Integ Series B Preferred Stock.
Should the Company exercise its option to merge with Amira in the future, the
Series B will not participate in the merger considerations. The Series B
Preferred Stock is redeemable for cash or common stock, at the option of the
Company, in the case of a change in control or if the Company does not exercise
its option to merge with Amira.
As part of the agreement, the Company will hold $1,500,000 of its existing
cash in reserve. As of September 30, 2000, the Company has raised $3.1 million
(unaudited) through the sale of 1,771,236 shares of Series B Preferred Stock.
F-18
<PAGE>
ANNEX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
INVERNESS MEDICAL TECHNOLOGY, INC.,
TERRIER ACQUISITION CORP.
AND
INTEG INCORPORATED
DATED AS OF OCTOBER 3, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I THE MERGER.................................................. A-1
1.1 The Merger.................................................. A-1
1.2 Effective Time.............................................. A-2
1.3 Closing..................................................... A-2
1.4 Tax Consequences............................................ A-2
1.5 Reservation of Right to Revise Transaction.................. A-2
ARTICLE II DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION......... A-2
2.1 Directors of the Surviving Corporation...................... A-2
2.2 Officers of the Surviving Corporation....................... A-2
ARTICLE III EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS................................................ A-3
3.1 Effect on Capital Stock..................................... A-3
3.2 Dissenters' Rights.......................................... A-3
3.3 Company Stock Options and Related Matters................... A-4
3.4 Company Warrants............................................ A-5
ARTICLE IV PAYMENT OF SHARES........................................... A-5
4.1 Payment for Shares of Company Common Stock.................. A-5
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... A-7
5.1 Existence; Good Standing; Authority......................... A-7
5.2 Authorization, Validity and Effect of Agreements............ A-7
5.3 Capitalization.............................................. A-8
5.4 Subsidiaries................................................ A-9
5.5 Other Interests............................................. A-9
5.6 No Violation; Consents...................................... A-9
5.7 SEC Documents............................................... A-9
5.8 Litigation.................................................. A-10
5.9 Absence of Certain Changes.................................. A-10
5.10 Taxes....................................................... A-10
5.11 Books and Records........................................... A-11
5.12 Real Property............................................... A-11
5.13 Intellectual Property....................................... A-12
5.14 Environmental Matters....................................... A-15
5.15 Compliance with Applicable Law.............................. A-16
5.16 Material Contracts.......................................... A-16
5.17 Regulatory Matters.......................................... A-17
5.18 Employee Benefit Programs................................... A-18
5.19 Labor Relations and Employment.............................. A-20
5.20 Vote Required............................................... A-21
5.21 No Brokers.................................................. A-21
5.22 Opinion of Financial Advisor................................ A-21
5.23 Insurance................................................... A-21
5.24 Intentionally Omitted....................................... A-21
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
5.25 Reorganization.............................................. A-21
5.26 Company Rights Agreement.................................... A-21
5.27 Ownership of Parent Common Stock; Affiliates and
Associates.................................................. A-22
5.28 Compliance with the Hart-Scott-Rodino Act................... A-22
5.29 No Contracts with Affiliates................................ A-22
5.30 No Control Share Acquisition................................ A-22
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PARENT.................... A-22
6.1 Existence; Good Standing; Authority......................... A-22
6.2 Authorization, Validity and Effect of Agreements............ A-23
6.3 Capitalization.............................................. A-23
6.4 No Violation; Consents...................................... A-24
6.5 SEC Documents............................................... A-24
6.6 No Brokers.................................................. A-24
6.7 Reorganization.............................................. A-25
6.8 Ownership of Company Common Stock; Affiliates and
Associates.................................................. A-25
6.9 Certain Actions............................................. A-25
ARTICLE VII COVENANTS................................................... A-25
7.1 No Solicitations............................................ A-25
7.2 Conduct of Businesses....................................... A-27
7.3 Intentionally Omitted....................................... A-28
7.4 Redemption of Company Series B Preferred Stock.............. A-28
7.5 Meeting of Shareholders..................................... A-29
7.6 Intentionally Omitted....................................... A-29
7.7 Additional Agreements....................................... A-29
7.8 Proxy Statement; Registration Statement; Filing
Cooperation................................................. A-29
7.9 Listing Application......................................... A-30
7.10 Affiliates.................................................. A-30
7.11 Expenses.................................................... A-31
7.12 Officers' and Directors' Indemnification.................... A-31
7.13 Access to Information; Confidentiality...................... A-32
7.14 Publicity................................................... A-32
7.15 Employee Benefits........................................... A-33
7.16 Advice of Changes........................................... A-33
7.17 Delisting................................................... A-33
ARTICLE VIII CONDITIONS TO THE MERGER.................................... A-33
8.1 Conditions to the Obligations of Each Party to Effect the
Merger...................................................... A-33
8.2 Conditions to Obligations of the Company.................... A-34
8.3 Conditions to Obligations of Parent......................... A-34
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER........................... A-36
9.1 Termination................................................. A-36
9.2 Effect of Termination....................................... A-37
9.3 Amendment................................................... A-38
9.4 Extension; Waiver........................................... A-38
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE X GENERAL PROVISIONS.......................................... A-38
10.1 Notices..................................................... A-38
10.2 Interpretation.............................................. A-39
10.3 Non-Survival of Representations, Warranties, Covenants and
Agreements.................................................. A-39
10.4 Miscellaneous............................................... A-39
10.5 Assignment.................................................. A-39
10.6 Severability................................................ A-39
10.7 Choice of Law; Consent to Jurisdiction...................... A-39
10.8 Incorporation............................................... A-40
10.9 Publicity................................................... A-40
</TABLE>
A-iii
<PAGE>
COMPANY DISCLOSURE SCHEDULE
<TABLE>
<CAPTION>
SECTION TITLE
------- -----
<S> <C>
5.1 Existence; Good Standing; Authority
5.3 Capitalization
5.5 Other Interests
5.6 No Violation; Consents
5.8 Litigation
5.10 Taxes
5.12 Real Property
5.13 Intellectual Property
5.14 Environmental Matters
5.15 Compliance with Applicable Law
5.16 Material Contracts
5.18 Employee Benefit Programs
5.19 Labor Matters
5.29 No Contracts With Affiliates
7.2 Conduct by the Company
7.15 Employee Benefits
</TABLE>
PARENT DISCLOSURE SCHEDULE
<TABLE>
<CAPTION>
SECTION TITLE
------- -----
<S> <C>
6.3(c) Capitalization
6.4 No Violation; Consents
6.9 Certain Actions
6.10 Litigation
6.11 Compliance with Applicable Law
8.3(c) Absence of Company Changes
GENERAL DISCLOSURE SCHEDULE
9.2(c) Effect of Termination
</TABLE>
A-iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), dated as of October 3, 2000,
by and among Inverness Medical Technology, Inc., a Delaware corporation
("PARENT"), Terrier Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Parent ("MERGERCO"), and Integ Incorporated, a Minnesota
corporation (the "COMPANY").
RECITALS
WHEREAS, the respective Boards of Directors of Parent, MergerCo and the
Company have approved the merger of the Company with and into MergerCo (the
"MERGER") in accordance with the Delaware General Corporation Law (the "DGCL")
and the Minnesota Business Corporation Act (the "MBCA") and, upon the terms and
subject to the conditions set forth in this Agreement, holders of shares of
common stock, par value $.01 per share, of the Company (the "COMPANY COMMON
STOCK") issued and outstanding immediately prior to the Effective Time (as
defined herein) will be entitled, subject to the terms and conditions hereof, to
the right to receive shares of common stock, par value $.001 per share, of
Parent (the "PARENT COMMON STOCK");
WHEREAS, the Board of Directors of the Company (the "COMPANY BOARD") has, in
light of and subject to the terms and conditions set forth herein,
(a) determined that (ii) the consideration to be paid for each share of Company
Common Stock in the Merger is fair to the shareholders of the Company, and
(ii) the Merger is in the best interests of the Company and its shareholders,
and (b) resolved to approve and adopt this Agreement and the transactions
contemplated or required by this Agreement, including the Merger (collectively,
the "TRANSACTIONS"), and to recommend approval and adoption by the shareholders
of the Company of this Agreement and the Transactions;
WHEREAS, as a condition to the willingness of Parent and MergerCo to enter
into this Agreement, certain shareholders of the Company (the "VOTING AGREEMENT
SHAREHOLDERS") have entered into a Voting Agreement, dated as of the date
hereof, with Parent and MergerCo (the "VOTING AGREEMENT"), pursuant to which
each Voting Agreement Shareholder has agreed, among other things, to vote such
Voting Agreement Shareholder's shares of Company Common Stock in favor of the
approval of the Transactions, upon the terms and subject to the conditions set
forth in the Voting Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "CODE"), and this Agreement is
intended to be and is adopted as a plan of reorganization for purposes of
Sections 354, 361 and 368 of the Code; and
WHEREAS, Parent, MergerCo and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Transactions, and also to prescribe various conditions to the Transactions.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, Parent, MergerCo and the Company hereby agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time, the Company and MergerCo shall consummate the Merger
pursuant to which (a) the Company shall be merged with and into MergerCo and the
separate corporate existence of the Company shall thereupon cease, (b) MergerCo
shall be the successor or surviving corporation in the Merger (sometimes
hereinafter referred to as the "SURVIVING CORPORATION") and shall continue to be
governed by the laws of the State of Delaware and the DGCL, and (c) the separate
corporate existence of MergerCo with all its rights, privileges, immunities,
powers and franchises shall continue unaffected by the Merger. The
A-1
<PAGE>
Merger shall have the effects specified in Section 302A.641 of the MBCA and
Section 259 of the DGCL. The Certificate of Incorporation of MergerCo, as in
effect at the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided therein or by
applicable law. The Bylaws of MergerCo, as in effect at the Effective Time,
shall be the Bylaws of the Surviving Corporation until thereafter amended as
provided therein or by applicable law.
1.2 EFFECTIVE TIME. Subject to the provisions of this Agreement, as soon
as practicable after all of the conditions set forth in Article VIII shall have
been satisfied or, if permissible, waived, the parties will file articles or a
certificate of merger or other appropriate documents (the "ARTICLES OF MERGER")
executed in accordance with the relevant provisions of the MBCA and the DGCL and
will make all other filings or recordings required under the MBCA and the DGCL
in order to effect the Merger. The Merger will become effective at such time as
the Articles of Merger have been duly filed with the Secretary of State of the
State of Minnesota and the Secretary of State of the State of Delaware, or at
such subsequent date or time as MergerCo and the Company agree and specify in
the Articles of Merger (the time the Merger becomes effective being herein
referred to as the "EFFECTIVE TIME").
1.3 CLOSING. The closing of the Merger (the "CLOSING") shall take place at
such time and on a date to be specified by the parties, which shall be no later
than the second business day after satisfaction or waiver of all of the
conditions set forth in Article VIII hereof (the "CLOSING DATE"), at the offices
of Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109,
unless another date or place is agreed to by the parties hereto.
1.4 TAX CONSEQUENCES. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368(a)(1)(A) and (A)(2)(D) of the
Code and that this Agreement shall constitute a "plan of reorganization" for
purposes of section 368 of the Code.
1.5 RESERVATION OF RIGHT TO REVISE TRANSACTION. Notwithstanding anything
to the contrary contained in this Agreement, Parent and MergerCo may, in their
sole discretion, at any time prior to the Effective Time, revise the method of
effecting the Merger; PROVIDED, HOWEVER, that (a) any breach of this Agreement
and any inability of the Company to satisfy any condition to the Merger set
forth in Section 8.3 of this Agreement arising solely as a result of such
revised method of effecting the Merger shall not be deemed a breach or a failure
of such condition to the consummation of the Merger, (b) such revised method of
effecting the Merger shall enable the Merger to continue to qualify as a
tax-free reorganization within the meaning of Section 368(a) of the Code and
(c) such revised method of effecting the Merger shall not (i) alter the Merger
Consideration (as defined in Section 3.1(b)) to be received by the holders of
Company Common Stock, (ii) cause the Company to incur additional costs or
(iii) expose the Company to additional liability arising solely as a result of
such revised method. The parties hereto agree that they will execute, and will
cause their respective direct and indirect subsidiaries, if any, to execute,
such agreements and documents and such amendments to this Agreement and any
related documents as shall be appropriate in order to reflect such revised
structure.
ARTICLE II
DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION
2.1 DIRECTORS OF THE SURVIVING CORPORATION. The directors of MergerCo
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation immediately after the Effective Time until their successors shall
have been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Certificate of Incorporation and
Bylaws of the Surviving Corporation.
2.2 OFFICERS OF THE SURVIVING CORPORATION. The officers of MergerCo
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation immediately after the Effective Time.
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ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
3.1 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Company
Common Stock or any shares of capital stock of MergerCo:
(a) Each issued and outstanding share of Company Common Stock owned by
Parent, MergerCo or any other direct or indirect Parent Subsidiary
immediately prior to the Effective Time, shall be canceled and retired and
cease to exist without any conversion thereof and no payment or distribution
shall be made with respect thereto.
(b) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time, other than (i) those shares
referred to in Section 3.1(a) and (ii) Dissenting Shares (as defined
herein), shall be canceled and shall be converted automatically into and
represent the right to receive such number of shares of Parent Common Stock
as is equal to the Conversion Ratio (as defined herein) (collectively, the
"MERGER CONSIDERATION").
(c) The "CONVERSION RATIO" shall be the result obtained by dividing the
Equivalent Parent Common Stock Amount by the number of shares of outstanding
Company Common Stock immediately prior to the Effective Time plus the number
of shares of Company Common Stock issuable upon the exercise of outstanding
Company Options and Company Warrants (as defined herein). The "EQUIVALENT
PARENT COMMON STOCK AMOUNT" shall be equal to the sum of: (i) the product of
the Average Closing Price multiplied by 1,900,000, PLUS (ii) the number
obtained by dividing (A) the aggregate exercise price of all Company Options
and Company Warrants outstanding immediately prior to the Effective Time, by
(B) the Average Closing Price of one share of Parent Common Stock. For
purposes hereof; the "AVERAGE CLOSING PRICE" will mean the average of the
closing sale prices of a share of Parent Common Stock on the American Stock
Exchange ("AMEX") for the five (5) trading days immediately preceding the
Effective Time.
(d) Each share of common stock, par value $.001 per share, of MergerCo
(the "MERGERCO COMMON STOCK") issued and outstanding immediately prior to
the Effective Time shall remain outstanding and shall represent one validly
issued, fully paid and non-assessable share of common stock, par value $.001
per share, of the Surviving Corporation.
(e) All shares of Company Common Stock, when converted as provided in
Section 3.1(b), shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each Certificate
previously evidencing such shares shall thereafter represent only the right
to receive shares of Parent Common Stock and cash in lieu of fractional
shares of Parent Common Stock in accordance with Sections 3.1(b) and 4.1(e).
The holders of Certificates previously evidencing shares of Company Common
Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to the Company Common Stock except as otherwise
provided herein or by law and, upon the surrender of Certificates in
accordance with the provisions of Article III hereof, shall only represent
the right to receive for their shares of Company Common Stock, shares of
Parent Common Stock and cash in lieu of fractional shares of Parent Common
Stock in accordance with Sections 3.1(b) and 4.1(e).
3.2 DISSENTERS' RIGHTS.
(a) Notwithstanding Section 3.1 hereof, shares of the Company Common
Stock issued and outstanding immediately prior to the Effective Time, if
any, that are held of record or beneficially owned, on the record date for
the Company shareholders' meeting, by a person who has properly exercised
and preserved and perfected dissenters' rights with respect to such shares
under Sections 302A.471 and 302A.473 of the MBCA and has not withdrawn or
lost such rights ("DISSENTING SHARES") shall not be converted into or
represent the right to receive Parent Common
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Stock for such shares, but instead shall be treated in accordance with
Sections 302A.471 and 302A.473 of the MBCA unless and until such person
effectively withdraws or loses such person's right to payment under
Section 302A.473 of the MBCA (through failure to preserve or protect such
right or otherwise). If, after the Effective Time, any such person shall
effectively withdraw or lose such right, then each such Dissenting Share
held of record or beneficially owned by such person will thereupon be
treated as if it had been converted into, at the Effective Time, the right
to receive Parent Common Stock, without interest.
(b) Each person holding of record or beneficially owning Dissenting
Shares who becomes entitled, under the provisions of Sections 302A.471 and
302A.473 of the MBCA, to payment of the fair value of such Dissenting Shares
shall receive payment therefor (plus interest determined in accordance with
Section 302A.473 of the MBCA) from the Surviving Corporation.
(c) The Company shall give Parent prompt written notice upon receipt by
the Company at any time before the Effective Time of any notice of intent to
demand the fair value of any shares of Company Common Stock under
Section 302A.473 of the MBCA and any withdrawal of any such notice. The
Company will not, except with the prior written consent of Parent,
negotiate, voluntarily make any payment with respect to, or settle or offer
to settle, any such demand at any time before the Effective Time.
3.3 COMPANY STOCK OPTIONS AND RELATED MATTERS.
(a) Each option (collectively, the "COMPANY OPTIONS") granted under the
Company's 1990 Incentive and Stock Option Plan (the "1990 PLAN"), the 1991
Incentive and Stock Option Plan (the "1991 PLAN"), the 1994 Long-Term
Incentive and Stock Option Plan (as revised and restated, the "1994 PLAN")
and the 1996 Directors' Stock Option Plan (the "1996 PLAN," and the 1996
Plan together with the 1990 Plan, the 1991 Plan and the 1994 Plan, the
"COMPANY STOCK OPTION PLANS"), which is outstanding (whether or not then
exercisable) as of immediately prior to the Effective Time and which has not
been exercised or canceled prior thereto, shall, at the Effective Time, be
assumed by Parent, subject to the provisions of this Section 3.3 (the
"ASSUMED OPTIONS"). The Assumed Options shall not terminate in connection
with the Merger and shall continue to have, and be subject to, the same
terms and conditions as set forth in the Company Stock Option Plans and
agreements (as in effect immediately prior to the Effective Time) pursuant
to which the Company Options were granted, provided that (i) all references
to the Company shall be deemed to be references to Parent and all references
to shares of Company Common Stock shall be deemed to be references to shares
of Parent Common Stock, (ii) each Company Option shall be exercisable for
that number of whole shares of Parent Common Stock equal to the product of
the number of shares of Company Common Stock covered by such Company Option
immediately prior to the Effective Time multiplied by the Conversion Ratio
and rounded down to the nearest whole number of shares of Parent Common
Stock and (iii) the exercise price per share of Company Common Stock under
such Company Option shall be equal to the exercise price per share of
Company Common Stock under the Company Option divided by the Conversion
Ratio and rounded up to the nearest cent. Parent shall (A) reserve for
issuance the number of shares of Parent Common Stock that will become
issuable upon the exercise of such Assumed Options pursuant to this
Section 3.3, (B) promptly after the Effective Time issue to each holder of
an Company Option a document evidencing the assumption by Parent of the
Company's obligations with respect thereto under this Section 3.3, and
(C) as soon as practicable after the Effective Time, but in no event less
than ten (10) business days after the Effective Time, use its best efforts
to cause to be filed a registration statement or amend an existing
registration statement on an appropriate form under the Securities Act of
1933, as amended (the "SECURITIES ACT"), relating to the Company Stock
Option Plans then in effect and covering the shares of Parent Common Stock
issuable upon exercise of the Assumed Options.
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(b) The adjustments provided in this Section 3.3 with respect to any
Company Options that are "incentive stock options" as defined in
Section 422 of the Code, shall be and are intended to be effected in a
manner which is consistent with Section 424(a) of the Code.
