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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________
TO _______________
COMMISSION FILE NUMBER: 0-28420
Integ Incorporated
------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Minnesota 41-1670176
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
2800 Patton Road, St. Paul, MN 55113
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Telephone Number: (612) 639-8816
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days. Yes _X_ No ___
As of May 11, 1998, the registrant had 9,460,519 shares of $.01 par value common
stock issued and outstanding.
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INTEG INCORPORATED
INDEX
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PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Balance Sheets as of March 31, 1998 and December 31, 1997 3
Statements of Operations for the three months
ended March 31, 1998 and 1997 and for the period from
April 3, 1990 (inception) through March 31, 1998 4
Statements of Cash Flows for the three months ended March 31,
1998 and 1997 and for the period from
April 3, 1990 (inception) through March 31, 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 2. Changes in Securities (Use of proceeds from public offering) 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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INTEG INCORPORATED
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 December 31
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,129,463 $ 21,776,757
Prepaid expenses 142,656 137,037
------------ ------------
Total current assets 19,272,119 21,913,794
------------ ------------
Furniture and equipment 8,634,752 8,464,943
Less accumulated depreciation (1,900,225) (1,644,051)
------------ ------------
6,734,527 6,820,892
Other assets 354,337 481,607
------------ ------------
TOTAL ASSETS $ 26,360,983 $ 29,216,293
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,216,184 $ 1,384,551
Current portion of capital lease obligations 159,581 155,901
Current portion of long-term debt 948,834 799,913
------------ ------------
Total current liabilities 2,324,599 2,340,365
------------ ------------
Long-term liabilities:
Capital lease obligations, less current portion 118,371 159,673
Long-term debt, less current portion 3,269,386 2,870,061
------------ ------------
Total long-term liabilities 3,387,757 3,029,734
------------ ------------
Shareholders' equity:
Common Stock 94,595 93,667
Additional paid-in capital 54,565,764 54,518,671
Deficit accumulated during the development stage (33,743,232) (30,438,348)
------------ ------------
20,917,127 24,173,990
Deferred compensation (268,500) (327,796)
------------ ------------
Total shareholders' equity 20,648,627 23,846,194
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 26,360,983 $ 29,216,293
============ ============
</TABLE>
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INTEG INCORPORATED
(A Development Stage Company)
STATEMENT OF OPERATIONS
(UNAUDITED)
Period from
Three Months Ended April 3, 1990
March 31 (Inception) to
---------------------------- March 31
1998 1997 1998
------------ ------------ ------------
OPERATING EXPENSES:
Research and development $ 1,705,902 $ 1,141,703 $ 17,792,051
Manufacturing development 680,272 553,238 5,677,461
Clinical and regulatory 328,168 270,826 2,697,542
General and administrative 498,443 531,788 7,302,627
Sales and marketing 82,456 223,518 2,278,306
------------ ------------ ------------
OPERATING LOSS (3,295,241) (2,721,073) (35,747,987)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 283,661 422,994 3,822,539
Interest expense (296,079) (163,458) (1,594,659)
Other (net) 2,775 (223,125)
------------ ------------ ------------
(9,643) 259,536 2,004,755
------------ ------------ ------------
NET LOSS FOR THE PERIOD AND
DEFICIT ACCUMULATED DURING
THE DEVELOPMENT STAGE $ (3,304,884) $ (2,461,537) $(33,743,232)
============ ============ ============
NET LOSS PER SHARE:
Basic and diluted ($0.35) ($0.27) ($14.83)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic and diluted 9,398,753 9,274,889 2,275,887
============ ============ ============
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INTEG INCORPORATED
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Three Months Ended April 3, 1990
March 31 (Inception) to
---------------------------- March 31
1998 1997 1998
---------------------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3,304,884) $ (2,461,537) $(33,743,232)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation 256,174 154,946 1,936,390
Deferred compensation amortization 29,804 73,927 1,027,333
Amortization of loan committment fee 100,615 77,463 350,689
Loss on sale of equipment and deposit write-off -- -- 95,645
Value of options and warrants related to debt
financing, lease guarantee, extension of
options and consulting services 4,626 5,750 375,762
Changes in operating assets and liabilities:
Receivables -- 90,023 (28,829)