(c) The Company's 1997 Employee Stock Purchase Plan, as amended (the
"COMPANY STOCK PURCHASE PLAN"), shall terminate in accordance with its terms
as of the date of the shareholders meeting of the Company, and each
participant in the Company Stock Purchase Plan as of such date shall be
deemed to have exercised his or her right to purchase under the Company
Stock Purchase Plan on such date and shall acquire from the Company
(i) such number of whole shares of Company Common Stock as his or her
accumulated payroll deductions on such date will purchase at the price
specified in the Company Stock Purchase Plan with the entire credit balance
in such participant's Stock Purchase Account (as defined in the Company
Stock Purchase Plan) (treating the last business day prior to the date of
the shareholders meeting of the Company as the date of purchase for all
purposes of the Company Stock Purchase Plan) and (ii) cash in the amount of
any remaining balance in such participant's account; PROVIDED, HOWEVER, that
any participant that has given notice to the Company in accordance with the
Company Stock Purchase Plan that such participant requests the distribution
of his or her entire credit balance in cash shall receive cash in the amount
of the balance in such participant's Stock Purchase Account.
3.4 COMPANY WARRANTS. At the Effective Time, Parent shall assume each
Company Warrant (as defined in Section 5.3(a)) hereof in accordance with the
terms (as in effect as of the date hereof) of such Company Warrant. From and
after the Effective Time, (a) each Company Warrant assumed by Parent may be
exercised solely for shares of Parent Common Stock, (b) the number of shares of
Parent Common Stock subject to each Company Warrant shall be equal to the number
of shares of Company Common Stock subject to such Company Warrant immediately
prior to the Effective Time multiplied by the Conversion Ratio, rounding to the
nearest whole share, (c) the per share exercise price under each such Company
Warrant shall be equal to the per share exercise price under such Company
Warrant divided by the Conversion Ratio, rounding to the nearest cent and
(d) any restriction on the exercise of any Company Warrant shall continue in
full force and effect and the term, exercisability and other provisions of such
Company Warrant shall otherwise remain unchanged. The Company shall take all
action that may be necessary (under the Company Warrants and otherwise) to
effectuate the provisions of this Section 3.4 and to ensure that, from and after
the Effective Time, holders of the Company Warrants have no rights with respect
thereto other than those specifically provided therein.
ARTICLE IV
PAYMENT OF SHARES
4.1 PAYMENT FOR SHARES OF COMPANY COMMON STOCK.
(a) At or prior to the Effective Time, Parent shall deposit, or
otherwise take all steps necessary to cause to be deposited, with Boston
EquiServe (the "EXCHANGE AGENT") certificates representing the shares of
Parent Common Stock and the cash in lieu of fractional shares (such cash and
certificates for shares of Parent Common Stock being hereinafter referred to
as the "EXCHANGE FUND") to be issued pursuant to Section 3.1 and paid
pursuant to this Article IV in exchange for outstanding shares of Company
Common Stock.
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(b) Promptly after the Effective Time, Parent shall cause the Exchange
Agent to mail to each holder of record of a Certificate or Certificates
(i) a letter of transmittal which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as Parent may reasonably specify and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock and
cash in lieu of fractional shares of Parent Common Stock. Upon surrender of
a Certificate for cancellation to the Exchange Agent together with such
letter of transmittal, duly executed and completed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor (A) a certificate representing the number of
whole shares of Parent Common Stock to which such holder shall be entitled,
and (B) a check representing the amount of cash in lieu of fractional
shares, if any, plus the amount of any dividends, or distributions, if any,
pursuant to paragraph (c) below, after giving effect to any required
withholding tax, and the Certificate so surrendered shall forthwith be
canceled. No interest will be paid or accrued on the cash in lieu of
fractional shares or on the dividend or distribution, if any, payable to
holders of Certificates pursuant to this Section 4.1. In the event of a
transfer of ownership of Company Common Stock which is not registered in the
transfer records of the Company, a Certificate representing the proper
number of shares of Parent Common Stock, together with a check for the cash
to be paid in lieu of fractional shares of Parent Common Stock plus, to the
extent applicable, the amount of any dividend or distribution, if any,
payable pursuant to paragraph (c) below, may be issued to such a transferee
if the Certificate representing shares of such Company Common Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(c) Notwithstanding any other provisions of this Agreement, no dividends
or other distributions on Parent Common Stock shall be paid with respect to
any shares of Company Common Stock represented by a Certificate until such
Certificate is surrendered for exchange as provided herein; PROVIDED,
HOWEVER, that subject to the effect of applicable laws, following surrender
of any such Certificate, there shall be paid to the holder of the
certificates representing whole shares of Parent Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole shares of
Parent Common Stock and not paid, less the amount of any withholding taxes
which may be required thereon, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of Parent Common Stock,
less the amount of any withholding taxes which may be required thereon.
(d) At and after the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Company Common Stock
which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation,
they shall be canceled and exchanged for certificates for shares of Parent
Common Stock and cash in lieu of fractional shares, if any, in accordance
with this Section 4.1.
(e) No fractional shares of Parent Common Stock shall be issued pursuant
hereto. In lieu of the issuance of any fractional share of Parent Common
Stock pursuant to Section 3.1(b), each holder of Company Common Stock upon
surrender of a Certificate for exchange shall be paid an amount in cash
(without interest), rounded to the nearest cent, determined by multiplying
(i) the average per share closing price of a share of Parent Common Stock as
reported on the AMEX over the five (5) trading days immediately preceding
the date of the Closing by (ii) the fraction of
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a share of Parent Common Stock which such holder would otherwise be entitled
to receive under this Section 4.1.
(f) Any portion of the Exchange Fund (including the proceeds of any
investments thereof and any shares of Parent Common Stock) that remains
unclaimed by the former shareholders of the Company one year after the
Effective Time shall be delivered to the Surviving Corporation. Any former
shareholders of the Company who have not theretofore complied with this
Article III shall thereafter look only to the Surviving Corporation for
payment of their shares of Parent Common Stock and cash in lieu of
fractional shares (plus dividends and distributions to the extent set forth
in Section 4.1(c), if any), as determined pursuant to this Agreement,
without any interest thereon. None of Parent, MergerCo, the Company, the
Exchange Agent or any other person shall be liable to any former holder of
shares of Company Common Stock for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
In the event any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent or the Surviving Corporation will issue in
exchange for such lost, stolen or destroyed Certificate the shares of Parent
Common Stock and cash in lieu of fractional shares (plus, to the extent
applicable, dividends and distributions payable pursuant to
Section 4.1(c)).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to Parent, which shall refer to the relevant Sections of this
Agreement (the "COMPANY DISCLOSURE SCHEDULE"), the Company represents and
warrants to Parent and MergerCo as follows:
5.1 EXISTENCE; GOOD STANDING; AUTHORITY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota. Except as set forth in Section 5.1 of the Company Disclosure
Schedule, the Company is duly licensed or qualified to do business as a foreign
corporation and is in good standing under the laws of any other state of the
United States in which the character of the properties owned or leased by it
therein or in which the transaction of its business makes such qualification
necessary, except where the failure to be so licensed or qualified would not
reasonably be expected to have a material adverse effect on the current
business, results of operations or financial condition of the Company taken as a
whole (a "COMPANY MATERIAL ADVERSE EFFECT"). The Company has all requisite
corporate power and authority to own, operate, lease and encumber its properties
and carry on its business as now conducted.
5.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. The Company has the
requisite power and authority to enter into the Transactions and to execute and
deliver this Agreement. The Company Board has approved this Agreement, the
Merger and the other Transactions and has resolved to recommend that the holders
of Company Common Stock adopt and approve this Agreement at the shareholders'
meeting of the Company to be held in accordance with the provisions of
Section 7.3. In connection with the foregoing, the Company Board has taken such
actions and votes as are necessary on its part to render the provisions of
Section 302A.673 of the MBCA and all other applicable takeover statutes
inapplicable to this Agreement, the Merger and the other Transactions. Subject
only to the approval of this Agreement by the holders of a majority of the
outstanding shares of Company Common Stock, the execution by the Company of this
Agreement and the consummation of the Transactions have been duly authorized by
all requisite corporate action on the part of the Company. As of the date
hereof, all of the directors and executive officers of the Company have
indicated that they presently intend to vote all shares of Company Common Stock
that they own to approve this
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Agreement and the Transactions at the shareholders' meeting of the Company to be
held in accordance with the provisions of Section 8.1. This Agreement, assuming
due and valid authorization, execution and delivery thereof by Parent and
MergerCo, constitutes a valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
5.3 CAPITALIZATION.
(a) The capital stock of the Company consists of Company Common Stock,
series A junior participating preferred stock, par value $.01 per share (the
"COMPANY SERIES A PREFERRED STOCK"), and series B preferred stock, par value
$.01 per share, of the Company (the "COMPANY SERIES B PREFERRED STOCK").
There are 20,000,000 shares of Company Common Stock authorized, and as of
the date of this Agreement, (i) 9,859,078 shares of Company Common Stock
were issued and outstanding and (ii) 7,035,189 shares of Company Common
Stock have been authorized and reserved for issuance, of which 3,213,333
have been reserved for issuance for grant pursuant to the Company Stock
Option Plans, subject to adjustment on the terms set forth in the Company
Stock Option Plans, 300,000 have been reserved for issuance pursuant to the
Company Stock Purchase Plan, 521,856 shares of Company Common Stock were
authorized and reserved for issuance upon the exercise of the Company
Warrants (as defined herein), and 3,000,000 shares have been reserved for
issuance in connection with the conversion of the Series B Preferred Stock
into Company Common Stock. There are 200,000 shares of Company Series A
Preferred Stock authorized, of which no shares are issued and outstanding as
of the date of this Agreement. There are 3,000,000 shares of Company
Series B Preferred Stock authorized, of which 1,632,217 shares are issued
and outstanding as of the date of this Agreement. There are outstanding
options to purchase 1,693,772 shares of Company Common Stock under the
Company Stock Option Plans and options to purchase 937,895 shares of Company
Common Stock available for grant. As of the date of this Agreement, there
are outstanding warrants to purchase 521,856 shares of Company Common Stock
(the "COMPANY WARRANTS").
(b) As of the date of this Agreement, the Company had no shares of
Company Common Stock reserved for issuance other than as described above.
All such issued and outstanding shares of capital stock of the Company are
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. The Company has no outstanding bonds, debentures, notes
or other obligations the holders of which have the right to vote (or which
are convertible into or exercisable for securities having the right to vote)
with the shareholders of the Company on any matter. Except for the Company
Options (all of which have been issued under the Company Stock Option
Plans), the Company Stock Purchase Plan and the Company Warrants, there are
not at the date of this Agreement any existing options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements or
commitments which obligate the Company to issue, transfer or sell any shares
of capital stock of the Company. Section 5.3(b) of the Company Disclosure
Schedule sets forth a full list of the Company Options, including the name
of the person to whom such Company Options have been granted, the number of
shares subject to each Company Option, the per share exercise price for each
Company Option and the vesting schedule for each Company Option. At the
Effective Time, pursuant to the Company Stock Option Plans, the Company
Options will be fully vested and immediately exercisable.
(c) Except as set forth in Section 5.3(c) of the Company Disclosure
Schedule, there are no agreements or understandings to which the Company is
a party with respect to the voting of any shares of capital stock of the
Company or which restrict the transfer of any such shares, nor does the
Company have knowledge of any third party agreements or understandings with
respect to the voting of any such shares or which restrict the transfer of
any such shares. Except as set forth in Section 5.3(c) of the Company
Disclosure Schedule, there are no outstanding contractual
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obligations of the Company to repurchase, redeem or otherwise acquire any
shares of capital stock, partnership interests or any other securities of
the Company. Except as set forth in Section 5.3(c) of the Company Disclosure
Schedule, the Company is not under any obligation, contingent or otherwise,
by reason of any agreement to register the offer and sale or resale of any
of its securities under the Securities Act.
5.4 SUBSIDIARIES. The Company has no subsidiaries.
5.5 OTHER INTERESTS. Except as set forth in Section 5.5 of the Company
Disclosure Schedule, the Company does not own directly or indirectly any
interest or investment (whether equity or debt) in any corporation, partnership,
limited liability company, joint venture, business, trust or other entity (other
than investments in short-term investment securities).
5.6 NO VIOLATION; CONSENTS. Except as set forth in Section 5.6 of the
Company Disclosure Schedule, neither the execution and delivery by the Company
of this Agreement nor consummation by the Company of the Transactions in
accordance with the terms hereof, will conflict with or result in a breach of
any provisions of the Company Charter or the Company Bylaws or the Company
Rights Agreement (as defined in Section 5.26). Except as set forth in
Section 5.6 of the Company Disclosure Schedule, the execution and delivery by
the Company of this Agreement and consummation by the Company of the
Transactions in accordance with the terms hereof will not violate, or conflict
with, or result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination or in a right of termination or cancellation
of, or accelerate the performance required by, or result in the creation of any
lien, security interest, charge or encumbrance ("Lien") upon any of the
properties of the Company under, or result in being declared void, voidable or
without further binding effect, any of the terms, conditions or provisions of
(a) any note, bond, mortgage, indenture or deed of trust or (b) any license,
franchise, permit, lease, contract, agreement or other instrument, commitment or
obligation to which the Company is a party, or by which the Company or any of
its properties is bound, except as otherwise would not have a Company Material
Adverse Effect. Other than the filings provided for in Article I of this
Agreement, the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"),
the Securities Act or applicable state securities and "Blue Sky" laws
(collectively, the "REGULATORY FILINGS"), the execution and delivery of this
Agreement by the Company does not, and the performance of this Agreement by the
Company and consummation of the Transactions does not, require any consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority, except where the failure to obtain any
such consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority would not have a
Company Material Adverse Effect.
5.7 SEC DOCUMENTS. The Company has filed all required forms, reports and
documents with the Securities and Exchange Commission (the "SEC") since July 1,
1997 (collectively, the "COMPANY SEC REPORTS"), all of which were prepared in
all material respects in accordance with the applicable requirements of the
Exchange Act, the Securities Act and the rules and regulations promulgated
thereunder (the "SECURITIES LAWS"). As of their respective dates, the Company
SEC Reports (a) complied as to form in all material respects with the applicable
requirements of the Securities Laws and (b) did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The representation in
clause (b) of the preceding sentence does not apply to any misstatement or
omission in any Company SEC Report filed prior to the date of this Agreement
which was superseded by and corrected in a subsequent Company SEC Report filed
prior to the date of this Agreement. Each of the consolidated balance sheets of
the Company included in or incorporated by reference into the Company SEC
Reports (including the related notes and schedules) fairly presents in all
material respects the consolidated financial position of the Company as of its
date and each of the consolidated statements of income, retained earnings
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and cash flows of the Company included in or incorporated by reference into the
Company SEC Reports (including any related notes and schedules) fairly presents
in all material respects the results of operations, retained earnings or cash
flows, as the case may be, of the Company for the periods set forth therein
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which would not be material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein and except, in the
case of the unaudited statements, as permitted by Form 10-Q pursuant to
Section 13 or 15(d) of the Exchange Act.
5.8 LITIGATION. Except as set forth in Section 5.8 of the Company
Disclosure Schedule, there is no litigation, suit, action or proceeding pending
or, to the knowledge of the Company, threatened against the Company, as to which
there is a reasonable likelihood of an adverse determination and which, if
adversely determined, individually or in the aggregate with all such other
litigation, suits, actions or proceedings, would (a) have a Company Material
Adverse Effect, (b) materially and adversely affect the Company's ability to
perform its obligations under this Agreement or (c) prevent the consummation of
any of the Transactions.
5.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Company SEC
Reports filed and publicly available prior to the date of this Agreement, the
Company has conducted its business only in the ordinary course of business, and
there has not been: (a) as of the date hereof, any declaration, setting aside or
payment of any dividend or other distribution with respect to Company Common
Stock; (b) any material commitment, contractual obligation (including, without
limitation, any management or franchise agreement, any lease (capital or
otherwise) or any letter of intent), borrowing, liability, guaranty, capital
expenditure or transaction (each, a "COMMITMENT") entered into by the Company
outside of the ordinary course of business except for Commitments for expenses
of attorneys, accountants and investment bankers incurred in connection with the
Transactions; or (c) any material change in the Company's accounting principles,
practices or methods.
5.10 TAXES.
(a) The Company has timely filed all Tax Returns (as defined herein)
required to be filed by it (after giving effect to any filing extension
granted by a Governmental Entity (as defined in Section 5.15)), and all such
Tax Returns were correct and complete in all respects, except where a
failure to file a Tax Return or the failure of any Tax Return to be correct
and complete would not have a Company Material Adverse Effect. The Company
has paid all Taxes (as defined herein) required to be paid, collected or
withheld, except for Taxes for which adequate reserves in the financial
statements contained in the Company's most recent Quarterly Report on
Form 10-Q have been established in accordance with United States GAAP and
except where the failure to pay such Taxes would not have a Company Material
Adverse Effect. Except as set forth in Section 5.10(a) of the Company
Disclosure Schedule, the most recent audited financial statements contained
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 reflect an adequate reserve for all material Taxes payable
by the Company for all taxable periods and portions thereof through the date
of such financial statements in accordance with GAAP. Except as set forth in
Section 5.10(a) of the Company Disclosure Schedule, no deficiencies for any
Taxes have been proposed, asserted or assessed against the Company, and no
requests for waivers of the time to assess any such Taxes are pending or in
effect. The Company is not currently the beneficiary of any extension of
time within which to file any material Tax Return or within which to pay any
material amounts of Taxes. No claim has ever been made by an authority in a
jurisdiction where the Company does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. Section 5.10(a) of the Company
Disclosure Schedule lists all (i) Tax sharing agreements and (ii) all liens
for material amounts of Taxes on the assets of the Company except for
statutory liens for current Taxes yet due and payable.
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(b) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third party.
(c) No director or officer (or employee responsible for Tax matters) of
the Company expects any authority to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no dispute or claim
concerning any Tax liability of any of the Company either (i) claimed or
raised by any authority in writing or (ii) as to which any of the directors
and officers (and employees responsible for Tax matters) of the Company has
knowledge based upon personal contact with any agent of such authority.
Section 5.10(c) of the Company Disclosure Schedule lists all federal, state,
local and foreign income Tax Returns filed with respect to the Company for
taxable periods ended on or after December 31, 1995, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit. The Company has delivered to Parent
correct and complete copies of all federal income Tax Returns, examination
reports and statements of deficiencies assessed against or agreed to by the
Company since December 31, 1995.
(d) The Company has not filed a consent under Section 341(f) of the
Code, concerning collapsible corporations. Except as set forth in
Section 5.10(c) of the Company Disclosure Schedule, the Company has not made
any payments, is not obligated to make any payments, and is not a party to
any agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code Section 280G. The Company
has not been a United States real property holding corporation within the
meaning of Code Section 897(c)(2) during the applicable period specified in
Code Section 897(c)(1)(A)(ii). The Company (i) has not been a member of an
affiliated group filing a consolidated federal income Tax Return (other than
a group the common parent of which was the Company) or (ii) has any
liability for the Taxes of any person (other than Taxes of the Company)
under Treasury Regulations Section 1.1502-6 (or any similar provision of
state, local or foreign law), as a transferee or successor, by contract or
otherwise.
(e) For purposes of this Agreement, "TAXES" means all federal, state,
local and foreign income, property, sales, franchise, employment, excise and
other taxes, tariffs or governmental charges of any nature whatsoever,
together with any interest, penalties or additions to Tax with respect
thereto.
(f) For purposes of this Agreement, "TAX RETURNS" means all reports,
returns, declarations, statements or other information required to be
supplied to a taxing authority in connection with Taxes.
5.11 BOOKS AND RECORDS.
(a) The books of account and other financial records of the Company are
true, complete and correct in all material respects, have been maintained in
accordance with good business practices, and are accurately reflected in all
material respects in the financial statements included in the Company SEC
Reports.
(b) The minute books and other records of the Company have been made
available to Parent, contain in all material respects accurate records of
all meetings and accurately reflect in all material respects all other
corporate action of the shareholders and directors and any committees of the
Company Board.
5.12 REAL PROPERTY.
(a) The Company does not own a fee interest in any real property.
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(b) Section 5.12(b) of the Company Disclosure Schedule contains a list
of all leases, subleases and other occupancy agreements, including all
amendments, extensions and other modifications (the "LEASES") for real
property (the "LEASED REAL PROPERTY") to which the Company is the "tenant,"
"subtenant" or other lessee party. The Company has a good and valid
leasehold interest in and to all of the Leased Real Property, subject to no
Liens, encroachments, encumbrances or other defects in title, except as
described in Section 5.12(b) of the Company Disclosure Schedule and except
for such Liens, encroachments, encumbrances or other defects in title which
could not individually or in the aggregate have a Material Adverse Effect.
Each Lease is in full force and effect and is enforceable in accordance with
its terms. There exists no material default or condition which, with the
giving of notice, the passage of time or both, could become a material
default of the Company under any Lease. The Company has previously delivered
to Parent true and complete copies of all the Leases. Except as described in
Section 5.12(b) of the Company Disclosure Schedule, no consent, waiver,
approval or authorization is required from the landlord under any Lease as a
result of the execution of this Agreement or the consummation of the
transactions contemplated hereby.
(c) The Leased Real Property constitutes all of the real property owned,
leased, occupied or used by the Company in connection with the business of
the Company. Except as set forth in Section 5.12(c) of the Company
Disclosure Schedule, other than the Company, there are no parties in
possession or parties having any current or future right to occupy any of
the Leased Real Property during the term of any Lease regarding such Leased
Real Property. The Leased Real Property is sufficient and appropriate for
the conduct of the business of the Company as it is currently conducted or
as it is currently proposed to be conducted. To the knowledge of the Company
(i) the Leased Real Property conforms in all material respects to all
applicable building, zoning and other laws, ordinances, rules and
regulations, (ii) all Licenses and other approvals necessary to the current
occupancy and use of the Leased Real Property have been obtained, are in
full force and effect and have not been violated, and (iii) there exists no
violation of any covenant, condition, restriction, easement, agreement or
order affecting any portion of the Leased Real Property which individually
or in the aggregate could cause a Material Adverse Effect. To the knowledge
of the Company, there is no pending or threatened condemnation proceeding
affecting any portion of the Leased Real Property.
5.13 INTELLECTUAL PROPERTY.
(a) OWNERSHIP OF INTELLECTUAL PROPERTY ASSETS. Except as set forth in
Section 5.13(a) of the Company Disclosure Schedule, the Company is the
exclusive owner of, and has good, valid and marketable title to all of the
Intellectual Property Assets (as defined herein) free and clear of all
mortgages, pledges, charges, liens, equities, security interests or other
encumbrances or agreements, and has the right to use without payment to a
third party all of the Intellectual Property Assets used in the business or
otherwise necessary for the sale and distribution of the Products. No claim
is pending or, to the Company's best knowledge, threatened against the
Company and/or its officers, employees and consultants to the effect that
the Company's right, title and interest in and to the Intellectual Property
Assets is invalid or unenforceable by the Company, nor is the Company aware
of any information which would adversely affect the validity or
enforceability of any of the Patents (as defined herein), Marks (as defined
herein) or Copyrights (as defined herein) of the Intellectual Property
Assets. All former and current employees, consultants and contractors of the
Company have executed written instruments with the Company that assign to
the Company all rights to any inventions, improvements, discoveries,
writings or information relating to the business of the Company. No employee
of the Company has entered into any agreement that restricts or limits in
any way the scope or type of work in which the employee may be engaged or
requires the employee to transfer, assign or disclose information concerning
his work to anyone other than the Company.
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(b) PATENTS. Section 5.13(b) of the Company Disclosure Schedule sets
forth a complete and accurate list and summary description of all Patents
used in the business or otherwise necessary for the sale and distribution of
the Products. All of the issued Patents are currently in compliance with
formal legal requirements (including without limitation payment of filing,
examination and maintenance fees and proofs of working or use), are valid
and enforceable and are not subject to any maintenance fees or taxes or
actions falling due within ninety (90) days after the date of the Closing.
In each case where a Patent is held by the Company by assignment, the
assignment has been duly recorded with the U.S. Patent and Trademark Office
and all other jurisdictions of registration. No Patent has been or is now
involved in any interference, reissue, re-examination or opposition
proceeding. To the Company's knowledge, there is no potentially interfering
patent or patent application of any third party. All products made, used or
sold under the Patents have been marked with the proper patent notice.
(c) TRADEMARKS. Section 5.13(c) of the Company Disclosure Schedule sets
forth a complete and accurate list and summary description of all Marks used
in the business or otherwise necessary for the sale and distribution of the
Products. All Marks that have been registered with the United States Patent
and Trademark Office and/or any other jurisdiction are currently in
compliance with formal legal requirements (including without limitation the
timely post-registration filing of affidavits of use and incontestability
and renewal applications), are valid and enforceable and are not subject to
any maintenance fees or taxes or actions falling due within ninety
(90) days after the date of the Closing. In each case where a Mark is held
by the Company by assignment, the assignment has been duly recorded with the
U.S. Patent and Trademark Office and all other jurisdictions of
registration. No Mark has been or is now involved in any opposition,
invalidation or cancellation proceeding and, to the Company's knowledge, no
such action is threatened with respect to any of the Marks. All products and
materials containing a Mark bear the proper notice where permitted by law.
(d) COPYRIGHTS. The Company does not have any Copyrights registered with
the United States Copyright Office.
(e) TRADE SECRETS. The Company has taken all reasonable security
measures (including, without limitation, entering into appropriate
confidentiality and nondisclosure agreements with all officers, directors,
employees and consultants of the Company and any other persons with access
to the Trade Secrets (as defined herein)) to protect the secrecy,
confidentiality and value of all Trade Secrets used in the business or
otherwise necessary for the sale and distribution of the Products. To the
knowledge of the Company, there has not been any breach by any party to any
such confidentiality or non-disclosure agreement. Except as set forth in
Section 5.13(e) of the Company Disclosure Schedule, the Trade Secrets have
not been disclosed by the Company to any person or entity other than
employees or contractors of the Company who had a need to know and use the
Trade Secrets in the course of their employment or contract performance. The
Company has the right to use, free and clear of claims of third parties, all
Trade Secrets. To the knowledge of the Company, no third party has asserted
that the use by the Company of any Trade Secret violates the rights of any
third party.
(f) INTENTIONALLY OMITTED.
(g) EXCLUSIVITY OF RIGHTS. Except as set forth in Section 5.13(g) of the
Company Disclosure Schedule, the Company has the exclusive right to use,
license, distribute, transfer and bring infringement actions with respect to
the Intellectual Property Assets used in the business or otherwise necessary
for the sale and distribution of the Products. Except as set forth in
Section 5.13(g) of the Company Disclosure Schedule, the Company (i) has not
licensed or granted to anyone rights of any nature to use any of its
Intellectual Property Assets; and (ii) is not obligated to and does not pay
royalties or other fees to anyone for the Company's ownership, use, license
or transfer of any of its Intellectual Property Assets.
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(h) LICENSES RECEIVED. All licenses or other agreements under which the
Company is granted rights by others in Intellectual Property Assets are
listed in Section 5.13(h) of the Company Disclosure Schedule. Except as set
forth in Section 5.13(h) of the Company Disclosure Schedule, all such
licenses or other agreements are in full force and effect, to the knowledge
of the Company there is no material default by any party thereto, and, all
of the rights of the Company thereunder are freely assignable. True and
complete copies of all such licenses or other agreements, and any amendments
thereto, have been provided to the Buyer, and to the knowledge of the
Company, the licensors under the licenses and other agreements under which
the Company is granted rights have all requisite power and authority to
grant the rights purported to be conferred thereby.
(i) LICENSES GRANTED. All licenses or other agreements under which the
Company has granted rights to others in Intellectual Property Assets are
listed in Section 5.13(i) of the Company Disclosure Schedule. Except as set
forth thereon, all such licenses or other agreements are in full force and
effect, and to the knowledge of the Company there is no material default by
any party thereto. True and complete copies of all such licenses or other
agreements, and any amendments thereto, have been provided to the Buyer.
(j) AFFIRMATIVE OBLIGATIONS. The Company has no obligation to any other
person to maintain, modify, improve or upgrade the Products.
(k) SUFFICIENCY. Except as set forth in Section 5.13(k) of the Company
Disclosure Schedule, the Intellectual Property Assets constitute all of the
assets of the Company used in designing, creating and developing the
Products, and are all those necessary for the operation of the Company's
business as currently conducted and planned to be conducted.
(l) INFRINGEMENT. None of the Products developed, manufactured and sold,
nor any process or know-how used, by the Company infringes or is alleged to
infringe any patent, trademark, service mark, trade name, copyright or other
proprietary right or is a derivative work based on the work of any other
person.
(m) ADEQUACY OF TECHNICAL DOCUMENTATION. Except as set forth in
Section 5.13(m) of the Company Disclosure Schedule, the Technical
Documentation (as defined herein) includes all flowcharts, source code,
system documentation, formulae, specifications, statements of principles of
operations, and schematics for all Products, as well as any pertinent
commentary or explanation that may be necessary to render such materials
understandable and useable by a reasonably skilled person in the field.
(n) NONDISCLOSURE CONTRACTS. Each of the Nondisclosure Contracts (as
defined herein) is a valid and binding obligation of Company enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally.
(o) INTENTIONALLY OMITTED.
(p) DEFINITIONS. For purposes of this Agreement,
(i) "INTELLECTUAL PROPERTY ASSETS" means:
(A) the Products;
(B) all patents, patent applications, patent rights, and inventions
and discoveries and invention disclosures (whether or not patented)
(collectively, "PATENTS");
(C) the name "LifeGuide," all trade names, trade dress, logos,
packaging design, slogans, Internet domain names, registered and
unregistered trademarks and service marks and applications (collectively,
"MARKS");
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(D) all copyrights in both published and unpublished works,
including without limitation all compilations, databases and computer
programs, and all copyright registrations and applications, and all
derivatives, translations, adaptations and combinations of the above
(collectively, "COPYRIGHTS");
(E) all know-how, trade secrets, confidential or proprietary
information, research in progress, algorithms, data, designs,
processes, formulae, drawings, schematics, blueprints, flow charts,
models, prototypes, techniques, beta testing procedures and beta
testing results (collectively, "TRADE SECRETS");
(F) all goodwill, franchises, licenses, permits, consents,
approvals, technical information, telephone numbers and claims of
infringement against third parties (the "RIGHTS"); and
(G) all customer lists and telephone numbers, business
strategies, outside analyst's plans and reports, outlooks, forecasts
and other similar documents.
(ii) "PRODUCTS" means those glucose monitoring devices developed by
the Company. A complete list of the Products owned by the Company is
provided in Section 5.13(p)(ii) of the Company Disclosure Schedule.
(iii) "NONDISCLOSURE CONTRACTS" means all nondisclosure and/or
confidentiality agreements entered into between the Company and persons
in connection with disclosures by the Company relating to the Products
and the Intellectual Property Assets. A complete list of all
Nondisclosure Contracts is provided in Section 5.13(p)(iii) of the
Company Disclosure Schedule.
5.14 ENVIRONMENTAL MATTERS.
(a) The Company is in compliance with all Environmental Laws (as defined
herein), except for any noncompliance that, either singly or in the
aggregate, would not reasonably be expected to have a Company Material
Adverse Effect. Except as set forth in Section 5.14 of the Company
Disclosure Schedule, there is no administrative or judicial enforcement
proceeding pending, or to the knowledge of the Company threatened, against
the Company under any Environmental Law. Except as set forth in
Section 5.14 of the Company Disclosure Schedule, the Company or, to the
knowledge of the Company, any legal predecessor of the Company, has not
received any written notice that it is potentially responsible under any
Environmental Law for response costs or natural resource damages, as those
terms are defined under the Environmental Laws, at any location and the
Company has not transported or disposed of, or allowed or arranged for any
third party to transport or dispose of, any waste containing Hazardous
Materials (as defined herein) at any location included on the National
Priorities List, as defined under the Comprehensive Environmental Response,
Compensation, and Liability Act, or any location proposed for inclusion on
that list or at any location on any analogous state list. Except as set
forth in Section 5.14 of the Company Disclosure Schedule, (i) the Company
has no knowledge of any release on the real property owned or leased by the
Company or predecessor entity of Hazardous Materials in a manner that could
result in an order to perform a response action or in material liability
under the Environmental Laws, and (ii) to the Company's knowledge, there is
no hazardous waste treatment, storage or disposal facility, underground
storage tank, landfill, surface impoundment, underground injection well,
friable asbestos or PCB's, as those terms are defined under the
Environmental Laws, located at any of the real property owned or leased by
the Company or predecessor entity or facilities utilized by the Company.
(b) DEFINITIONS. As used in this Section 5.14, (i) "ENVIRONMENTAL LAWS"
shall mean all federal, state and local laws, rules, regulations, ordinances
and orders that purport to regulate the release of hazardous substances or
other materials into the environment, or impose requirements relating
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to environmental protection; and (ii) "HAZARDOUS MATERIALS" means any
"hazardous waste" as defined in either the United States Resource
Conservation and Recovery Act or regulations adopted pursuant to said act,
any "hazardous substances" or "hazardous materials" as defined in the United
States Comprehensive Environmental Response, Compensation and Liability Act
and, to the extent not included in the foregoing, any medical waste, oil or
fractions thereof, pollutants or contaminants.
5.15 COMPLIANCE WITH APPLICABLE LAW. Except as set forth in Section 5.15
of the Company Disclosure Schedule or where the failure would not have a Company
Material Adverse Effect, (a) the Company holds, and is in compliance with the
terms of, all permits, licenses, exemptions, orders and approvals of all
Governmental Entities necessary for the current conduct of its business
("COMPANY PERMITS"), (b) no fact exists or event has occurred, and no action or
proceeding is pending or, to the Company's knowledge, threatened, that has a
reasonable possibility of resulting in a revocation, nonrenewal, termination,
suspension or other impairment of any Company Permits, (c) the business of the
Company is not being conducted in violation of any applicable law, ordinance,
regulation, judgment, decree or order of any Governmental Entity, and (d) to the
knowledge of the Company, (i) no investigation or review by any Governmental
Entity with respect to the Company is pending or threatened or has been
undertaken within the past five (5) years, and (ii) no Governmental Entity has
indicated an intention to conduct the same. For purposes of this Agreement,
"GOVERNMENTAL ENTITY" means any state or federal government or governmental
authority or any United States or state court of competent jurisdiction.
5.16 MATERIAL CONTRACTS. Section 5.16 of the Company Disclosure Schedule
contains a true, complete and correct list of all Material Contracts (as defined
herein) of the Company, complete and correct copies of which have been provided
to Parent. Except as set forth in Section 5.16 of the Company Disclosure
Schedule, all of the Material Contracts are valid, binding and in full force and
effect, and the Company is not in default (nor has any event occurred that with
notice or lapse of time or both would become a default) of any of its material
obligations under any of the Material Contracts. Except as set forth in
Section 5.16 of the Company Disclosure Schedule, to the knowledge of the Company
no contracting party to any Material Contract (other than the Company) is in
default (nor has any event occurred that with notice or lapse of time or both
would become a default) of any of its material obligations under any of the
Material Contracts. Except as set forth in Section 5.16 of the Company
Disclosure Schedule, no contracting party to any Material Contract has notified
(whether orally or in writing) the Company of its intention to terminate, cancel
or modify such Material Contract or otherwise to reduce or change its activity
thereunder so as to affect adversely the benefits derived, or currently expected
to be derived, by the Company under such Material Contract. For purposes of this
Agreement, "MATERIAL CONTRACT" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, option, warranty,
purchase order, license, sublicense, insurance policy, benefit plan or legally
binding commitment or undertaking of any nature (each, a "CONTRACT") to which
the Company is a party or by which the Company or any of its properties or
assets is bound:
(a) relating to the acquisition, transfer, development, or sharing of
any Company Intellectual Property (except for any Contract pursuant to which
any Company Intellectual Property is licensed to the Company under any third
party software license generally available to the public;
(b) that provides for indemnification by the Company of any officer,
director, employee or agent of the Company;
(c) imposing any restriction on the right or ability of the Company
(i) to compete with any other person, (ii) to acquire any product or other
asset or any services from any other person, or (iii) to develop, sell,
supply, distribute, offer, support, service any product or any technology or
other asset to or for any other person;
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(d) containing any standstill or similar provisions;
(e) (i) to which any Governmental Entity is a party or under which any
Governmental Entity has any rights or obligations, or (ii) directly or
indirectly benefitting any Governmental Entity;
(f) requiring that the Company give any notice or provide any
information to any person prior to considering or accepting any proposal, or
prior to entering into any discussions, agreement, arrangement or
understanding relating to any Acquisition Transaction (as defined herein);
(g) that contemplates or involves the payment or delivery of cash or
other consideration in an amount or having a value in excess of $25,000
annually, or contemplates or involves the performance of services having a
value in excess of $25,000 annually;
(h) that is or would be required to be filed as an exhibit to an annual
report on Form 10-K pursuant to Item 601 of Regulation S-K of the SEC; and
(i) that has had or could be reasonably expected to have a Company
Material Adverse Effect.
5.17 REGULATORY MATTERS.
(a) Intentionally omitted.
(b) Intentionally omitted.
(c) All nonclinical laboratory studies of Products have been and are
being conducted in compliance with all applicable federal, state, local and
foreign laws, rules and regulations (including without limitation, any
reporting requirements thereof) and with accepted standards of good
laboratory practice. All clinical trials of pharmaceutical products have
been and are being conducted in compliance with all applicable federal,
state, local and foreign laws, rules and regulations (including, without
limitation, any reporting requirements thereof) and with accepted standards
of good clinical practice.
(d) The Company has provided Parent with copies of any and all notice of
inspectional observations, establishment inspection reports and any other
documents received from Regulatory Entities, that indicate or suggest lack
of compliance with the regulatory requirements of Regulatory Entities. The
Company has made available to Parent for review all correspondence to or
from all Regulatory Entities, minutes of meetings, written reports of phone
conversations, visits or other contact with Regulatory Entities, notices of
inspectional observations, establishment inspection reports, and all other
documents concerning communications to or from Regulatory Entities, or
prepared by or which bear in any way on the Company's compliance with
regulatory requirements of Regulatory Entities, or on the likelihood of
timing of approval of any Products.
(e) Neither the Company nor, any of its officers, employees or agents
has committed any act, made any statement, or failed to make any statement,
that would be reasonably expected to provide a basis for the FDA to invoke
its policy respecting "Fraud, Untrue Statements of Material Facts, Bribery,
and Illegal Gratuities," set forth in 56 Fed. Reg. 46191 (September 10,
1991) and any amendments thereto.
(f) The Company has not been convicted of any crime or engaged in any
conduct that could result in debarment under 21 U.S.C. Section 335a or any
similar state law or regulation.
(g) There are no proceedings pending with respect to a violation by the
Company of the Food, Drug and Cosmetic Act, FDA regulations adopted
thereunder, the Controlled Substance Act or any other legislation or
regulation promulgated by any other United States federal or state
Governmental Entity that reasonably might be expected to result in criminal
liability.
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5.18 EMPLOYEE BENEFIT PROGRAMS.
(a) Section 5.18 of the Company Disclosure Schedule sets forth a list of
every Employee Program that has been maintained by the Company or an
Affiliate at any time during the five-year period ending on the Closing
Date.