Prepaid expenses and other assets (5,619) 57,260 (235,626)
Accounts payable and accrued expenses (168,367) (363,477) 1,216,184
------------ ------------ ------------
Net cash used in operating activities (3,087,651) (2,365,645) (29,005,684)
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchase of furniture and equipment (169,809) (1,236,061) (7,964,524)
Proceeds from sale of furniture and equipment -- -- 46,829
------------ ------------ ------------
Net cash used in investing activities (169,809) (1,236,061) (7,917,695)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from sale of Convertible Preferred Stock -- -- 22,789,732
Proceeds from bridge loan debt -- -- 2,900,000
Proceeds from borrowings under loan agreement 754,989 1,749,594 5,103,142
Payments on long-term debt (184,712) (103,179) (715,575)
Payments on capital lease obligations (37,623) (34,491) (416,114)
Proceeds from sale of Common Stock 77,512 8,250 26,391,657
------------ ------------ ------------
Net cash provided by financing activities 610,166 1,620,174 56,052,842
------------ ------------ ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,647,294) (1,981,532) 19,129,463
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 21,776,757 33,825,797 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,129,463 $ 31,844,265 $ 19,129,463
============ ============ ============
</TABLE>
5
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INTEG INCORPORATED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying financial statements, which are unaudited except for the
balance sheet as of December 31, 1997, have been prepared in accordance with
instructions to Form 10-Q and do not include all the information and notes
required by Generally Accepted Accounting Principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. These financial statements should be read in conjunction with the
financial statements and accompanying notes from the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 filed with the Securities and
Exchange Commission.
(2) NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares of
common stock outstanding during the periods presented. In 1997, the Financial
Accounting Standards Board issued Statement No. 128, EARNINGS PER SHARE.
Statement 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where appropriate,
restated to conform to the Statement 128 requirements.
(3) EQUIPMENT LOAN AGREEMENT
During 1996, the Company entered into an equipment loan agreement which provides
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 obligation of the lender to make
additional loans expires December 31, 1998. The Company has borrowed a total of
$5.1 million under this agreement as of March 31, 1998.
(4) SUBSEQUENT EVENT
In April 1998, the Company initiated a workforce reduction of twenty-five of its
employees. This reduction was done in order to reduce the Company's cash burn
rate. A one-time charge of $361,000 will be recorded in April 1998.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. When used in
this Form 10-Q and in future filings by the Company with the Securities and
Exchange Commission, in the Company's press releases and in oral statements made
with the approval of an authorized executive officer of the Company, the word or
phrases "believes," "anticipates," "expects," "intends," "will likely result,"
"estimates," "projects" or similar expressions are intended to identify such
forward-looking statements, but are not the exclusive means of identifying such
statements. These forward-looking statements involve risks and uncertainties
that may cause the Company's actual results to differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, the following: risks
associated with the development of a new technology; dependence on the LIFEGuide
System and the uncertainty of market acceptance; history of operating losses and
expectation of future losses; limited clinical testing and sales and marketing
experience; uncertainty of obtaining Food and Drug Administration clearances;
heightened competition and risk of technological obsolescence; risks associated
with the lack of manufacturing capability and dependence on contract
manufacturers and suppliers; risks associated with the company's dependence on
proprietary technology, including those related to adequacy of patent and trade
secret protection; risks associated with retaining key personnel and attracting
additional qualified skilled personnel; and the risks associated with raising
additional funds.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances after the date of such statements. Readers are
urged to carefully review and consider the various disclosures made by the
Company in this report and in the Company's other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business. Such
forward-looking statements are qualified in their entirety by the cautions and
risk factors set forth under "Cautionary Statement" filed as Exhibit 99.1 to
this Form 10-Q.
GENERAL
Integ, a development stage company, was incorporated on April 3, 1990 to develop
the LIFEGuide System, a next generation, hand-held glucose monitoring product
for use by people with diabetes that avoids the pain and blood associated with
conventional "finger-stick" technologies. Utilizing the Company's proprietary
interstitial fluid sampling technology, the LIFEGuide System will allow people
with diabetes to frequently self-monitor their glucose levels without repeatedly
enduring the pain of lancing their fingers to obtain a blood sample.
From inception through March 31, 1998, the Company has incurred losses totaling
$33.7 million, consisting of $17.8 million of research and development expenses,
$7.3 million of general and administrative expenses, $5.7 million of
manufacturing development expenses and $2.9 million of other expenses net of
interest income. The Company's activities have consisted primarily of research
and product development, product design, and development of the manufacturing
equipment and processes and marketing strategies needed for the introduction of
the LIFEGuide System. The Company
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has generated no revenue and has sustained significant operating losses each
year since inception. The Company expects such losses to continue for the next
several years.
The Company's future success is entirely dependent upon the successful
development, commercialization and market acceptance of the LIFEGuide System,
the development of which is ongoing and the complete efficacy of which has not
yet been demonstrated. The Company is currently focused on the research and
development activities necessary to modify the current design in order for the
LIFEGuide System to meet the Company's product specifications.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
GENERAL: The Company's net loss increased to $3,304,884 during the three months
ended March 31, 1998, up from $2,461,537 during the same period in 1997. The
Company expects net losses to continue for the next several years.
RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenses increased
49% to $1,705,902 during the three months ended March 31, 1998 from $1,141,703
during the same period in 1997. The increase in research and development
expenses is primarily attributable to increases in pilot plant costs ($279,000),
consulting and contractor expenses ($160,000), staffing costs ($135,000) and
recruitment expenses ($44,000), which were partially offset by lower prototype
expenses ($58,000).
MANUFACTURING DEVELOPMENT EXPENSES: Manufacturing development expenses increased
23% to $680,272 during the three months ended March 31, 1998 from $553,238
during the same period in 1997. The increase in manufacturing development
expenses is due primarily to increases in depreciation ($98,000) and staffing
costs ($81,000), which were partially offset by lower prototype expenses
($23,000), lower travel costs associated with the development of the automated
assembly line ($13,000) and lower recruitment expenses ($9,000).
CLINICAL AND REGULATORY EXPENSES: Clinical and regulatory expenses increased 21%
to $328,168 during the three months ended March 31, 1998 from $270,826 during
the same period in 1997. The increase in clinical and regulatory expenses is
primarily due to increased staffing costs.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses
decreased 6% to $498,443 during the three months ended March 31, 1998 from
$531,788 during the same period in 1997. The decrease in general and
administrative expenses is primarily attributable to decreases in staffing costs
($64,000) and consulting expenses ($14,000), which were partially offset by an
increase in recruitment expenses ($42,000).
SALES AND MARKETING EXPENSES: Sales and marketing expenses decreased to $82,456
during the three months ended March 31, 1998 from $223,518 during the same
period in 1997. The decrease in sales and marketing expenses is primarily
attributable to decreases in website development expenses ($53,000), staffing
costs ($45,000) as well as expenses related to focus groups, general media
relations and market research ($24,000).
INTEREST INCOME: Interest income decreased to $283,661 during the three month
period ended March 31, 1998, compared to $422,994 during the same period in
1997. The decrease resulted from lower average balances of cash and cash
equivalents.