(b) Each Employee Program which has ever been maintained by the Company
or an Affiliate and which has been intended to qualify under Section 401(a)
or 501(c)(9) of the Code has received a favorable determination or approval
letter from the Internal Revenue Service ("IRS") regarding its qualification
under such section and has, in fact, been qualified under the applicable
section of the Code from the effective date of such Employee Program through
and including the Closing Date (or, if earlier, the date that all of such
Employee Program's assets were distributed). No event or omission has
occurred which would cause any Employee Program to lose its qualification or
otherwise fail to satisfy the relevant requirements to provide tax-favored
benefits under the applicable Code Section (including without limitation
Code Sections 105, 125, 401(a) and 501(c)(9)). Each asset held under any
such Employee Program may be liquidated or terminated without the imposition
of any redemption fee, surrender charge or comparable liability. No partial
termination (within the meaning of Section 411(d)(3) of the Code) has
occurred with respect to any Employee Program.
(c) Neither the Company nor any Affiliate knows, nor should any of them
reasonably know, of any failure of any party to comply with any laws
applicable with respect to the Employee Programs that have ever been
maintained by the Company or any Affiliate. With respect to any Employee
Program ever maintained by the Company or any Affiliate, there has been no
(i) "prohibited transaction," as defined in Section 406 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or Code
Section 4975, (ii) failure to comply with any provision of ERISA, other
applicable law, or any agreement, or (iii) non-deductible contribution,
which, in the case of any of (i), (ii), or (iii), could subject the Company
or any Affiliate to liability either directly or indirectly (including,
without limitation, through any obligation of indemnification or
contribution) for any damages, penalties, or taxes, or any other loss or
expense. No litigation or governmental administrative proceeding (or
investigation) or other proceeding (other than those relating to routine
claims for benefits) is pending or threatened with respect to any such
Employee Program. All payments and/or contributions required to have been
made (under the provisions of any agreements or other governing documents or
applicable law) with respect to all Employee Programs ever maintained by the
Company or any Affiliate, for all periods prior to the Closing Date, either
have been made or have been accrued (and all such unpaid but accrued amounts
are described in Section 5.18 of the Company Disclosure Schedule.
(d) Neither the Company nor any Affiliate has ever maintained an
Employee Program subject to Title IV of ERISA. Neither the Company nor any
Affiliate has ever contributed to or been obligated to contribute to a
Multiemployer Plan and neither the Company nor any Affiliate has ever had
any collectively bargained employees. Except as set forth in Section 5.18 of
the Company Disclosure Schedule, none of the Employee Programs ever
maintained by the Company or any Affiliate has ever provided health care or
any other non-pension benefits to any employees after their employment is
terminated (other than as required by Part 6 of Subtitle B of Title I of
ERISA) or has ever promised to provide such post-termination benefits.
(e) With respect to each Employee Program maintained by the Company
within the five (5) years preceding the Closing Date, complete and correct
copies of the following documents (if applicable to such Employee Program)
have previously been delivered to Parent or its representatives: (i) all
documents embodying or governing such Employee Program, and any funding
medium for the Employee Program (including, without limitation, trust
agreements) as they may have been amended to the date hereof; (ii) the most
recent IRS determination or
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approval letter with respect to such Employee Program under Code
Section 401(a) or 501(c)(9), and any applications for determination or
approval subsequently filed with the IRS; (iii) the five (5) most recently
filed IRS Forms 5500, with all applicable schedules and accountants'
opinions attached thereto; (iv) the summary plan description for such
Employee Program (or other descriptions of such Employee Program provided to
employees) and all modifications thereto; (v) any insurance policy
(including any fiduciary liability insurance policy or fidelity bond)
related to such Employee Program; (vi) any registration statement or other
filing made pursuant to any federal or state securities law and (vii) all
correspondence to and from any state or federal agency within the last five
(5) years with respect to such Employee Program.
(f) Each Employee Program required to be listed in Section 5.18 of the
Company Disclosure Schedule may be amended, terminated, or otherwise
modified by the Company to the greatest extent permitted by applicable law,
including the elimination of any and all future benefit accruals under any
Employee Program and no employee communications or provision of any Employee
Program document has failed to effectively reserve the right of the Company
or the Affiliate to so amend, terminate or otherwise modify such Employee
Program.
(g) Each Employee Program ever maintained by the Company (including each
non-qualified deferred compensation arrangement) has been maintained in
material compliance with all applicable requirements of federal and state
securities laws including (without limitation, if applicable) the
requirements that the offering of interests in such Employee Program be
registered under the Securities Act and/or state "Blue Sky" laws.
(h) Each Employee Program ever maintained by the Company or an Affiliate
has complied with the applicable notification and other applicable
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985,
Health Insurance Portability and Accountability Act of 1996, the Newborns'
and Mothers' Health Protection Act of 1996, the Mental Health Parity Act of
1996, and the Women's Health and Cancer Rights Act of 1998.
(i) For purposes of this section:
(i) "EMPLOYEE PROGRAM" means (A) all employee benefit plans within
the meaning of ERISA Section 3(3), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA
Section 3(40)), plans to which more than one unaffiliated employer
contributes and employee benefit plans (such as foreign or excess benefit
plans) which are not subject to ERISA; (B) all stock option plans, stock
purchase plans, bonus or incentive award plans, severance pay policies or
agreements, deferred compensation agreements, supplemental income
arrangements, vacation plans, and all other employee benefit plans,
agreements, and arrangements (including any informal arrangements) not
described in (A) above, including without limitation, any arrangement
intended to comply with Code Section 120, 125, 127, 129 or 137; and
(C) all plans or arrangements providing compensation to employee and
non-employee directors. In the case of an Employee Program funded through
a trust described in Code Section 401(a) or an organization described in
Code Section 501(c)(9), or any other funding vehicle, each reference to
such Employee Program shall include a reference to such trust,
organization or other vehicle.
(ii) An entity "MAINTAINS" an Employee Program if such entity
sponsors, contributes to, or provides benefits under or through such
Employee Program, or has any obligation (by agreement or under applicable
law) to contribute to or provide benefits under or through such Employee
Program, or if such Employee Program provides benefits to or otherwise
covers employees of such entity (or their spouses, dependents, or
beneficiaries).
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(iii) An entity is an "AFFILIATE" of the Company if it would have
ever been considered a single employer with the Company under ERISA
Section 4001(b) or part of the same "controlled group" as the Company for
purposes of ERISA Section 302(d)(8)(C).
(iv) "MULTIEMPLOYER PLAN" means an employee pension or welfare
benefit plan to which more than one unaffiliated employer contributes and
which is maintained pursuant to one or more collective bargaining
agreements.
5.19 LABOR RELATIONS AND EMPLOYMENT.
(a) Except as set forth in Section 5.19 of the Company Disclosure
Schedule, (i) there is no labor strike, picketing of any nature, material
labor dispute, slowdown or any other concerted interference with normal
operations, stoppage or lockout pending or to the knowledge of the Company,
threatened against or affecting the Company, (ii) there are no union claims
or demands to represent the employees of the Company or Contingent Workers
(as defined in Section 5.19(c)), the Company has no collective bargaining
obligations with respect to any of its employees or Contingent Workers, and
there are no current union organizing activities among the employees of the
Company or Contingent Workers, (iii) the Company is not a party to or bound
by any collective bargaining or similar agreement with any labor
organization, or work rules or practices agreed to with any labor
organization or employee association, applicable to employees of the
Company, and (iv) with respect to bargaining obligations disclosed in
Section 5.19 of the Company Disclosure Schedule, the Company has bargained
and continues to bargain in good faith.
(b) The Company employs a total of approximately 30 full-time employees
and 2 part-time employees. The Company does not employ a total of 100 or
more employees (excluding employees who work less than 20 hours per week or
who have worked for the Company less than six of the last twelve months) and
will not have employed 100 or more employees at any point during the
90 days prior to and including the Closing Date. The Company is in
compliance with all applicable laws and regulations respecting labor,
employment, fair employment practices, work place safety and health, terms
and conditions of employment, and wages and hours, except where the failure
to be in such compliance would not individually or in the aggregate result
in a Company Material Adverse Effect. The Company is not delinquent in any
payments to any of its employees or Contingent Workers for any wages,
salaries, commissions, bonuses, fees or other direct compensation due with
respect to any services performed for it to the date hereof or amounts
required to be reimbursed to such employees or Contingent Workers. There are
no grievances, complaints or charges with respect to employment or labor
matters (including, without limitation, charges of employment
discrimination, retaliation or unfair labor practices) pending or threatened
in any judicial, regulatory or administrative forum, or under any dispute
resolution procedure (including, but not limited to, any proceedings under
any dispute resolution procedure under any collective bargaining agreement).
None of the Company's employment policies or practices is currently being
audited or investigated, or to the Company's knowledge subject to imminent
audit or investigation, by any federal, state or local government agency.
The Company is not subject to any consent decree, court order or settlement
in respect of any labor or employment matters. No arbitration or similar
proceeding with respect to employment matters is pending or threatened and,
to the knowledge of the Company, no claim therefor has been asserted. Except
as set forth in Section 5.19 of the Company Disclosure Schedule, the Company
does not have any policy, plan or program of paying severance pay or any
form of severance compensation in connection with the termination of the
Company's employees. The Company is, and at all time since November 6, 1986
has been, in compliance with the requirements of the Immigration Reform
Control Act of 1986.
(c) Except as set forth in Section 5.19 of the Company Disclosure
Schedule, the Company does not employ or use any independent contractors,
temporary employees, leased employees or any other servants or agents
compensated other than through reportable wages paid by the
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Company (collectively, "CONTINGENT WORKERS"). To the extent that the Company
employs or uses Contingent Workers, it has properly classified and treated
them in accordance with applicable laws and for purposes of all benefit
plans and perquisites.
5.20 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the shares of Company Common Stock outstanding on the record date for the
Company shareholders' meeting is the only vote of the holders of any class or
series of the Company's capital stock necessary to approve and consummate this
Agreement, the Merger and the other transactions contemplated by this Agreement.
5.21 NO BROKERS. The Company has not entered into any contract,
arrangement or understanding with any person or firm that may result in the
obligation of such entity or Parent to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or consummation of the Transactions, except that the
Company has retained U.S. Bancorp Piper Jaffray Inc. ("PIPER JAFFRAY") as its
financial advisor in connection with the Transactions. Other than the foregoing
arrangements and those referred to in Section 6.6 hereof, the Company is not
aware of any claim for payment of any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or consummation of the Transactions.
5.22 OPINION OF FINANCIAL ADVISOR. The Company has received the opinion of
Piper Jaffray to the effect that, as of the date hereof, the Merger
Consideration is fair to the holders of Company Common Stock from a financial
point of view.
5.23 INSURANCE. The Company is covered by insurance in scope and amount
customary and reasonable for the business in which it is engaged. The Company is
not in material breach or default (including with respect to the payment of
premiums or the giving of notices) under any insurance policy to which it is a
party, and no event has occurred which, with notice or the lapse of time, would
constitute such a material breach or default by the Company or would permit
termination, modification or acceleration, under such policies; and the Company
has not received any notice from the insurer disclaiming coverage or reserving
rights with respect to any material claim or any such policy in general.
5.24 INTENTIONALLY OMITTED.
5.25 REORGANIZATION. As of the date of this Agreement, the Company has no
reason to believe that the Merger will not qualify as a "reorganization" within
the meaning of Section 368(a) of the Code.
5.26 COMPANY RIGHTS AGREEMENT. The Company Rights Agreement, dated as of
November 26, 1996, as amended (the "COMPANY RIGHTS AGREEMENT"), has been amended
to provide that the execution, delivery and performance of this Agreement and
the Voting Agreement and the consummation of the Merger will not cause any
change, effect or result under the Company Rights Agreement, which is adverse to
the interests of Parent or any of its affiliates, including without limitation,
causing Parent or any of its affiliates to become an "Acquiring Person" (as
defined therein) under the Company Rights Agreement. Without limiting the
generality of the foregoing, the Company represents that it has taken all
necessary actions to (a) render the Company Rights Agreement, dated as of
November 26, 1996, as amended (the "COMPANY RIGHTS AGREEMENT"), inapplicable to
the Merger and the other transactions contemplated by this Agreement, including
the Voting Agreement, (b) ensure that (i) neither Parent nor MergerCo, nor any
of their affiliates shall be deemed to have become an Acquiring Person (as such
term is defined in the Company's Rights Agreement) pursuant to the Company
Rights Agreement by virtue of the execution of this Agreement, the Voting
Agreement, the consummation of the Merger or the consummation of the other
transactions contemplated hereby and (ii) a Distribution Date (as such term is
defined in the Company Rights Agreement) or similar event does not occur by
reason of the execution of this Agreement and the Voting Agreement, the
consummation of the Merger, or the
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consummation of the other transactions contemplated hereby and (c) provide that
the Final Expiration Date (as defined in the Company Rights Agreement) shall be
immediately prior to the Effective Time.
5.27 OWNERSHIP OF PARENT COMMON STOCK; AFFILIATES AND ASSOCIATES. As of
the date hereof, neither the Company nor any of its affiliates or associates (as
such terms are defined under the Exchange Act) (a) beneficially owns, directly
or indirectly, or (b) is a party to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares of
capital stock of Parent.
5.28 COMPLIANCE WITH THE HART-SCOTT-RODINO ACT. No person or entity,
directly or indirectly through fiduciaries, agents, controlled entities or other
means, holds fifty percent (50%) or more of the outstanding voting securities
of, or has the contractual right to designate fifty percent (50%) or more of the
directors of, the Company. In addition, the Company (a) does not produce and
derive annual sales or revenues in excess of $10,000,000 from products within
industries 2000-3999 as coded in the Standard Industrial Classification Manual
(1972 edition) published by the Executive Office of the President of the United
States, Office of Management and Budget; and (b) has less than $10,000,000 in
total assets, as stated on the last regularly prepared balance sheet of the
Company at the time of Closing.
5.29 NO CONTRACTS WITH AFFILIATES. Except as disclosed in Section 5.29 of
the Company Disclosure Schedule, the Company has not entered into any agreement,
contract, subcontract, lease, understanding, instrument, note, option, warranty,
purchase order, license, sublicense, insurance policy or legally binding
commitment or undertaking of any nature with any of its officers, directors or
shareholders, except pursuant to the Stock Option Plans and employment
agreements, consulting agreements or Company Warrants in each case as set forth
in Section 5.29 of the Company Disclosure Schedule.
5.30 NO CONTROL SHARE ACQUISITION. Assuming that the only shares of
Company Common Stock which may be deemed to be owned (beneficially or of record)
by Parent are shares subject to the Voting Agreement, the execution, delivery
and performance of this Agreement, the Voting Agreement and the consummation of
the Transactions will not violate or conflict with, and are exempt from, any
provisions of Section 302A.671 of the MBCA.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to the Company, which shall refer to the relevant Sections of
this Agreement (the "PARENT DISCLOSURE SCHEDULE"), each of Parent and MergerCo
represents and warrants to the Company as follows:
6.1 EXISTENCE; GOOD STANDING; AUTHORITY. Each of Parent and MergerCo is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Each of Parent and MergerCo is duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of any other state of the United States in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
licensed or qualified would not reasonably be expected to have a material
adverse effect on the current business, results of operations or financial
condition of Parent and the subsidiaries of the Parent (the "PARENT
SUBSIDIARIES") taken as a whole (a "PARENT MATERIAL ADVERSE EFFECT"). Each of
Parent and MergerCo has all requisite corporate power and authority to own,
operate, lease and encumber its properties and carry on its business as now
conducted.
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6.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. Each of Parent and
MergerCo has the requisite power and authority to enter into the Transactions
and to execute and deliver this Agreement. The Board of Directors of Parent (the
"PARENT BOARD") has approved this Agreement, the Merger and the other
Transactions. The Board of Directors of MergerCo and the stockholder of MergerCo
have approved this Agreement and the Transactions. In connection with the
foregoing, the Parent Board has taken such actions and votes as are necessary on
its part to render the provisions of Section 203 of the DGCL and all other
applicable takeover statutes inapplicable to this Agreement, the Merger and the
other Transactions. The execution by Parent and MergerCo of this Agreement and
the consummation of the Transactions have been duly authorized by all requisite
corporate action on the part of Parent and MergerCo. This Agreement, assuming
due and valid authorization, execution and delivery thereof by the Company,
constitutes a valid and legally binding obligation of Parent and MergerCo,
enforceable against Parent and MergerCo in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
6.3 CAPITALIZATION.
(a) The capital stock of Parent consists of Parent Common Stock. There
are 40,000,000 shares of Parent Common Stock authorized, and as of the date
of this Agreement, (i) 25,087,976 shares of Parent Common Stock were issued
and outstanding and (ii) 2,337,727 shares of Parent Common Stock have been
authorized and reserved for issuance, of which 750,000 have been reserved
for issuance for grant pursuant to Parent's Amended and Restated 2000 Stock
Option and Grant Plan (the "PARENT STOCK OPTION PLAN") subject to adjustment
on the terms set forth in the Parent Stock Option Plan, 850,000 have been
reserved for issuance pursuant to the Parent's Employee Stock Purchase Plan
and 737,727 shares of Parent Common Stock were authorized and reserved for
issuance upon the exercise of the Parent Warrants (as defined herein). There
are no outstanding options to purchase shares of Parent Common Stock under
the Parent Stock Option Plan and options to purchase 750,000 shares of
Parent Common Stock available for grant. As of the date of this Agreement,
there are outstanding warrants to purchase 737,727 shares of Parent Common
Stock (the "PARENT WARRANTS"). As of the date of this Agreement, 743,678
shares of Parent Common Stock and no shares of Parent Preferred Stock were
held in the treasury of Parent.
(b) As of the date of this Agreement, Parent had no shares of Parent
Common Stock reserved for issuance other than as described above. The
authorized capital stock of MergerCo consists of 1,000 shares of MergerCo
Common Stock, of which 100 shares were outstanding as of the date of this
Agreement and held by Parent. MergerCo is a direct wholly owned subsidiary
of Parent, was formed solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business activities and has
conducted its operations only as contemplated hereby. All such issued and
outstanding shares of capital stock of Parent are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. Parent has
no outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable
for securities having the right to vote) with the stockholders of Parent on
any matter. Except for the Parent Options (all of which have been issued
under the Parent Stock Option Plan) and Parent Warrants, there are not at
the date of this Agreement any existing options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements or
commitments that obligate Parent to issue, transfer or sell any shares of
capital stock of Parent.
(c) There are no agreements or understandings to which Parent or any
Material Parent Subsidiary is a party with respect to the voting of any
shares of capital stock of Parent or that restrict the transfer of any such
shares, nor does Parent have knowledge of any third party agreements or
understandings with respect to the voting of any such shares or that
restrict the transfer of any such shares. There are no outstanding
contractual obligations of Parent or any Material Parent Subsidiary to
repurchase, redeem or otherwise acquire any shares of capital stock,
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partnership interests or any other securities of Parent or any Material
Parent Subsidiary. Except as set forth in Section 6.3(c) of the Parent
Disclosure Schedule, neither Parent nor any Material Parent Subsidiary is
under any obligation, contingent or otherwise, by reason of any agreement to
register the offer and sale or resale of any of their securities under the
Securities Act.