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INTEREST EXPENSE: Interest expense increased to $296,079 during the three month
period ended March 31, 1998 from $163,458 during the same period in 1997. The
increase in interest expense is attributable to increased borrowings against the
equipment loan agreement signed in 1996. Approximately $5.1 million was borrowed
as of March 31, 1998 as compared to $1.7 million as of March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations since inception have been funded by net proceeds from
the sale of Common and Preferred Stock totaling approximately $52 million and
proceeds from borrowing under an equipment loan agreement totaling approximately
$5.1 million. As of March 31, 1998 the Company had cash and cash equivalents of
approximately $19.1 million and working capital of $16.9 million.
The Company believes that its current cash balances, when the impact of the
reduction in headcount implemented in April is taken into account, will be
sufficient to fund its operations until sometime during the second half of 1999.
The Company'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, the extent to which the Company's LifeGuide
System gains market acceptance, the timing of regulatory actions regarding the
LIFEGuide System, the costs and timing of expansion of sales, marketing and
manufacturing activities, the results of clinical trials and competition. See
Exhibit 99.1 to this Form 10-Q for a more detailed description of the factors
that may affect the Company's future liquidity and capital requirements.
II. OTHER INFORMATION
Item 2: Changes in Securities (Use of proceeds from public offering)
The net offering proceeds to the Company from its initial public offering in
1996, after deducting expenses, were approximately $26.1 million. The Company
has used the net offering proceeds to the Company for the following purposes in
the approximate amounts set forth below:
Investment in short-term, interest bearing securities
primarily investment grade commercial paper $18,340,000
and money market funds
Capital expenditures 1,695,000
Research and development and clinical and regulatory
preparation 3,840,000
Manufacturing scale-up and marketing activities 1,630,000
Working capital and other general corporate purposes 595,000
------------
Total use of proceeds $26,100,000
------------
Except for officer compensation and relocation payments totaling $841,699 in the
aggregate, director compensation totaling $73,000 in the aggregate, and
consulting fees paid to a director totaling $50,625, none of such payments were
paid directly or indirectly to (i) officers or directors of the Company or their
affiliates, (ii) persons owning 10% or more of the Company's equity securities
or (iii) affiliates of the Company.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed herewith.
3.1 Amended and Restated Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (SEC File No.
333-4352)).
3.2 Amended Bylaws of the Company (incorporated by reference to
Exhibit 3.3 to the Company's Registration Statement of Form
S-1 (SEC File No. 333-4352)).
10.1 Separation Agreement dated February 2, 1998 between the
Company and Frank A. Solomon.
27. Financial Data Schedule.
99.1 Cautionary Statement.
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEG INCORPORATED
(Registrant)
Date: May 14, 1998 By: /s/ Frank A. Solomon
--------------------
Frank A. Solomon
President, Chief Executive Officer,
Acting Chief Financial Officer
(principal executive officer, principal
financial and accounting officer) and Director
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EXHIBIT INDEX
Exhibit Description
- ------- -----------
10.1 Separation Agreement dated February 2, 1998 between the
Company and Frank A. Solomon.
27. Financial Data Schedule (Electronically Filed).
99.1 Cautionary Statement.
<PAGE>
Exhibit 10.1
SEPARATION AGREEMENT
This Separation Agreement (hereinafter "Agreement") is made and
entered into by and between Frank A. Solomon (hereinafter "Solomon") and Integ
Incorporated (hereinafter "the Company").
WHEREAS, Solomon has been employed by the Company as its President and
Chief Executive Officer; and
WHEREAS, the Company has recently commenced a search for a new
President and Chief Executive Officer; and
WHEREAS, Solomon and the Company wish to affect the termination of
Solomon's employment with the Company on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the provisions and of the mutual
covenants contained herein, the parties agree as follows:
1. Until such time as the Company's new President and Chief Executive
Officer commences employment with the Company or until September 30, 1998,
whichever occurs sooner, Solomon will continue as the Company's President and
Chief Executive Officer. During this period of time, Solomon will have the
duties and responsibilities he exercised prior to the date of this Agreement.