6.4 NO VIOLATION; CONSENTS. Except as set forth in Section 6.4 of the
Parent Disclosure Schedule, neither the execution and delivery by Parent of this
Agreement nor consummation by Parent of the Transactions in accordance with the
terms hereof, will conflict with or result in a breach of any provisions of the
Parent Certificate or the Parent Bylaws. Except as set forth in Section 6.4 of
the Parent Disclosure Schedule, the execution and delivery by Parent of this
Agreement and consummation by Parent of the Transactions in accordance with the
terms hereof will not violate, or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
or in a right of termination or cancellation of, or accelerate the performance
required by, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties of Parent or the Material Parent
Subsidiaries under, or result in being declared void, voidable or without
further binding effect, any of the terms, conditions or provisions of (a) any
note, bond, mortgage, indenture or deed of trust or (b) any license, franchise,
permit, lease, contract, agreement or other instrument, commitment or obligation
to which Parent or any of the Parent Subsidiaries is a party, or by which Parent
or any of the Material Parent Subsidiaries or any of their properties is bound,
except as otherwise would not have a Parent Material Adverse Effect. Other than
the Regulatory Filings, and based upon the accuracy of the Company's
representation and warranty contained in Section 5.28 hereof, the execution and
delivery of this Agreement by Parent does not, and the performance of this
Agreement by Parent and consummation of the Transactions does not, require any
consent, approval or authorization of, or declaration, filing or registration
with, any governmental or regulatory authority, except where the failure to
obtain any such consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority would not have a
Parent Material Adverse Effect.
6.5 SEC DOCUMENTS. Parent has filed all required forms, reports and
documents with the SEC since August 6, 1996 (collectively, the "PARENT SEC
REPORTS"), all of which were prepared in accordance with the applicable
requirements of the Securities Laws. As of their respective dates, the Parent
SEC Reports (a) complied as to form in all material respects with the applicable
requirements of the Securities Laws and (b) did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. Each of the
consolidated balance sheets of Parent included in or incorporated by reference
into the Parent SEC Reports (including the related notes and schedules) fairly
presents the consolidated financial position of Parent and the Parent
Subsidiaries as of its date and each of the consolidated statements of income,
retained earnings and cash flows of Parent included in or incorporated by
reference into the Parent SEC Reports (including any related notes and
schedules) fairly presents the results of operations, retained earnings or cash
flows, as the case may be, of Parent and the Parent Subsidiaries for the periods
set forth therein (subject, in the case of unaudited statements, to normal
year-end audit adjustments that would not be material in amount or effect), in
each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except as may be noted therein
and except, in the case of the unaudited statements, as permitted by Form 10-Q
pursuant to Section 13 or 15(d) of the Exchange Act.
6.6 NO BROKERS. Neither Parent nor any of the Parent Subsidiaries has
entered into any contract, arrangement or understanding with any person or firm
that may result in the obligation of such entity or the Company to pay any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation of
the Transactions, except that Parent may pay certain fees and expenses to
Covington & Associates ("Covington") in
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connection with advisory services provided in connection with Parent's
evaluation of the transactions contemplated hereby. Other than the Company's
arrangements with Piper Jaffray and the Parent's arrangements, if any, with
Covington, Parent is not aware of any claim for payment of any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or consummation of the Transactions.
6.7 REORGANIZATION. As of the date of this Agreement, Parent has no reason
to believe that the Merger will not qualify as a "reorganization" within the
meaning of Section 368(a) of the Code.
6.8 OWNERSHIP OF COMPANY COMMON STOCK; AFFILIATES AND ASSOCIATES. As of
the date hereof, neither Parent nor any of its affiliates or associates (as such
terms are defined under the Exchange Act) (a) beneficially owns, directly or
indirectly, or (b) is a party to any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of any shares of capital
stock of the Company.
6.9 CERTAIN ACTIONS. Neither Parent nor MergerCo controls, is controlled
by or is under common control of any entity set forth in Section 6.9 of the
Parent Disclosure Schedule.
6.10 LITIGATION. Except as set forth in Section 6.10 of the Parent
Disclosure Schedule, there is no litigation, suit, action or proceeding pending
or, to the knowledge of the Parent, threatened against the Parent, as to which
there is a reasonable likelihood of an adverse determination and which, if
adversely determined, individually or in the aggregate with all such other
litigation, suits, actions or proceedings, would (a) have a Parent Material
Adverse Effect, (b) materially and adversely affect the Parent's ability to
perform its obligations under this Agreement or (c) prevent the consummation of
any of the Transactions.
6.11 COMPLIANCE WITH APPLICABLE LAW. Except as set forth in Section 6.11
of the Parent Disclosure Schedule, or where the failure would not have a Parent
Material Adverse Effect (a) the Parent holds, and is in compliance with the
terms of, all permits, licenses, exemptions, orders and approvals of all
Governmental Entities necessary for the current and presently proposed conduct
of its business ("PARENT PERMITS"), (b) no fact exists or event has occurred,
and no action or proceeding is pending or, to the Parent's knowledge,
threatened, that has a reasonable possibility of resulting in a revocation,
nonrenewal, termination, suspension or other impairment of any Parent Permits,
(c) the business of the Parent is not being conducted in violation of any
applicable law, ordinance, regulation, judgment, decree or order of any
Governmental Entity, and (d) to the knowledge of the Parent, (i) no
investigation or review by any Governmental Entity with respect to the Parent is
pending or threatened or has been undertaken within the past five (5) years, and
(ii) no Governmental Entity has indicated an intention to conduct the same. For
purposes of this Agreement, "GOVERNMENTAL ENTITY" means any state or federal
government or governmental authority or any United States or state court of
competent jurisdiction.
ARTICLE VII
COVENANTS
7.1 NO SOLICITATIONS.
(a) The Company represents and warrants that it has terminated any
discussions or negotiations relating to, or that may reasonably be expected
to lead to, any Acquisition Proposal (as defined herein) and will promptly
request the return of all confidential information regarding the Company
provided to any third party prior to the date of this Agreement pursuant to
the terms of any confidentiality agreements entered into in connection with
any such Acquisition Proposal. Except as permitted by this Agreement, the
Company shall not, and shall not authorize or permit any of its officers,
directors or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it to, directly or
indirectly, (i) solicit,
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initiate or encourage (including by way of furnishing non-public
information), or take any other action to facilitate, any inquiries or the
making of any proposal that constitutes an Acquisition Proposal, or
(ii) engage or participate in any discussions or negotiations with, or
provide any confidential information or data to, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make
or implement an Acquisition Proposal; and the Company will immediately cease
and cause to be terminated any existing activities, negotiations or
discussions with any persons conducted heretofore with respect to any of the
foregoing and will take the necessary steps to inform the individuals or
entities referred to above of the obligations undertaken in this Section.
(b) The Company Board may not withdraw or modify, or propose to withdraw
or modify, in a manner adverse to Parent or MergerCo, its approval or
recommendation of this Agreement or the Merger; PROVIDED, HOWEVER, that
notwithstanding anything contained in this Section 7.1 or any other
provision of this Agreement, prior to the Company shareholders meeting, the
Company Board may so withdraw or modify, or propose to withdraw or modify,
its approval or recommendation of this Agreement or the Merger and the
Company may participate in discussions or negotiations with or furnish
information to a third party making an unsolicited Acquisition Proposal (a
"POTENTIAL ACQUIROR") or approve or recommend an unsolicited Acquisition
Proposal, if (i) a majority of the disinterested directors of the Company
Board determines in good faith, after consultation with its independent
financial advisor, that a Potential Acquiror has submitted to the Company a
written Acquisition Proposal which sets forth a price to be paid by the
Potential Acquiror and which, if consummated, would be more favorable to the
Company's shareholders, from a financial point of view, than the Merger (a
"SUPERIOR PROPOSAL"), (ii) the Company Board has determined in good faith,
based on consultation with its outside legal counsel experienced in such
matters (which may include Dorsey & Whitney LLP, the Company's current
counsel) that such written Acquisition Proposal appears to be a Superior
Proposal based upon the terms and conditions set forth therein, (iii) the
Company Board has determined in good faith, based on consultation with its
independent financial advisor, that such Potential Acquiror is financially
capable of consummating such Superior Proposal and that such Superior
Proposal is likely to be consummated, and (iv) a majority of the
disinterested directors of the Company Board determines in good faith, after
receiving advice from such outside legal counsel that participating in
discussions or negotiations or furnishing information or approving or
recommending the unsolicited Acquisition Proposal is required by the Company
Board's fiduciary duties under applicable law.
(c) The Company shall promptly notify (but in any event within one
(1) business day Parent of the Company's first receipt of a written
Acquisition Proposal and of the material terms and conditions thereof and
any material changes thereto. Notwithstanding anything to the contrary in
this Agreement, the Company shall not be required to disclose to Parent the
identity of the Potential Acquiror making any such Acquisition Proposal.
(d) Nothing contained in this Section 7.1 shall prohibit the Company
from at any time taking and disclosing to its shareholders a position
contemplated by Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act
or making any disclosure required by Rule 14a-9 promulgated under the
Exchange Act.
(e) As used in this Agreement, the term "ACQUISITION PROPOSAL" shall
mean any proposed or actual (i) merger, consolidation or similar transaction
involving the Company, (ii) sale, lease or other disposition, directly or
indirectly, by merger, consolidation, share exchange or otherwise, of any
assets of the Company representing 15% or more of the assets of the Company,
(iii) issue, sale or other disposition by the Company of (including by way
of merger, consolidation, share exchange or any similar transaction)
securities (or options, rights or warrants to purchase, or securities
convertible into, such securities) representing 15% or more of the votes
associated with the outstanding securities of the Company, (iv) tender offer
or exchange offer in which any person
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shall acquire beneficial ownership (as such term is defined in Rule 13d-3
under the Exchange Act), or the right to acquire beneficial ownership, or
any "group" (as such term is defined under the Exchange Act) shall have been
formed which beneficially owns or has the right to acquire beneficial
ownership of, 15% or more of the outstanding shares of Company Common Stock,
(v) recapitalization, restructuring, liquidation, dissolution, or other
similar type of transaction with respect to the Company or (vi) transaction
that is similar in form, substance or purpose to any of the foregoing
transactions; PROVIDED, HOWEVER, that the term "Acquisition Proposal" shall
not include the Merger and the other Transactions.
7.2 CONDUCT OF BUSINESSES.
(a) GENERAL. Prior to the Effective Time, except as specifically
permitted by this Agreement, unless the other party has consented in writing
thereto, Parent and the Company shall:
(i) use their reasonable best efforts, and shall cause each of their
respective Subsidiaries to use their reasonable best efforts, to preserve
intact their business organizations and goodwill and keep available the
services of their respective officers and material employees;
(ii) subject to Section 7.1 and this Section 7.2, confer on a regular
basis with one or more representatives of the other to report on material
operational matters and any proposals to engage in material transactions;
(iii) subject to Section 7.1 and this Section 7.2, promptly notify the
other of any material emergency or other material change in the condition
(financial or otherwise), business, properties, assets, liabilities,
prospects or the normal course of their businesses, any material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the breach in any
material respect of any representation or warranty contained herein; and
(iv) promptly deliver to the other true and correct copies of any
report, statement or schedule filed by or with respect to it with the SEC
subsequent to the date of this Agreement.
(b) CONDUCT BY THE COMPANY. Prior to the Effective Time, except as
specifically permitted by this Agreement, unless Parent or MergerCo has
consented in writing thereto, the Company shall use its reasonable best
efforts to conduct its operations according to its usual, regular and
ordinary course in substantially the same manner as heretofore conducted.
Without limiting the generality of the foregoing, the Company shall not
(except as expressly permitted by this Agreement or to the extent Parent or
MergerCo shall otherwise consent in writing which shall not be unreasonably
withheld or delayed):
(i) (A) declare, set aside or pay any dividend or other distribution
(whether in cash, stock, or property or any combination thereof) in
respect of any of its capital stock, (B) split, combine or reclassify any
of its capital stock or (C) repurchase, redeem or otherwise acquire any
of its securities, except, in the case of clause (C), for (x) the
acquisition of shares of Company Common Stock from holders of Company
Options in full or partial payment of the exercise price payable by such
holders upon exercise of Company Options or (y) the redemption of
Series B Preferred Stock upon an event of default under the terms of the
Company's Series B Preferred Stock purchase agreement (the "SERIES B
PURCHASE AGREEMENT");
(ii) authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities (including
indebtedness having the right to vote) or equity equivalents (including,
without limitation, stock appreciation rights) other than the issuance of
shares of Series B Preferred Stock in accordance with the terms of the
Series B Purchase Agreement or shares of Company
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Common Stock upon the exercise of Company Options or Company Warrants in
accordance with their present terms;
(iii) acquire, sell, lease, encumber, transfer or dispose of any
assets outside the ordinary course of business that are material to the
Company (whether by asset acquisition, stock acquisition or otherwise),
except pursuant to obligations in effect on the date hereof or as set
forth in Section 7.2 of the Company Disclosure Schedule;
(iv) incur any amount of indebtedness for borrowed money, guarantee
any indebtedness, issue or sell debt securities (other than (A) the
issuance of shares of Series B Preferred Stock in accordance with the
terms of the Series B Purchase Agreement, or (B) the loan agreement with
Parent (the "LOAN AGREEMENT")) or warrants or rights to acquire any debt
securities, guarantee (or become liable for) any debt of others, make any
loans, advances or capital contributions, mortgage, pledge or otherwise
encumber any material assets, create or suffer any material lien
thereupon;
(v) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise),
other than any payment, discharge or satisfaction (A) in the ordinary
course of business consistent with past practice, or (B) in connection
with the transactions contemplated by this Agreement;
(vi) change any of the accounting principles or practices used by it
(except as required by generally accepted accounting principles, in which
case written notice shall be provided to Parent prior to any such
change);
(vii) except as required by law, (A) enter into, adopt, amend or
terminate any Company Benefit Plan, (B) enter into, adopt, amend or
terminate any agreement, arrangement, plan or policy between the Company
and one or more of its directors or officers, or (C) except for normal
increases in the ordinary course of business consistent with past
practice, increase in any manner the compensation or fringe benefits of
any director, officer or employee or pay any benefit not required by any
Company Benefit Plan or arrangement as in effect as of the date hereof;
(viii) adopt any amendments to the Company Charter or the Company
Bylaws, except as expressly provided by the terms of this Agreement;
(ix) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(x) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement) other than settlements or
compromises of litigation where the amount paid (after giving effect to
insurance proceeds actually received) in settlement or compromise does
not exceed $25,000;
(xi) amend or waive any rights under the Company Rights Agreement,
except as contemplated by Section 5.26 hereof; or
(xii) enter into an agreement to take any of the foregoing actions.
7.3 INTENTIONALLY OMITTED.
7.4 REDEMPTION OF COMPANY SERIES B PREFERRED STOCK. Parent shall, at or
prior to the Effective Time, redeem all outstanding shares of Company Series B
Preferred Stock for cash consideration in accordance with the terms of the
Company Charter.
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7.5 MEETING OF SHAREHOLDERS. Following execution of this Agreement, the
Company will take all action necessary in accordance with applicable law, the
Company Charter and the Company Bylaws to convene a meeting of its shareholders
as promptly as practicable to consider and vote upon the approval of this
Agreement and the Transactions. Except as provided in Section 7.1, the proxy
statement of the Company related to its shareholders' meeting shall contain the
recommendation of the Company Board that its shareholders approve this Agreement
and the Transactions. The Company, including the Company Board, subject to and
in accordance with applicable law, shall use its reasonable best efforts to
obtain such approval, including, without limitation, by timely mailing the Proxy
Statement (as defined herein) contained in the Form S-4 (as defined herein) to
its shareholders.
7.6 INTENTIONALLY OMITTED.
7.7 ADDITIONAL AGREEMENTS. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement and to cooperate
with each other in connection with the foregoing, including the taking of such
actions as are necessary to obtain any necessary consents, approvals, orders,
exemptions and authorizations by or from any public or private third party,
including, without limitation, any that are required to be obtained under any
federal, state or local law or regulation or any contract, agreement or
instrument to which the Company is a party or by which any of its properties or
assets are bound, to defend all lawsuits or other legal proceedings challenging
this Agreement or the consummation of the Transactions, to cause to be lifted or
rescinded any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the Transactions, and to effect all
necessary registrations and Other Filings, including, but not limited to,
filings under the HSR Act, if any, and submissions of information requested by
governmental authorities. For purposes of the foregoing sentence, the
obligations of Parent and the Company to use their "best efforts" to obtain
waivers, consents and approvals to loan agreements, leases and other contracts
shall not include any obligation to agree to an adverse modification of the
terms of such documents or to prepay or incur additional obligations to such
other parties. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purpose of this Agreement, the proper
officers and directors of Parent and the Company shall take all such necessary
action.
7.8 PROXY STATEMENT; REGISTRATION STATEMENT; FILING COOPERATION.
(a) The Company and Parent shall prepare and Parent shall file with the
SEC, under the Exchange Act and the Securities Act, a registration statement
on Form S-4 (such registration statement, together with any amendments or
supplements thereto, the "FORM S-4") which shall include a proxy
statement/prospectus and form of proxy (such proxy statement/prospectus
together with any amendments or supplements thereto, the "PROXY STATEMENT")
relating to the shareholders meeting of the Company and the vote of the
shareholders of the Company with respect to this Agreement and the
Transactions. Parent will cause the Form S-4 to comply as to form in all
material respects with the applicable provisions of the Securities Act and
the rules and regulations thereunder, and the Company will cause the Proxy
Statement to comply as to form in all material respects with the applicable
provisions of the Exchange Act and the rules and regulations thereunder.
Each of Parent and the Company shall furnish all information about itself
and its business and operations and all necessary financial information to
the other as the other may reasonably request in connection with the
preparation of the Proxy Statement and the Form S-4. Parent shall use its
reasonable best efforts, and the Company will cooperate with it, to have the
Form S-4 declared effective by the SEC as promptly as practicable (including
clearing the Proxy Statement with the SEC). Each of Parent and the Company
agrees promptly to correct any information provided by it for use in the
Proxy Statement and the Form S-4 if and to the extent that such information
shall have become false or misleading in any material respect, and the
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Company further agrees to take all steps necessary to amend or supplement
the Proxy Statement and, in the case of Parent, the Form S-4, and the
Company further agrees to take all steps necessary to cause the Proxy
Statement and, in the case of Parent, the Form S-4, as so amended or
supplemented, to be filed with the SEC and to be disseminated to the
Company's shareholders as and to the extent required by applicable federal
and state securities laws. Each of Parent and the Company agrees that the
information provided by it for inclusion in the Proxy Statement or the
Form S-4 and each amendment or supplement thereto, at the time of mailing
thereof and at the time of the meeting of shareholders of the Company, will
not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading. Parent will advise the Company, and deliver copies (if
any) to the Company, promptly after either receives notice thereof, of any
request by the SEC for amendment of the Proxy Statement or the Form S-4 or
comments thereon and responses thereto or requests by the SEC for additional
information, or notice of the time when the Form S-4 has become effective or
any supplement or amendment has been filed, the issuance of any stop order
or the suspension of the qualification of the securities issuable in
connection with the Merger for offering or sale in any jurisdiction.
(b) The Company shall use its reasonable best efforts to promptly mail
the Proxy Statement to its shareholders.
(c) The Company shall cooperate with Parent and its advisors in
connection with any filings to be made by Parent, including, without
limitation, filings under (i) the Securities Act, including, but not limited
to, the filing of registration statements on Form S-3 and Form S-4, with the
SEC, and (ii) the Exchange Act, and shall furnish all information required
in connection therewith. Such cooperation shall include, but not be limited
to, obtaining any consent to inclusion of the Company's financial statements
and the reports of the Company's independent public accountants with respect
thereto in any filing made pursuant to any federal or state securities laws
(and any public disclosure related thereto), as well as using its best
effort to cause its independent public accountants to prepare and deliver a
comfort letter or letters reasonably acceptable to any placement agent or
underwriter retained by Parent in connection with the placement or offering
of the securities registered pursuant to any such registration statement.