During this period of time, Solomon agrees that he will devote his full time,
attention, knowledge, and skill exclusively to the loyal service of the Company
and will use his best efforts to carry out all of the duties and
responsibilities that are or may be assigned to him. During this period of time,
Solomon will be eligible to participate in any bonus plan or program
<PAGE>
adopted by the Company as well as salary increases, stock options, and other
benefits made available on an across the board basis to the Company's executive
management team.
2. Solomon will resign all officer, director, and other positions with
the Company, including, but not limited to, President and Chief Executive
Officer and Director of the Company, as of the close of business on the date the
Company's new President and Chief Executive Officer commences employment with
the Company or September 30, 1998, whichever occurs sooner (hereinafter "the
Resignation Date"). The Company will accept Solomon's resignation of all
officer, director, and other positions with the Company as of such date and
time.
3. After the Resignation Date, Solomon will continue to be a
participant in the retirement and other employee benefit plans sponsored by the
Company in accordance with the terms and conditions set forth in such plans.
Solomon will be entitled to begin receiving benefits under the retirement plans
or to elect to roll-over the amounts in his retirement accounts at the times and
under the terms and conditions set forth in such retirement plans. Nothing in
this Agreement or the General Release attached hereto as Exhibit A will be
construed to limit Solomon's rights under such retirement or other employee
benefit plans.
4. The parties agree that Solomon's employment with the Company may be
terminated prior to the Resignation Date as set forth below:
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(a) Notwithstanding any other provision contained in this
Agreement, the parties agree that Solomon's employment automatically will
terminate in the event of Solomon's death.
(b) In the event Solomon becomes mentally or physically disabled,
Solomon's employment will terminate as of the date such disability is
established. As used in this Agreement, the term "disabled" means suffering from
any mental or physical condition, other than the abuse of intoxicating beverages
or illegal use of narcotics, which renders Solomon unable to perform
substantially all of his duties and responsibilities in a satisfactory manner
(an "impaired condition") for a period of ninety (90) consecutive days. The date
that Solomon's disability is established will be the ninety-first (91) day on
which the impaired condition exists.
(c) The Company may terminate Solomon's employment for good cause
without notice to Solomon. For purposes of this Agreement, "good cause" means:
(i) any felony conviction;
(ii) abuse of intoxicating beverages or illegal use of
narcotics (following at least one written warning);
(iii) an act or acts of personal dishonesty at the expense
of the Company;
(iv) the willful misconduct or gross negligence of Solomon
in connection with the performance of his duties, responsibilities,
agreements,
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and covenants hereunder, where such misconduct or gross negligence
continues for a period of thirty (30) days after written notice to
Solomon specifying the details of such misconduct or gross negligence;
(v) failure to fulfill or perform any of the duties and
responsibilities assigned to Solomon, where such failure continues for
a period of thirty (30) days after written notice to Solomon
specifying the details of such failure to fulfill or perform such
duties and responsibilities; and
(vi) willful conduct that is illegal and is materially and
demonstrably injurious to the Company.
(d) Notwithstanding the provisions of subparagraph 4(c) above, the
Company may terminate Solomon's employment for any reason, whether or not such
reason constitutes good cause, so long as the Company complies with the
provisions of paragraph 8 below.
(e) Solomon may terminate his employment with the Company for any
reason upon thirty (30) days written notice to the Company.
5. The parties agree that, should Solomon's employment with the
Company be terminated by reason of Solomon's death as set forth in subparagraph
4(a) above, his wife, Joy A. Solomon, or if she is not longer living, then his
estate, shall be entitled to receive any salary earned prior to such termination
and a pro rata amount of any bonus
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earned prior to such termination based upon Solomon's progress toward
achievement of the milestones set forth in the bonus plan or program. In
addition, Joy A. Solomon, or if she is no longer living, then Solomon's estate,
shall be eligible to receive the payments and benefits set forth in paragraph 10
below. However, the Company shall have no obligation to provide those payments
or benefits to Joy A. Solomon or Solomon's estate until Joy A. Solomon or a
representative of Solomon's estate executes a general release of claims in a
form acceptable to the Company and until any required rescission and revocation
periods have passed without Joy A. Solomon or a representative of Solomon's
estate exercising her or his rescission and revocation rights.