7.9 LISTING APPLICATION. Parent shall promptly prepare and submit to the
AMEX all reports, applications and other documents that may be necessary or
desirable to enable all of the shares of Parent Common Stock that will be
outstanding or will be reserved for issuance at the Effective Time to be listed
for trading on the AMEX. Each of Parent and the Company shall furnish all
information about itself and its business and operation and all necessary
financial information to the other as the other may reasonably request in
connection with such AMEX listing process. Each of Parent and the Company agrees
promptly to correct any information provided by it for use in the AMEX listing
process if and to the extent that such information shall have become false or
misleading in any material respect. Each of Parent and the Company will advise
and deliver copies (if any) to the other parties, promptly after it receives
notice thereof, of any request by the AMEX for amendment of any submitted
materials or comments thereon and responses thereto or requests by the AMEX for
additional information.
7.10 AFFILIATES.
(a) Promptly following the date of this Agreement, the Company shall
deliver to Parent a list of names and addresses of those persons who and as
requested by Parent thereafter were, in the Company's reasonable judgment,
at the record date for its shareholders' meeting to approve the Merger,
"affiliates" (each such person, a "COMPANY AFFILIATE") of the Company within
the meaning of Rule 145. Parent shall be entitled to place legends as
specified on Exhibit B on the certificates evidencing any shares of Parent
Common Stock to be received by such Affiliates pursuant to the
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terms of this Agreement, and to issue appropriate stop transfer instructions
to the transfer agent for such shares of Parent Common Stock, consistent
with the terms of such legends.
(b) Intentionally Omitted.
(c) Parent shall file the reports required to be filed by it under the
Exchange Act and the rules and regulations adopted by the SEC thereunder,
and it will take such further action as any Affiliate of the Company may
reasonably request, all to the extent, if any, required from time to time to
enable such Affiliate to sell shares of Parent Common Stock received by such
Affiliate in the Merger without registration under the Securities Act
pursuant to (i) Rule 145(d)(1) or (ii) any successor rule or regulation
hereafter adopted by the SEC.
7.11 EXPENSES. Whether or not the Merger is consummated, all fees, costs
and expenses incurred in connection with this Agreement and the Transactions
shall be paid by the party incurring such fees, costs or expenses, except as
provided in Section 9 hereof.
7.12 OFFICERS' AND DIRECTORS' INDEMNIFICATION.
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior
to the date hereof, or who becomes prior to the Effective Time, a director,
officer, employee, fiduciary or agent of the Company (the "INDEMNIFIED
PARTIES") is, or is threatened to be, made a party based in whole or in part
on, or arising in whole or in part out of, or pertaining to (i) the fact
that he is or was a director, officer, employee, fiduciary or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee, fiduciary or agent of another corporation, partnership,
joint venture, trust or other enterprise (ii) any matter pursuant to which
such Indemnified Party is entitled to indemnification under applicable law
or the Company Charter, or (iii) the negotiation, execution or performance
of this Agreement or any of the Transactions, whether in any case asserted
or arising before or after the Effective Time, the parties hereto agree to
cooperate and use their reasonable best efforts to defend against and
respond thereto. It is understood and agreed that (A) the Company shall
indemnify and hold harmless, and after the Effective Time the Surviving
Corporation shall indemnify and hold harmless, as and to the full extent
permitted by applicable law, each Indemnified Party against any losses,
claims, damages, liabilities, costs, expenses (including attorneys' fees and
expenses), judgments, fines and amounts paid in settlement in connection
with any such threatened or actual claim, action, suit, proceeding or
investigation, and in the event of any such threatened or actual claim,
action, suit, proceeding or investigation (whether asserted or arising
before or after the Effective Time), the Company, and the Surviving
Corporation after the Effective Time, shall promptly pay expenses in advance
of the final disposition of any claim, suit, proceeding or investigation to
each Indemnified Party to the full extent permitted by law, (B) the
Indemnified Parties may retain counsel satisfactory to them, and the Company
and the Surviving Corporation, shall pay all fees and expenses of such
counsel for the Indemnified Parties within 30 days after statements therefor
are received, and (C) the Company and the Surviving Corporation will use
their respective reasonable best efforts to assist in the vigorous defense
of any such matter; provided that neither the Company nor the Surviving
Corporation shall be liable for any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld); and
provided further that the Surviving Corporation shall have no obligation
hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and non-appealable, that indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim indemnification under this Section 7.12,
upon learning of any such claim, action, suit, proceeding or investigation,
shall notify the Company and, after the Effective Time, the Surviving
Corporation, thereof;
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provided that the failure to so notify shall not affect the obligations of
the Company and the Surviving Corporation except to the extent such failure
to notify materially prejudices such party.
(b) Parent agrees that all rights to indemnification existing in favor
of, and all limitations on the personal liability of, the directors,
officers, employees and agents of the Company provided for in the Articles
of Organization or Bylaws as in effect as of the date hereof with respect to
matters occurring prior to the Effective Time, and including the Merger,
shall continue in full force and effect for a period of not less then six
years from the Effective Time; PROVIDED, HOWEVER, that all rights to
indemnification in respect of any claims (each a "CLAIM") asserted or made
within such period shall continue until the disposition of such Claim. Prior
to the Effective Time, the Company shall purchase an extended reporting
period endorsement under the Company's existing directors' and officers'
liability insurance coverage for the Company's directors and officers in a
form acceptable to the Company which shall provide such directors and
officers with coverage for six years following the Effective Time of not
less than the existing coverage under, and have other terms not materially
less favorable to, the insured persons than the directors' and officers'
liability insurance coverage presently maintained by the Company.
(c) This Section 7.12 is intended for the irrevocable benefit of, and to
grant third party rights to, the Indemnified Parties and shall be binding on
all successors and assigns of Parent, the Company and the Surviving
Corporation. Each of the Indemnified Parties shall be entitled to enforce
the covenants contained in this Section 7.12.
(d) In the event that the Surviving Corporation or any of its successors
or assigns (i) consolidates with or merges into any other person or entity
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially
all of its properties and assets to any person or entity, then, and in each
such case, proper provision shall be made so that the successors and assigns
of the Surviving Corporation assume the obligations set forth in this
Section 7.12.
7.13 ACCESS TO INFORMATION; CONFIDENTIALITY. From the date hereof until
the Effective Time, each of Parent and the Company shall, and shall cause each
of their respective Subsidiaries and each of their and their respective
Subsidiaries' officers, employees and agents to, afford to the other and to the
officers, employees and agents of the other complete access, except to the
extent such access is prohibited by the terms of a binding agreement between the
Company and a third party, at all reasonable times to such officers, employees,
agents, properties, books, records and contracts, and shall furnish to the other
such financial, operating and other data and information as the other may
reasonably request. Prior to the Effective Time, Parent shall hold in confidence
all such information on the terms and subject to the conditions contained in
that certain confidentiality agreement between Parent and the Company dated as
of August 9, 2000 (the "CONFIDENTIALITY AGREEMENT"). The Company hereby waives
the provisions of the Confidentiality Agreement as and to the extent necessary
to permit the making and consummation of the transactions contemplated by this
Agreement. At the Effective Time, the Confidentiality Agreement shall terminate.
7.14 PUBLICITY. Parent and the Company shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement or any transaction contemplated hereby and shall not
issue any such press release or make any such public statement without the prior
consent of the other party, which consent shall not be unreasonably withheld;
PROVIDED, HOWEVER, that a party may, without the prior consent of the other
party, issue such press release or make such public statement as may be required
by law or the applicable rules of any stock exchange if it has used its best
efforts to consult with the other party and to obtain such party's consent but
has been unable to do so in a timely manner. In this regard, the parties shall
make a joint public announcement of the Transactions no later than (i) the close
of trading on the AMEX on the day this Agreement is signed, if such signing
occurs during a business day and prior to the close of such trading
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or (ii) the opening of trading on the AMEX on the business day following the
date on which this Agreement is signed, if such signing does not occur during a
business day or occurs on a business day but after the close of such trading.
7.15 EMPLOYEE BENEFITS.
(a) Parent agrees that the Company will honor, and from and after the
Effective Time, Parent will cause the Surviving Corporation to honor, all
obligations under (i) the existing terms of the employment and severance
agreements set forth in Section 7.15 of the Company Disclosure Schedule to
which the Company is presently a party, except as may otherwise be agreed to
by the parties thereto, and (ii) the Company's general severance policy as
set forth in Section 7.15 of the Company Disclosure Schedule.
(b) If any employee of the Company becomes a participant in any employee
benefit plan, practice or policy of the Surviving Corporation, such employee
shall, to the extent permitted by such plan, practice or policy, be given
credit under such plan, practice or policy for all service prior to the
Effective Time with the Company and prior to the time such employee becomes
such a participant, for purposes of eligibility (including, without
limitation, waiting periods) and vesting but not for any other purposes for
which such service is either taken into account or recognized (including,
without limitation, benefit accrual); PROVIDED, HOWEVER, that such employees
will be given credit for such service for purposes of any vacation policy.
7.16 ADVICE OF CHANGES. Parent and the Company shall each promptly advise
the other party of any change or event (a) having a Material Adverse Effect on
it or (b) which it believes would or would be reasonably likely to cause or
constitute a material breach of any of its representations, warranties or
covenants contained herein.
7.17 DELISTING. Each of the parties hereto agrees to cooperate with each
other in taking, or causing to be taken, all actions necessary to delist the
Company Common Stock from the NASDAQ, provided that such delisting shall not be
effective until after the Effective Time.
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver, where permissible, at or prior to the Closing Date,
of each of the following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the Transactions shall have
been approved by the requisite vote of the shareholders of the Company.
(b) INTENTIONALLY OMITTED.
(c) NO INJUNCTIONS, ORDERS OR RESTRAINTS; ILLEGALITY. No preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative
agency or commission (an "INJUNCTION") nor any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority shall
be in effect which would (i) make the consummation of the Merger illegal, or
(ii) otherwise restrict, prevent or prohibit the consummation of any of the
Transactions, including the Merger.
(d) FORM S-4. The Form S-4 shall have been declared effective by the SEC
under the Securities Act, and no stop order suspending the effectiveness of
the Form S-4 shall have been issued by the SEC, and no proceeding for that
purpose shall have been initiated or, to the knowledge of Parent or the
Company, threatened by the SEC.
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(e) LISTING. Parent shall have obtained the approval for the listing of
the shares of Parent Common Stock issuable in the Merger and upon exercise
of the Assumed Options on the AMEX, subject to official notice of issuance.
8.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to effect the Merger are further subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent and MergerCo set forth herein shall be true and correct both when
made and at and as of the Effective Date, as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case as
of such date), except, with respect to the Effective Date, where the failure
of such representations and warranties to be so true and correct (without
giving effect to any limitation as to materiality or material adverse effect
set forth therein), individually or in the aggregate, does not have, and
would not reasonably be expected to have a Parent Material Adverse Effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT. Parent shall have performed in
all material respects all obligations required to be performed by it under
this Agreement, including, without limitation, the covenants contained in
Article VII hereof.
(c) ABSENCE OF PARENT CHANGES. From the date of this Agreement through
the Closing Date, there shall not have occurred any change concerning Parent
or any of the Parent Subsidiaries that individually or in the aggregate
could reasonably be expected to have a material adverse effect on the
current business, results of operations or financial condition of Parent and
the Parent Subsidiaries taken as a whole (other than any changes
(i) generally affecting the industries in which Parent operates, including
changes due to actual or proposed changes in law or regulations, (ii) that
are related to a general drop in stock prices in the United States resulting
from political or economic turmoil, or (iii) that are related to or result
from the announcement or pendency of the Merger, including disruptions to
Parent's business or the Parent Subsidiaries' businesses).
(d) OFFICERS' CERTIFICATE. The Company shall have received a certificate
of the Chief Executive Officer or President and the Chief Financial Officer
of Parent, dated the Closing Date, to the effect that the statements set
forth in paragraphs (a), (b) and (c) of this Section 8.2 are true and
correct.
(e) CONSENTS, APPROVALS, ETC. All consents, authorizations, orders and
approvals of (or filings or registrations with) any governmental commission,
board, other regulatory body or third parties required to be made or
obtained by Parent and the Parent Subsidiaries and affiliated entities in
connection with the execution, delivery and performance of this Agreement
shall have been obtained or made, except where the failure to have obtained
or made any such consent, authorization, order, approval, filing or
registration, could not reasonably be expected to have a Parent Material
Adverse Effect.
(f) TAX OPINION. The Company shall have received a written opinion from
its counsel, Dorsey & Whitney LLP, in form and substance reasonably
satisfactory to it, to the effect that the Merger will constitute a tax free
reorganization within the meaning of Section 368(a) of the Code and such
opinion shall not have been withdrawn. In connection with such tax opinion,
Parent, MergerCo and the Company will provide such representations as have
been requested by counsel, which shall be entitled to rely upon such
representations in rendering its opinion.
8.3 CONDITIONS TO OBLIGATIONS OF PARENT. The obligation of Parent to
effect the Merger is further subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company set forth herein shall be true and correct both when made and
at and as of the Effective Date, as if
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made at and as of such time (except to the extent expressly made as of an
earlier date, in which case as of such date), except, with respect to the
Effective Date, where the failure of such representations and warranties to
be so true and correct (without giving effect to any limitation as to
materiality or material adverse effect set forth therein), individually or
in the aggregate, does not have, and would not reasonably be expected to
have a Company Material Adverse Effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement.
(c) ABSENCE OF COMPANY CHANGES. From the date of this Agreement through
the Closing Date, there shall not have occurred any change concerning the
Company that individually or in the aggregate has or could reasonably be
expected to have a Company Material Adverse Effect (other than any
(i) changes generally affecting the industries in which the Company
operates, including changes due to actual or proposed changes in law or
regulations, (ii) changes that are related to a general drop in stock prices
in the United States resulting from political or economic turmoil, or
(iii) disruptions that are related to or result from the announcement or
pendency of the Merger, including disruptions to the Company's business or
any action or inaction taken by any party listed on Section 8.3(c) of the
Parent Disclosure Schedule after the date hereof, except where such action
or inaction by such party was a result of a willful breach by the Company of
any agreement between the Company and such party.
(d) OFFICERS' CERTIFICATE. Parent shall have received a certificate of
the Chief Executive Officer or President and the Controller of the Company
to the effect that the statements set forth in paragraphs (a), (b) and
(c) of this Section 8.3 are true and correct.
(e) CONSENTS, APPROVALS, ETC. All consents, authorizations, orders and
approvals of (or filings or registrations with) any governmental commission,
board, other regulatory body or third parties required to be made or
obtained by the Company and affiliated entities in connection with the
execution, delivery and performance of this Agreement shall have been
obtained or made, except where the failure to have obtained or made any such
consent, authorization, order, approval, filing or registration, could not
reasonably be expected to have a Company Material Adverse Effect.
(f) REDEMPTION OF COMPANY SERIES B PREFERRED STOCK. Company shall have
taken any and all action necessary to cause the redemption of all
outstanding shares of Company Series B Preferred Stock for cash
consideration in accordance with the terms of the Company Charter, such
redemption to occur on or immediately prior to the Effective Date.
(g) TAX OPINION. Parent shall have received a written opinion from its
counsel, Goodwin, Procter & Hoar LLP, in form and substance reasonably
satisfactory to it, to the effect that the Merger will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Code, and such
opinion shall not have been withdrawn. In connection with such tax opinion,
Parent, MergerCo and the Company will provide such representations as have
been requested by counsel, which shall be entitled to rely upon such
representations in rendering its opinion.
(h) SHAREHOLDERS APPROVAL. This Agreement and the Merger shall have been
approved and adopted by the requisite votes of the holders of the
outstanding capital stock of the Company and the number of shares for which
the Company has received notice of the holder's intent to demand fair value
under Section 302A.473 of the MBCA shall not exceed 5% of the number of
shares of outstanding Company Common Stock.
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<PAGE>
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION. This Agreement may be terminated and abandoned at any
time prior to the Effective Time, whether before or after the approval of
matters presented in connection with the Merger by the stockholders of Parent
and the Company:
(a) by the mutual written consent of Parent, MergerCo and the Company.
(b) by either of Parent or MergerCo, or the Company:
(i) if any required approval of the shareholders of the Company that is
a condition to the obligations of Parent, MergerCo or the Company under
Section 8.1 of this Agreement shall not have been obtained by reason of the
failure to obtain the required vote upon a vote held at a duly held meeting
of shareholders or at any adjournment thereof; or
(ii) if any Governmental Entity shall have issued an Injunction or taken
any other action (which Injunction or other action the parties hereto shall
use their best efforts to lift), which permanently restrains, enjoins or
otherwise prohibits the Merger; or
(iii) if, without any material breach by the terminating party of its
obligations under this Agreement, the Merger shall not have occurred on or
before March 31, 2001; PROVIDED, HOWEVER, that neither Parent, MergerCo nor
the Company shall terminate this Agreement prior to March 31, 2001 if the
Merger has not occurred by reason of the nonsatisfaction of the condition
set forth in Section 8.1(b) hereof or the pendency of a non-final
Injunction, and Parent, MergerCo and the Company shall use their best
efforts to cause such condition to be satisfied (including, without
limitation, by complying with the requirements of the FTC or other
comparable Governmental Entity to divest of assets or otherwise in
connection with the consummation of the Transactions or in settlement of any
action brought by it) or have any such Injunction stayed or reversed.
(c) by the Company if Parent or MergerCo shall have breached in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach cannot be or has not
been cured within fifteen (15) business days after the giving of written
notice to Parent and MergerCo except, in any case, for such breaches which
are not reasonably likely to have a Parent Material Adverse Effect.
(d) by Parent or MergerCo if the Company shall have breached in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach cannot be or has not
been cured within fifteen (15) business days after the giving of written
notice to the Company except, in any case, for such breaches which are not
reasonably likely to have a Company Material Adverse Effect.
(e) by Parent or MergerCo, if (i) the Company Board shall have failed to
make, or shall have withdrawn, amended, modified or changed its approval or
recommendation of this Agreement or any of the transactions contemplated
hereby; (ii) the Company shall have failed to include the favorable
recommendation of its Board of Directors of this Agreement and the
transactions contemplated hereby in the Proxy Statement; (iii) the Company
Board shall have recommended that shareholders of the Company accept or
approve a Superior Proposal by a person other than Parent; (iv) the Company
Board shall publicly express no opinion and remain neutral in respect of any
Acquisition Proposal or the Merger or the Transactions; (v) the Company
Board shall propose or announce any intention to enter into any agreement
with respect to an Acquisition Proposal, or (vi) the Company or its Board of
Directors shall have resolved to do any of the foregoing.
(f) by the Company, prior to the Company's shareholders meeting,
concurrently with entering into a definitive agreement to effect a Superior
Proposal in accordance with Section 7.1; PROVIDED,
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<PAGE>
HOWEVER, that prior to terminating this Agreement pursuant to this
Section 9.1(f) the Company shall have provided Parent and MergerCo with five
(5) business days prior written notice of the Company's decision to so
terminate. Such notice shall indicate in reasonable detail the terms and
conditions of such Superior Proposal, including, without limitation, the
amount and form of the proposed consideration and whether such Superior
Proposal is subject to any material conditions. During such five (5) day
period, the Company shall, and shall cause its respective financial and
legal advisors to, consider any adjustment in the terms and conditions of
this Agreement that Parent and may propose; provided further that the
Company may not effect such termination pursuant to this Section 9.1(f)
unless the Company immediately prior to such termination pays to Parent or
its designee the Termination Fee due pursuant to Section 9.2 hereof.
Notwithstanding the foregoing, the Company is not required to disclose to
Parent the identity of the party making such Superior Proposal.
9.2 EFFECT OF TERMINATION.
(a) In the event of the termination of this Agreement pursuant to
Section 9.1 hereof, this Agreement shall forthwith become null and void and
have no effect, without any liability on the part of any party hereto or its
affiliates, directors, officers or stockholders and all rights and
obligations of any party hereto shall cease except for the agreements
contained in Sections 7.9, 7.11 and 10.4 and this Section 9.2; PROVIDED,
HOWEVER, that nothing contained in this Section 9.2 shall relieve any party
from liability for any fraud or willful breach of this Agreement and Company
shall be required to make payment to Parent as are required pursuant to this
Article IX.