6. The parties agree that, should Solomon's employment with the
Company be terminated by reason of Solomon's disability as set forth in
subparagraph 4(b) above, Solomon shall be entitled to receive any salary earned
prior to such termination and a pro rata amount of any bonus earned prior to
such termination based upon Solomon's progress toward achievement of the
milestones set forth in the bonus plan or program. In addition, Solomon shall be
eligible to receive the payments and benefits set forth in paragraph 10 below.
However, the Company shall have no obligation to provide those payments and
benefits to Solomon until after Solomon has executed the General Release
attached hereto as Exhibit A and until after the rescission and revocation
periods contained in paragraph 2 of the General Release attached hereto as
Exhibit A have passed without Solomon exercising his rescission and revocation
rights. The amount of
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payments and benefits due under paragraph 10 below shall be reduced by any
payments to which Solomon may be entitled for the same period because of
disability under any disability or pension plan or program of the Company or as
a result of any workers' compensation or non-occupational disability payments
received by Solomon from any governmental entity. Notwithstanding any such
termination, the provisions of this Agreement setting forth restrictions on
Solomon's conduct after the termination of Solomon's employment including, but
not limited to, the provisions set forth in paragraph 11 of this Agreement,
shall remain in full force and effect.
7. The parties agree that, should Solomon's employment with the
Company be terminated for good cause as set forth in subparagraph 4(c) above, no
further payments or benefits shall be required to be paid or provided by the
Company to Solomon under paragraph 10 below or any other provision of this
Agreement except for Solomon's salary earned prior to such termination.
Notwithstanding any such termination, the provisions of this Agreement setting
forth restrictions on Solomon's conduct after the termination of Solomon's
employment including, but not limited to, the provisions set forth in paragraph
11 of this Agreement, shall remain in full force and effect.
8. The parties agree that, should Solomon's employment with the
Company be terminated without good cause as set forth in subparagraph 4(d)
above, Solomon shall be entitled to receive any salary earned prior to such
termination and a pro rata amount of
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any bonus earned prior to such termination based upon Solomon's progress toward
achievement of the milestones set forth in the bonus plan or program. In
addition, Solomon shall be eligible to receive the payments and benefits
provided for in paragraph 10 below. However, the Company shall have no
obligation to provide those payments and benefits to Solomon until after Solomon
has executed the General Release attached hereto as Exhibit A and until after
the rescission and revocation periods contained in paragraph 2 of the General
Release attached hereto as Exhibit A have passed without Solomon exercising his
rescission and revocation rights. Notwithstanding any such termination, the
provisions of this Agreement setting forth restrictions on Solomon's conduct
after the termination of Solomon's employment including, but not limited to, the
provisions set forth in paragraph 11 of this Agreement, shall remain in full
force and effect.
9. The parties agree that, should Solomon's employment with the
Company be terminated by Solomon as set forth in subparagraph 4(e) above, no
further payments or benefits shall be required to be paid or provided by the
Company to Solomon under paragraph 10 below or any other provision of this
Agreement except for Solomon's salary earned prior to such termination.
Notwithstanding any such termination, the provisions of this Agreement setting
forth restrictions on Solomon's conduct after the termination of Solomon's
employment including, but not limited to, the provisions set forth in paragraph
11 of this Agreement, shall remain in full force and effect.
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10. As consideration for Solomon's promises and obligations under this
Agreement, including, but not limited to, Solomon's agreement to release any and
all claims against the Company as provided in paragraph 12 of this Agreement and
Exhibit A to this Agreement, and the covenants set forth in paragraph 11 of this
Agreement, and subject to the terms hereof, the Company agrees as follows:
(a) The Company, after the Resignation Date, will continue, as
separation pay, Solomon's then current gross salary or Two Hundred Twenty-One
Thousand Three Hundred Twenty-Eight and 00/100 Dollars ($221,328.00), whichever
is greater, less legally required deductions, for a period terminating
twenty-seven (27) months after the Resignation Date. This separation pay will be
paid to Solomon at regular, periodic payroll intervals in accordance with the
payroll practices in effect immediately before Solomon's resignation. For the
first twelve (12) months Solomon is receiving the separation pay provided in
this subparagraph 10(a), the amount of the separation pay shall not be reduced
by any compensation earned by Solomon as a result of any employment by any other
employer and/or consulting work. For the last fifteen (15) months Solomon is
receiving the separation pay provided in this subparagraph 10(a), the amount of
separation pay shall be reduced by any compensation earned by Solomon as a
result of any employment by any other employer and/or consulting work. Solomon
agrees to notify the Company of any such employment and/or consulting work and
to provide the Company with information regarding the compensation received by
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<PAGE>
him for such employment and/or consulting work. As used in this subparagraph,
"compensation" means direct cash compensation in the nature of base salary,
consulting fees, and director fees.
(b) Following the Resignation Date, Solomon may voluntarily elect
to continue group health and dental insurance, in accordance with the Company's
policies for employees, for a period not to exceed eighteen (18) months. If
Solomon so elects to continue group health and dental insurance, the Company
will pay the total cost of such insurance directly to the carrier. However, it
is agreed by the parties that, in the event Solomon becomes employed by any
other employer during the eighteen (18) month period following the Resignation
Date, the Company will not be required to provide Solomon with access to its
group health and dental insurance effective on the first day of the month
following or coinciding with Solomon's commencement of eligibility for
comparable group health and dental insurance with such employer.
In the event Solomon does not become employed by any other employer
during the eighteen (18) month period following the Resignation Date, for the
nine (9) month period following that eighteen (18) month period, the Company
will contribute up to five hundred and ninety-two dollars ($592.00) per month
toward the cost of any health insurance actually purchased by Solomon. Solomon
will provide suitable documentation of any such expenses actually incurred.
9
<PAGE>
(c) Solomon has previously executed a promissory note dated August
9, 1994, in the amount of Thirty-Seven Thousand Eight Hundred and 12/100 Dollars
($37,812) in favor of and payable to the Company. The entire principal and
accrued interest balance on this promissory note shall be forgiven on November
2, 2000 or upon written notice given to Dorsey & Whitney LLP, holder of 8,333
shares of the Company's common stock as collateral for the promissory note, of
Solomon's intention to sell those shares, whichever occurs sooner. The provision
of the promissory note relating to semi-annual interest payments and the
provision of the promissory note that the promissory note is due and payable
upon the termination of Solomon's employment are hereby terminated.
(d) The Company has granted to Solomon a stock option of 65,000
shares which will vest on the sixteenth (16th) day after Solomon's execution of
Exhibit A to this Agreement, exercisable at the price set forth in the grant.
(e) The Company agrees that all unvested stock options that have
previously been issued to Solomon shall be fully vested and exercisable on the
sixteenth (16th) day after Solomon's execution of Exhibit A to this Agreement.
(f) The Company will extend the exercise period for all stock
options held by Solomon, including, but not limited to, those provided in
subparagraphs 10(d) and 10(e), for a period ending two (2) years from the
sixteenth (16th) day after Solomon's execution of Exhibit A to this Agreement.
10
<PAGE>
(g) The Company will reimburse Solomon for reasonable attorneys'
fees actually incurred by him in connection with the review and negotiation of
this Agreement in an amount not to exceed twenty-five hundred ($2,500.00)
dollars upon submission of appropriate documentation.