(b) If (i) Parent or MergerCo terminates this Agreement pursuant to
Section 9.1(e) or (ii) the Company terminates this Agreement pursuant to
Section 9.1(f), then the Company shall pay immediately to Parent an amount
in cash equal to $2,000,000 (the "TERMINATION FEE").
(c) If any party terminates this Agreement pursuant to 9.1(b)(i) or
(iii), or if Parent or MergerCo terminates this Agreement pursuant to
9.1(d), and at any time prior to or within one year after such termination
the Company enters into an agreement relating to an Acquisition Proposal
with a person, other than any party listed on Section 9.2(c) of the general
disclosure letter (the "GENERAL DISCLOSURE SCHEDULE"), specifically on the
terms set forth in the agreements (if any) listed thereon, or the Company
Board recommends or resolves to recommend to the Company's shareholders
approval or acceptance of an Acquisition Proposal with a person other than
any party listed on Section 9.2(c) of the General Disclosure Schedule, then,
upon the entry into such agreement or the making of such recommendation or
resolution, the Company shall pay to Parent the Termination Fee. Provided,
however, that if Parent or MergerCo terminates this Agreement pursuant to
9.1(d) and the breach by Company shall have been caused by a willful act,
omission or other willful misconduct of the Company, then the Company shall
pay to Parent an amount in cash equal to Parent's and MergerCo's
out-of-pocket costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby, including, without limitation,
reasonable fees and disbursements of accountants, attorneys and investment
bankers (the "EXPENSES") payable upon termination of this Agreement,
PROVIDED, FURTHER, that at no time shall the aggregate amount payable by
Company under this Section 9.2(c) exceed the amount of the Termination Fee.
(d) The Company shall not enter into any agreement relating to an
Acquisition Proposal with a person other than Parent or MergerCo at any time
prior to or within one year after termination of this Agreement, unless such
agreement provides that such person shall, upon the execution of such
agreement, pay or have paid to Parent, to the extent due, any Termination
Fee due under this Section 9.2.
(e) The parties acknowledge and agree that the provisions for payment of
the Termination Amount are included herein in order to induce Parent to
enter into this Agreement and to
A-37
<PAGE>
reimburse Parent for incurring the costs and expenses related to entering
into this Agreement and consummating the transactions contemplated hereby.
Notwithstanding anything to the contrary set forth in this Agreement, in the
event Parent is required to file suit to seek all or a portion of the
Termination Amount, Parent shall be reimbursed by the Company for any and
all expenses which it has incurred in enforcing its rights hereunder,
including without limitation, attorneys' fees and expenses.
9.3 AMENDMENT. This Agreement may be amended by the parties hereto by an
instrument in writing signed on behalf of each of the parties hereto at any time
before or after any approval hereof by the stockholders of Parent and the
Company, but in any event following authorization by the Parent Board and the
Company Board; provided, however, that after any such stockholder approval, no
amendment shall be made which by law requires further approval by the
stockholders without obtaining such approval.
9.4 EXTENSION; WAIVER. At any time prior to the Closing, the parties
hereto may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE X
GENERAL PROVISIONS
10.1 NOTICES. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered or sent if delivered personally or sent by telecopier
or sent by prepaid overnight carrier to the parties at the following addresses
(or at such other addresses as shall be specified by the parties by like
notice):
(a) if to Parent:
260 Prospect Street
Waltham, MA 02453
Attn: Chief Executive Officer
Telecopy: (781) 647-3939
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Stephen W. Carr, P.C.
Scott F. Duggan, Esq.
Telecopy No.: (617) 523-1231
(b) if to the Company:
2800 Patton Road
St. Paul, Minnesota 55113
Attn: Chief Executive Officer
Telecopy: (651) 639-9042
A-38
<PAGE>
with a copy to:
Dorsey & Whitney LLP
220 South 6th Street
Minneapolis, MN 55402
Attn: Kenneth L. Cutler, Esq.
Telecopy No.: (612) 340-8738
10.2 INTERPRETATION. When a reference is made in this Agreement to
subsidiaries of Parent or the Company, the word "SUBSIDIARY" means any
corporation more than 50% of whose outstanding voting securities, or any
partnership, joint venture or other entity more than 50% of whose total equity
interest, is directly or indirectly owned by Parent or the Company, as the case
may be. Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.3 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Except for Articles IV and X, the last sentence of Section 7.5, and
Sections 7.8, 7.9, 7.10 and 7.15, none of the representations, warranties,
covenants and agreements contained in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time, and
thereafter there shall be no liability on the part of either Parent or the
Company or any of their respective officers, directors or stockholders in
respect thereof. Except as expressly set forth in this Agreement, there are no
representations or warranties of any party hereto, express or implied.
10.4 MISCELLANEOUS. This Agreement (a) constitutes, together with the
Confidentiality Agreement, the Parent Disclosure Schedule and the Company
Disclosure Schedule, the entire agreement and supersedes all of the prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof, (b) shall be binding upon
and inure to the benefits of the parties hereto and their respective successors
and assigns and is not intended to confer upon any other person (except as set
forth below) any rights or remedies hereunder and (c) may be executed in two or
more counterparts which together shall constitute a single agreement.
Article IV and Sections 7.12 and 7.15 are intended to be for the benefit of
those persons described therein and the covenants contained therein may be
enforced by such persons. The parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in the Delaware Courts (as defined herein), this
being in addition to any other remedy to which they are entitled at law or in
equity.
10.5 ASSIGNMENT. Except as expressly permitted by the terms hereof,
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by either party hereto without the prior written consent of
the other party.
10.6 SEVERABILITY. If any provision of this Agreement, or the application
thereof to any person or circumstance is held invalid or unenforceable, the
remainder of this Agreement, and the application of such provision to other
persons or circumstances, shall not be affected thereby, and to such end, the
provisions of this Agreement are agreed to be severable.
10.7 CHOICE OF LAW; CONSENT TO JURISDICTION. All disputes, claims or
controversies arising out of this Agreement, or the negotiation, validity or
performance of this Agreement, or the Transactions shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
its rules of conflict of laws. Each of Parent, MergerCo and the Company hereby
irrevocably and unconditionally consents to submit to the sole and exclusive
jurisdiction of the courts of the State of
A-39
<PAGE>
Delaware and of the United States of America located in the State of Delaware
(the "DELAWARE COURTS") for any litigation arising out of or relating to this
Agreement, or the negotiation, validity or performance of this Agreement, or the
Transactions (and agrees not to commence any litigation relating thereto except
in such courts), waives any objection to the laying of venue of any such
litigation in the Delaware Courts and agrees not to plead or claim in any
Delaware Court that such litigation brought therein has been brought in any
inconvenient forum. Each of the parties hereto agrees, (a) to the extent such
party is not otherwise subject to service of process in the State of Delaware,
to appoint and maintain an agent in the State of Delaware as such party's agent
for acceptance of legal process, and (b) that service of process may also be
made on such party by prepaid certified mail with a proof of mailing receipt
validated by the United States Postal Service constituting evidence of valid
service. Service made pursuant to (a) or (b) above shall have the same legal
force and effect as if served upon such party personally within the State of
Delaware. For purposes of implementing the parties' agreement to appoint and
maintain an agent for service of process in State of Delaware, each such party
does hereby appoint The Corporation Trust Company, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, as such agent.
10.8 INCORPORATION. The Parent Disclosure Schedule and the Company
Disclosure Schedule and all Exhibits and Schedules attached hereto and thereto
and referred to herein and therein respectively are hereby incorporated herein
and made a part hereof for all purposes as if fully set forth herein.
10.9 PUBLICITY. Except as otherwise required by applicable law or the
rules of AMEX or NASDAQ, neither Parent nor the Company shall, or shall permit
any of its Subsidiaries to, issue or cause the publication of any press release
or other public announcement with respect to, or otherwise make any public
statement concerning, the transactions contemplated by this Agreement without
the consent of the Company, in the case of a proposed announcement or statement
by Parent, or Parent, in the case of a proposed announcement or statement by the
Company, which consent shall not be unreasonably withheld.
A-40
<PAGE>
IN WITNESS WHEREOF, Parent, MergerCo and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
<TABLE>
<S> <C> <C>
INVERNESS MEDICAL TECHNOLOGY, INC.
By: /s/ RON ZWANZIGER
-----------------------------------------
Name: Ron Zwanziger
Title: CHIEF EXECUTIVE OFFICER
TERRIER ACQUISITION CORP.
By: /s/ RON ZWANZIGER
-----------------------------------------
Name: Ron Zwanziger
Title: PRESIDENT
INTEG INCORPORATED
By: /s/ SUSAN L. CRITZER
-----------------------------------------
Name: Susan L. Critzer
Title: CHIEF EXECUTIVE OFFICER
</TABLE>
A-41
<PAGE>
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment"), dated as
of October 16, 2000, by and among Inverness Medical Technology, Inc., a Delaware
corporation ("Parent"), Terrier Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of Parent ("MERGERCO"), and Integ Incorporated, a
Minnesota corporation (the "COMPANY"). Capitalized terms used herein without
definition shall have the meanings ascribed to such terms in the Merger
Agreement.
WHEREAS, Parent, MergerCo and the Company have previously entered into that
certain Agreement and Plan of Merger, dated as of October 3, 2000 (the "Merger
Agreement"); and
WHEREAS, the parties desire to amend certain provisions of the Merger
Agreement as fully set forth herein.
NOW THEREFORE, in consideration of the representations, warranties and
covenants contained in this Amendment and the Merger Agreement, the parties
agree as follows:
1. AMENDMENT OF SECTION 3.1(c). Section 3.1(c) of the Merger Agreement is
hereby amended and restated by deleting it in its entirety and substituting the
following:
"(c) The "CONVERSION RATIO" shall be the result obtained by dividing the
Equivalent Parent Common Stock Amount by the number of shares of
outstanding Company Common Stock immediately prior to the Effective Time
plus the number of shares of Company Common Stock issuable upon the
exercise of outstanding Company Options and Company Warrants (as defined
herein). The "EQUIVALENT PARENT COMMON STOCK AMOUNT" shall be equal to:
(i) (A) the product of the Average Closing Price multiplied by 1,900,000,
PLUS (B) the aggregate exercise price of all Company Options and Company
Warrants outstanding immediately prior to the Effective Time; divided by
(ii) the Average Closing Price of one share of Parent Common Stock. For
purposes hereof; the "AVERAGE CLOSING PRICE" will mean the average of the
closing sale prices of a share of Parent Common Stock on the American
Stock Exchange ("AMEX") for the five (5) trading days immediately
preceding the Effective Time."
2. Terms and Conditions. Except as specifically modified herein, all other
terms and conditions of the Merger Agreement shall remain in full force and
effect.
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<PAGE>
IN WITNESS WHEREOF, Parent, MergerCo and the Company have caused this
Amendment to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
<TABLE>
<S> <C> <C>
INVERNESS MEDICAL TECHNOLOGY, INC.
By: /s/ RON ZWANZIGER
-----------------------------------------
Name: Ron Zwanziger
Title: CHIEF EXECUTIVE OFFICER
TERRIER ACQUISITION CORP.
By: /s/ RON ZWANZIGER
-----------------------------------------
Name: Ron Zwanziger
Title: PRESIDENT
INTEG INCORPORATED
By: /s/ SUSAN L. CRITZER
-----------------------------------------
Name: Susan L. Critzer
Title: CHIEF EXECUTIVE OFFICER
</TABLE>
A-43
<PAGE>
ANNEX B
October 3, 2000
The Board of Directors
Integ Incorporated
2800 Patton Road
St. Paul, MN 55113
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of common stock of Integ Incorporated (the "Company") of
the consideration to be received by holders of common stock in the Transaction
described below, pursuant to an Agreement and Plan of Merger, to be dated as of
October 3, 2000 (the "Agreement"), among the Company, Inverness Medical
Technology, Inc. ("Purchaser") and Terrier Acquisition Corp. ("Acquisition"), a
wholly owned subsidiary of the Purchaser. The Agreement provides for the merger
(the "Transaction") of the Company into Acquisition in which shares of common
stock of the Company outstanding will be converted and exchanged for common
stock of the Purchaser (the "Consideration"), as more fully set forth in the
Agreement.
U.S. Bancorp Piper Jaffray Inc., as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, underwriting and secondary
distributions of securities, private placements and valuations for estate,
corporate and other purposes. We will receive a fee for providing this opinion.
This opinion fee is not contingent upon the consummation of the Transaction. The
Company has also agreed to indemnify us against certain liabilities in
connection with our services. U.S. Bancorp Piper Jaffray is entitled to
additional fees in the event of consummation of the Transaction. U.S. Bancorp
Piper Jaffray makes a market in Company common stock and provides research
coverage on Company common stock. In the ordinary course of our business, we and
our affiliates may actively trade securities of the Company for our own account
or the account of our customers and, accordingly, may at any time hold a long or
short position in such securities. We have furnished investment banking services
to the Company in the past for which we have received customary fees.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. The
circumstances of the proposed Transaction have limited the scope and nature of
our review and analysis in certain material respects. As a development stage
company, the Company has no historical operating results upon which to base an
analysis as a going concern. The Company has not furnished to us any forecasts
of its future operating results, nor, in light of recent developments involving
its joint development activity with Amira Medical and the Company's current
financial and operating condition, could such forecasts be reasonably prepared
for the Company on a stand alone, going concern basis. Nor have we been
furnished, nor requested to perform, any appraisals or valuations of any
specific assets or liabilities of the Company, including, without limitation,
its technology portfolio.
In view of the foregoing, we have, with your concurrence, concluded the
principal source of Company value against which the fairness of the proposed
Transaction consideration can reasonably be evaluated is the implied value of
the consideration payable under the terms of that certain Option Agreement (the
"Option Agreement") dated April 2, 1999, between the Company and Amira Medical.
Under the Option Agreement, the Company has the right, under certain
circumstances, to cause the merger of the Company and Amira (the "Amira
Merger"). In the Amira Merger, all outstanding shares of Company common stock
and common stock equivalents outstanding at the time of the Amira Merger would
be exchanged for 2,000,000 shares of Amira Medical common stock and $20 million
in cash.
B-1
<PAGE>
Amira Medical is a privately held company. Amira Medical does not provide
its historical or forecast results of operations to the public, nor has such
information been provided by Amira Medical to the Company or U.S. Bancorp Piper
Jaffray. The Company has compiled a forecast for Amira Medical for the calendar
years ending 2004 and furnished this forecast to us for use in evaluating the
implied value of the Company arising out of a possible Amira Merger. The Company
furnished to U.S. Bancorp Piper Jaffray information from which assumptions were
developed regarding the possible timing of an initial public offering of Amira
Medical common stock. The Company also furnished to us other information
concerning a recent financing transaction involving Amira Medical capital stock.
Amira Medical has not reviewed or otherwise verified the accuracy or
completeness of any of the foregoing information. We have, with your consent,
relied upon and assumed the accuracy and completeness of this information
furnished to us by management of the Company, and have assumed no responsibility
for the independent verification of such information. We have relied upon the
assurances of management of the Company that the information provided to us as
set forth above has been prepared on a reasonable basis and reflects the best
currently available estimates, and that they are not aware of any information or
facts that would make the information so provided to us incomplete or
misleading. We have assumed the Option Agreement remains in full force and
effect, without amendment, and is enforceable by the parties thereto in
accordance with its terms.
In addition to the foregoing, for purposes of this opinion we have reviewed,
among other things, (i) the draft dated October 1, 2000 of the Agreement,
(ii) certain publicly available financial, operating and business information
related to the Company, (iii) certain publicly available market and securities
data of the Company, (iv) the Company's License and Development Agreement, dated
April 2, 1999, with Amira Medical, (v) certain publicly available financial,
operating and business information relative to the Purchaser, (vi) certain
forecast financial information of the Company and Purchaser as a combined
company, furnished by the management of the Company and Purchaser, and
(vii) certain publicly available market and securities data of the Purchaser. We
had discussions with members of the management of (a) the Company concerning the
financial condition, current operating results and business outlook for each of
the Company, Amira and Purchaser on a stand-alone basis and the combined company
resulting from the Transaction and from the Amira Merger contemplated by the
Option Agreement, and (b) Purchaser concerning the financial condition, current
operating results and business outlook for Purchaser and the combined company
resulting from the Transaction and the Purchaser's plans relating to such
combined company.
We have relied upon and assumed the accuracy and completeness of the
information provided to us by the Company and Purchaser or otherwise made
available to us, and have not assumed responsibility for the independent
verification of such information. We have relied upon the assurances of the
managements of the Company and Purchaser that the information provided to us by
the Company and Purchaser has been prepared on a reasonable basis, and, with
respect to business outlook information, reflects the best currently available
estimates, and that they are not aware of any information or facts that would
make the information provided to us incomplete or misleading.
We have also assumed that the Transaction will constitute a "reorganization"
within the meaning of Section 368(a) of the Code and that the Transaction will
be treated as a purchase for accounting purposes. In addition, in arriving at
our opinion, we have assumed that, in the course of obtaining the necessary
regulatory approvals for the Transaction, no restrictions, including any
divestiture requirements, will be imposed that would have a material adverse
effect on the contemplated benefits of the Transaction.
This opinion is necessarily based upon the information available to us and
facts and circumstances as they exist and are subject to evaluation on the date
hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the price at which shares of Company common stock or Purchaser
common stock have traded or may trade at any future time. We have not undertaken
to reaffirm or revise this opinion
B-2
<PAGE>
or otherwise comment upon any events occurring after the date hereof and do not
have any obligation to update, revise or reaffirm this opinion.
This opinion is directed to the Board of Directors of the Company and is not
intended to be and does not constitute a recommendation to any shareholder of
the Company. Other than one party which we were authorized to contact and did
contact, we have not been authorized by the Board of Directors of the Company to
solicit other purchasers of the Company or alternative transactions to the
Transaction. We were not requested to opine as to, and this opinion does not
address, the basic business decision to proceed with or effect the Transaction
or any alternative transaction, including without limitation, the Amira Merger.
This opinion shall not be published or otherwise used, nor shall any public
references to us be made without our prior written approval.
Our opinion addresses solely the fairness of the Consideration to be paid to
holders of the common stock of the Company in the Transaction pursuant to the
Agreement and does not address any other term or agreement relating to the
Transaction. Without limiting the generality of the foregoing, we have made no
evaluation of the terms pursuant to which outstanding shares of Series B
Preferred Stock will be redeemed or pursuant to which Purchaser will extend
financing to the Company in accordance with a proposed loan agreement.
Based upon and subject to the foregoing and based upon such other factors as
we consider relevant, it is our opinion that the proposed Consideration to be
received in the Transaction pursuant to the Agreement for the common stock of
the Company is fair, from a financial point of view, to the holders of common
stock of the Company as of the date hereof.
Sincerely,
U.S. BANCORP PIPER JAFFRAY INC.
B-3
<PAGE>
ANNEX C
MINNESOTA STATUTES, SECTIONS 302A.471 AND 302A.471
REGARDING DISSENTER'S APPRAISAL RIGHTS
302A.471 RIGHTS OF DISSENTING SHAREHOLDERS.
Subdivision 1. ACTIONS CREATING RIGHTS. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects the
rights or preferences of the shares of the dissenting shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption
of the shares, including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares
to acquire shares, securities other than shares, or rights to purchase
shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter,
or to cumulate votes, except as the right may be excluded or limited through
the authorization or issuance of securities of an existing or new class or
series with similar or different voting rights; except that an amendment to
the articles of an issuing public corporation that provides that
section 302A.671 does not apply to a control share acquisition does not give
rise to the right to obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or substantially
all of the property and assets of the corporation, but not including a
transaction permitted without shareholder approval in section 302A.661,
subdivision 1, or a disposition in dissolution described in section 302A.725,
subdivision 2, or a disposition pursuant to an order of a court, or a
disposition for cash on terms requiring that all or substantially all of the net
proceeds of disposition be distributed to the shareholders in accordance with
their respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B, to
which the corporation is a constituent organization, except as provided in
subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B, to
which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the board
directs that dissenting shareholders may obtain payment for their shares.
Subd. 2. BENEFICIAL OWNERS. (a) A shareholder shall not assert dissenters'
rights as to less than all of the shares registered in the name of the
shareholder, unless the shareholder dissents with respect to all the shares that
are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting
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shareholder under the terms of this section and section 302A.473, if the
beneficial owner submits to the corporation at the time of or before the
assertion of the rights a written consent of the shareholder.
Subd. 3. RIGHTS NOT TO APPLY. (a) Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
(b) If a date is fixed according to section 302A.445, subdivision 1, for the
determination of shareholders entitled to receive notice of and to vote on an
action described in subdivision 1, only shareholders as of the date fixed, and
beneficial owners as of the date fixed who hold through shareholders, as
provided in subdivision 2, may exercise dissenters' rights.
Subd. 4. OTHER RIGHTS. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at law
or in equity to have a corporate action described in subdivision 1 set aside or
rescinded, except when the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
302A.473 PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS.
Subdivision 1. DEFINITIONS. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1, up to
and including the date of payment, calculated at the rate provided in
section 549.09 for interest on verdicts and judgments.
Subd. 2. NOTICE OF ACTION. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subd. 3. NOTICE OF DISSENT. If the proposed action must be approved by the
shareholders, a shareholder who is entitled to dissent under section 302A.471
and who wishes to exercise dissenters' rights must file with the corporation
before the vote on the proposed action a written notice of intent to demand the
fair value of the shares owned by the shareholder and must not vote the shares
in favor of the proposed action.
Subd. 4. NOTICE OF PROCEDURE; DEPOSIT OF SHARES. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was required,
a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
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(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description
of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
Subd. 5. PAYMENT; RETURN OF SHARES. (a) After the corporate action takes
effect, or after the corporation receives a valid demand for payment, whichever
is later, the corporation shall remit to each dissenting shareholder who has
complied with subdivisions 3 and 4 the amount the corporation estimates to be
the fair value of the shares, plus interest, accompanied by:
(1) the corporation's closing balance sheet and statement of income for
a fiscal year ending not more than 16 months before the effective date of
the corporate action, together with the latest available interim financial
statements;
(2) an estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) a copy of section 302A.471 and this section, and a brief description
of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person who
was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit
of certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision 4
and require deposit or restrict transfer at a later time.
Subd. 6. SUPPLEMENTAL PAYMENT; DEMAND. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to the
amount remitted by the corporation.
Subd. 7. PETITION; DETERMINATION. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment
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under subdivision 6 and who have not reached agreement with the corporation. The
corporation shall, after filing the petition, serve all parties with a summons
and copy of the petition under the rules of civil procedure. Nonresidents of
this state may be served by registered or certified mail or by publication as
provided by law. Except as otherwise provided, the rules of civil procedure
apply to this proceeding. The jurisdiction of the court is plenary and
exclusive. The court may appoint appraisers, with powers and authorities the
court deems proper, to receive evidence on and recommend the amount of the fair
value of the shares. The court shall determine whether the shareholder or
shareholders in question have fully complied with the requirements of this
section, and shall determine the fair value of the shares, taking into account
any and all factors the court finds relevant, computed by any method or
combination of methods that the court, in its discretion, sees fit to use,
whether or not used by the corporation or by a dissenter. The fair value of the
shares as determined by the court is binding on all shareholders, wherever
located. A dissenter is entitled to judgment in cash for the amount by which the
fair value of the shares as determined by the court, plus interest, exceeds the
amount, if any, remitted under subdivision 5, but shall not be liable to the
corporation for the amount, if any, by which the amount, if any, remitted to the
dissenter under subdivision 5 exceeds the fair value of the shares as determined
by the court, plus interest.
Subd. 8. COSTS; FEES; EXPENSES. (a) The court shall determine the costs
and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraisers appointed by the court, and shall
assess those costs and expenses against the corporation, except that the court
may assess part or all of those costs and expenses against a dissenter whose
action in demanding payment under subdivision 6 is found to be arbitrary,
vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an attorney
for the dissenters out of the amount awarded to the dissenters, if any.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, other than
an action by or in the right of the corporation, by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation or is
or was serving at the corporation's request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with the action, suit or proceeding if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful. The power to indemnify applies to actions brought by or in the right
of the corporation as well, but only to the extent of expenses, including
attorneys' fees but excluding judgments, fines and amounts paid in settlement,
actually and reasonably incurred by the person in connection with the defense or
settlement of the action or suit. And with the further limitation that in these
actions, no indemnification shall be made in the event of any adjudication of
negligence or misconduct in the performance of the person's duties to the
corporation, unless a court believes that in light of all the circumstances
indemnification should apply.
Article V of Inverness' bylaws provides that Inverness shall, to the extent
legally permitted, indemnify each person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding by reason of the fact that such person is or was, or has agreed to
become, a director or officer of Inverness, or is or was serving, or has agreed
to serve, at the request of Inverness, as a director, officer or trustee of, or
in a similar capacity with, another corporation, partnership, joint venture,
trust or other enterprises. The indemnification provided for in Article V is
expressly not exclusive of any other rights to which those seeking
indemnification may be entitled under any law, agreement or vote of stockholders
or disinterested directors or otherwise, and shall inure to the benefit of the
heirs, executors and administrators of such persons.
Section 145(g) of the Delaware General Corporation Law and Article V of the
bylaws of Inverness provide that Inverness shall have the power to purchase and
maintain insurance on behalf of its officers, directors, employees and agents,
against any liability asserted against and incurred by such persons in any such
capacity.
Inverness has obtained insurance covering its directors and officers against
losses and insuring Inverness against certain of its obligations to indemnify
its directors and officers.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation may eliminate or limit the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provisions shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate or limit
the liability of a director for any act or omission occurring prior to the date
when such provision becomes effective.
Pursuant to the Delaware General Corporation Law, Article VII of the
certificate of incorporation of Inverness eliminates a director's personal
liability for monetary damages to Inverness and its stockholders for breach of
fiduciary duty as a director, except in circumstances involving a breach of
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the director's duty of loyalty to Inverness or its stockholders, acts or
omissions not in good faith, intentional misconduct, knowing violations of the
law, self-dealing or the unlawful payment of dividends or repurchase of stock.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) See Exhibit Index immediately following the signature page.
(b) Not applicable.
(c) Opinion of U.S. Bancorp Piper Jaffray (included as Annex B to the proxy
statement and prospectus which is a part of this Registration Statement).
ITEM 22. UNDERTAKINGS
(a)(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (a)(1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes 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) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 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 Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Amendment No. 1 to Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Waltham, The Commonwealth of Massachusetts, on December 15, 2000.
<TABLE>
<S> <C> <C>
INVERNESS MEDICAL TECHNOLOGY, INC.
By: /s/ RON ZWANZIGER
----------------------------------------
Ron Zwanziger
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed below by the following persons
in the capacities and as of the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RON ZWANZIGER Chairman, President, Chief December 15, 2000
------------------------------------ Executive Officer and Director
Ron Zwanziger (Principal Executive Officer)
/s/ DUANE L. JAMES Vice President--Finance December 15, 2000
------------------------------------ (Principal Financial Officer and
Duane L. James Principal Accounting Officer)
* Director December 15, 2000
------------------------------------
Ernest A. Carabillo, Jr.
* Director December 15, 2000
------------------------------------
Carol R. Goldberg
* Director December 15, 2000
------------------------------------
John F. Levy
* Director December 15, 2000
------------------------------------
Robert Oringer
</TABLE>
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<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director December 15, 2000
------------------------------------
Edward B. Roberts
* Director December 15, 2000
------------------------------------
Peter Townsend
* Director December 15, 2000
------------------------------------
Willard L. Umphrey
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ DUANE L. JAMES
--------------------------------------
Duane L. James
ATTORNEY-IN-FACT
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger by and among Inverness Medical
Technology, Inc., Terrier Acquisition Corp., and Integ
Incorporated, dated October 3, 2000 (incorporated by
reference to Exhibit 99.2 to the Company's Current Report on
Form 8-K filed on October 4, 2000)
2.2 Amendment No. 1 to Agreement and Plan of Merger by and among
Inverness Medical Technology, Inc., Terrier Acquisition
Corp., and Integ Incorporated, dated October 16, 2000
(attached as pages A-42 - A-43 to the proxy statement and
prospectus and incorporated herein by reference)
3.1 Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Company's
registration statement on Form SB-2, No. 333-4830-NY)
3.2 Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
4.1 Specimen certificate for shares of Common Stock, par value
$0.001 per share, of the Company (incorporated by reference
to Exhibit 4.1 to the Company's Registration statement on
Form SB-2, No. 333-4830-NY)
+5.1 Form of Opinion of Goodwin Procter & Hoar LLP
+8.1 Form of Opinion of Goodwin Procter & Hoar LLP
+8.2 Form of Opinion of Dorsey & Whitney LLP
9.1 Voting Agreement, dated May 13, 1996, by and among the
stockholders of Selfcare, Inc. who are signatories thereto
(incorporated by reference to Exhibit 9.1 to the Company's
(registration statement on Form SB-2, No. 333-4830-NY)
9.2 Voting Agreement by and between Inverness Medical
Technology, Inc. and certain shareholders of Integ
Incorporated, dated October 3, 2000 (incorporated by
reference to Exhibit 99.3 to the Company's Current Report on
Form 8-K filed on October 4, 2000)
10.1 Amended and Restated Master Agreement, dated as of June 7,
1999, by and among Johnson & Johnson Development
Corporation, LIFEScan, Inc. and Selfcare, Inc. (incorporated
by reference to Exhibit 10.1 to the Company's quarterly
report on Form 10-Q for the quarter ended June 30, 1999)
10.2 Amended and Restated Sales Distribution Agreement for
Testing System for Glucose in Humans, dated as of June 7,
1999, between LIFEScan, Inc. and Selfcare, Inc.
(incorporated by reference to Exhibit 10.2 to the Company's
quarterly report on Form 10-Q for the quarter ended
June 30, 1999)
10.3 Investment Agreement, dated as of November 10, 1995, by and
between Johnson & Johnson and Selfcare, Inc. (incorporated
by reference to Exhibit 10.4 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.4 Guarantee of Selfcare, Inc., dated June 11, 1995, in favor
of Highlands and Islands Enterprises (incorporated by
reference to Exhibit 10.24 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.5 Guarantee of Selfcare, Inc., dated June 11, 1995, in favor
of Inverness and Nairn Enterprise Company (incorporated by
reference to Exhibit 10.25 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.6 Grant Agreement, dated February 21, 1992, among The
Industrial Development Authority of Ireland, Cambridge
Biotech Limited (Cambridge Diagnostics Ireland Limited) and
Cambridge Biotech Corporation (incorporated by reference to
Exhibit 10.28 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
10.7 Grant Agreement, dated October 2, 1992, among The Industrial
Development Authority of Ireland, Cambridge Biotech Limited
(Cambridge Diagnostics Ireland Limited) and Cambridge
Biotech Corporation (incorporated by reference to
Exhibit 10.29 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
10.8 Grant Agreement, dated December 5, 1995, among The
Industrial Development Authority of Ireland, Cambridge
Biotech Limited (Cambridge Diagnostics Ireland Limited) and
Cambridge Biotech Corporation (incorporated by reference to
Exhibit 10.30 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
10.9 Employment Agreement, dated October 15, 1991, between
Superior Sensors, Inc. (Selfcare, Inc.) and Kenneth D.
Legg, Ph.D. (incorporated by reference to Exhibit 10.31 to
the Company's registration statement on Form SB-2,
No. 333-4830-NY)
10.10 Employment Agreement, dated November 13, 1994, between
Selfcare International GmbH and Otto Wahl (incorporated by
reference to Exhibit 10.33 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.11 Selfcare, Inc. 1992 Stock Plan (incorporated by reference to
Exhibit 10.34 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
10.12 Selfcare, Inc. 1994 Incentive and Non-qualified Stock Option
Plan (incorporated by reference to Exhibit 10.35 to the
Company's registration statement on Form SB-2,
No. 333-4830-NY)
10.13 Selfcare, Inc. Amended and Restated 1996 Stock Option and
Grant Plan (incorporated by reference to Exhibit 4.1 to the
Company's registration statement on Form S-8,
No. 333-15583)
10.14 First Amendment to the Selfcare, Inc. Amended and Restated
1996 Stock Option and Grant Plan dated May 20, 1999
(incorporated by reference to Exhibit 10.24 of the Company's
Annual Report on Form 10-K for the period ending
December 31, 1999)
10.15 Selfcare, Inc. Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.37 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.16 Standard form Commercial Lease, dated July 15, 1992, between
Superior Sensors, Inc. (Selfcare, Inc.) and Nova Realty
Associates (incorporated by reference to Exhibit 10.38 to
the Company's registration statement on Form SB-2,
No. 333-4830-NY)
10.17 First Amendment to Lease Agreement between Selfcare, Inc.
(formerly, Superior Sensors, Inc.) and Nova Realty
Associates dated August 9, 1999 (incorporated by reference
to Exhibit 10.27 of the Company's Annual Report on
Form 10-K for the period ending December 31, 1999)
10.18 Form of lease between Highlands and Islands Enterprises and
Hebocraft Limited (Inverness medical Limited) (incorporated
by reference to Exhibit 10.40 to the Company's registration
statement on Form SB-2, No. 333-4830-NY)
10.19 Lease for Selfcare, Inc.'s facility in Brussels, Belgium
(incorporated by reference to Exhibit 10.42 to the Company's
registration statement on Form SB-2, No. 333-4830-NY)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.20 Lease for Selfcare International GmbH's facility in Munich,
Germany (incorporated by reference to Exhibit 10.43 to the
Company's registration statement on Form SB-2,
No. 333-4830-NY)
10.21 Agreement between Inverness Medical Limited (formerly,
Hebocraft Limited) and Highlands and Islands Enterprise,
dated May 31, 1995 (incorporated by reference to
Exhibit 10.47 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
10.22 Agreement between Inverness Medical Limited (formerly,
Hebocraft Limited) and Inverness & Nairn Local Enterprise
Company, dated may 31, 1995 (incorporated by reference to
Exhibit 10.48 to the Company's registration statement on
Form SB-2, No. 333-4830-NY)
10.23 Supply Agreement dated August 27, 1996, by and between
Selfcare, Inc., Selfcare International GmbH and A. Menarini
Industrie Parmaceutiche Riunite S.r.L. (incorporated by
reference to Exhibit 10.50 to the Company's quarterly report
on Form 10-QSB for the period ended September 30, 1996)
10.24 Form of Amendment to Agreement between Selfcare, Inc. and
Princeton BioMeditech Corporation dated August 6, 1997
(incorporated by reference to the Company's report on
Form 10-QSB for the period ending September, 30, 1997)
10.25 Form of Stock Purchase Agreement dated February 18, 1998, by
and among Can-Am Care Corporation, Selfcare, Inc., Selfcare
Consumer Products, Inc. (Inverness Medical, Inc.) and the
stockholders of Can-Am Care Corporation (incorporated by
reference to Exhibit 2.1 to the Company's report on
Form 8-K dated February 18, 1998)
10.26 Form of Supply Agreement dated as of February 18, 1998, made
by and between A.M.G. Medical Inc. and Can-Am Care
Corporation (incorporated by reference to Exhibit 10.74 to
Selfcare, Inc.'s Form 10-KSB for the year ended
December 31, 1997)
10.27 Form of Management Services Agreement dated February 18,
1998, made by and between A.M.G. Medical Inc. and Can-Am
Care Corporation (incorporated by reference to
Exhibit 10.75 to Selfcare, Inc.'s Form 10-KSB for the year
ended December 31, 1997)
10.28 Form of Employment Agreement dated February 18, 1998, made
by and between Selfcare Consumer Products, Inc. (Inverness
Medical, Inc.), Selfcare, Inc., and Herbert Cover
Corporation (incorporated by reference to Exhibit 10.76 to
Selfcare, Inc.'s Form 10-KSB for the year ended
December 31, 1997)
10.29 Form of Employment Agreement dated February 18, 1998, made
by and between Selfcare Consumer Products, Inc. (Inverness
Medical, Inc.), Selfcare, Inc., and Robert Oringer
(incorporated by reference to Exhibit 10.77 to
Selfcare, Inc.'s Form 10-KSB for the year ended
December 31, 1997)
10.30 Form of 6% Non-Negotiable Promissory Note, principal amount
$500,000, dated February 18, 1998, between Selfcare, Inc.
and Robert Oringer (incorporated by reference to
Exhibit 10.78 to Selfcare, Inc.'s Form 10-KSB for the year
ended December 31, 1997)
10.31 Form of 6% Non-Negotiable Promissory Note, principal amount
$500,000, dated February 18, 1998, between Selfcare, Inc.
and Cover Family Trust (incorporated by reference to
Exhibit 10.79 to Selfcare, Inc.'s Form 10-KSB for the year
ended December 31, 1997)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.32 Form of Credit Agreement dated as of February 18, 1998,
among Selfcare Consumer Products, Inc. (Inverness
Medical, Inc.), as the Borrower, Selfcare, Inc., as the
Guarantor, Certain Financial Institutions, as the Lenders,
and The Chase Manhattan Bank, as the Agent for the Lenders
(incorporated by reference to Exhibit 10.80 to
Selfcare, Inc.'s Form 10-KSB for the year ended
December 31, 1997)
10.33 Form of Warrant to Purchase Shares of Common Stock of the
Company issued in connection with the Securities Purchase
Agreement dated June 26, 1998 (incorporated by reference to
Exhibit 10.2 to the Company's report on Form 10-Q for the
period ending June 30, 1998)
10.34 Form of Patent License Agreements, dated September 1, 1998,
between the Company and Becton, Dickinson and Company dated
September 1, 1998 (incorporated by reference to Exhibits
10.1 and 10.2 to the Company's report on Form 10-Q for the
period ending September, 30, 1998)
11.1 Statement regarding computation of per share earnings
(included in the "Notes to Consolidated Financial
Statements" in the Company's 1999 Annual Report to
Shareholders, portions of which are filed herewith as
Exhibit 13.1)
13.1 Consolidated Financial Information of the Company's 1999
Annual Report to Shareholders (only those portions of the
Annual Report incorporated by reference in this document are
deemed filed) (incorporated by reference to Exhibit 13.1 of
the Company's Annual Report on Form 10-K for the period
ending December 31, 1999)
13.2 Report of Independent Public Accountants, Arthur Andersen
LLP (included in the Company's 1999 Annual Report to
Shareholders, portions of which are filed herewith as
Exhibit 13.1)
21.1 List of Subsidiaries of Registrant as of March 28, 2000
(incorporated by reference to Exhibit 21.1 in Inverness'
Annual Report on Form 10-K)
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of Ernst & Young LLP
+23.3 Form of Consent of Goodwin, Procter & Hoar LLP (included in
Exhibits 5.1 and 8.1)
+23.4 Form of Consent of Dorsey & Whitney LLP (included in
Exhibit 8.2)
+23.5 Consent of U.S. Bancorp Piper Jaffray Inc.
+24.1 Power of Attorney (contained in signature page)
+99.1 Fairness Opinion of U.S. Bancorp Piper Jaffray Inc.
(attached as Annex B to the proxy statement and prospectus
and incorporated herein by reference)
+99.2 Form of Integ Incorporated Proxy Card
</TABLE>
------------------------
* documents filed herewith
+ previously filed
II-8