(h) The Company agrees that, prior to issuing any future written
announcements regarding Solomon's resignation, the Company will permit Solomon
to review such written announcements.
(i) All other items of remuneration or benefit not specifically
mentioned in subparagraphs 10(a) through 10(h) above, including, but not limited
to, unused or accrued vacation, bonuses, and commissions are included in said
separation pay and benefits, and, other than as set forth in paragraphs 5, 6,
and 8 above, Solomon has no further claim to any other items of remuneration or
benefits following the Resignation Date.
(j) Solomon agrees that he was not entitled to any of the payments
and benefits outlined in subparagraphs 10(a) through 10(h) above absent his
execution of this Agreement.
11. As an essential inducement to the Company to enter into this
Agreement, Solomon agrees as follows:
(a) Solomon executed an Agreement entitled "Employee Agreement"
dated February 22, 1991, a copy of which is attached hereto as Exhibit B and by
this
11
<PAGE>
reference incorporated herein. Nothing in this Agreement negates or supersedes
the Employee Agreement, and all provisions of the Employee Agreement which by
their terms survive the termination of Solomon's employment with the Company
continue in full force and effect and are not negated or otherwise affected by
this Agreement.
(b) Upon the Resignation Date, Solomon shall deliver promptly to
the Company all records, manuals, books, forms, documents, letters, memoranda,
notes, notebooks, reports, data, computer files, tables, calculations, or copies
thereof (except as expressly agreed to in a writing signed by Mark B. Knudson on
behalf of the Company), that are the property of the Company or which relate in
any way to the business, products, or practices of the Company, and all other
property, including, but not limited to, all documents or databases which in
whole or in part contain any trade secrets or confidential information of the
Company, which are in Solomon's possession or control.
(c) Solomon covenants and agrees that, for a period of twenty-four
(24) months from the Resignation Date, he shall not, directly or indirectly,
engage in any business activity on his own behalf or as a partner, shareholder
(except by ownership of less than five percent (5%) of the outstanding stock of
a publicly held corporation), director, trustee, principal, agent, officer,
employee, consultant, or otherwise of any person or entity the business of which
is the same as, similar to, or competitive with the Company's glucose monitoring
business or which is engaged in the development or production of products
intended to compete with the Company's glucose monitoring
12
<PAGE>
business, or assist, solicit, entice, or induce any other person to engage in
any such activity.
Solomon further agrees that, during the term of such covenant, he
shall not directly or indirectly assist, solicit, entice, or induce (or assist
any other person or entity in soliciting, enticing, or inducing) any customer or
potential customer (or agent, employer, or consultant of any customer or
potential customer) with whom Solomon had contact in the course of his
employment with the Company, to deal with a competitor of the Company.
Solomon further agrees that, during the term of such covenant, he
shall not directly or indirectly in any manner solicit, assist, or encourage (or
assist any other person or entity in soliciting or encouraging) any other
officer or employee of the Company to work or otherwise provide services to
Solomon or for any entity in which Solomon participates in the ownership,
management, operation, or control of, or is connected with in any manner as an
independent contractor, consultant, or otherwise.
Solomon acknowledges that a breach or threatened breach of any portion
of this subparagraph will cause irreparable harm to the Company and that the
Company could not be adequately compensated by money damages. Accordingly,
Solomon specifically agrees that the Company shall be entitled to injunctive
relief to enforce the provisions of this subparagraph and that such relief may
be granted without the necessity of proving actual damages. The Company's rights
with respect to obtaining injunctive
13
<PAGE>
relief, however, will not diminish its rights to pursue any other available
remedies for such breach or threatened breach, including the recovery of actual
damages.
12. By this Agreement, Solomon intends to settle any and all claims
that he has or may have against the Company as a result of the Company's hiring
Solomon, Solomon's employment with the Company, or the cessation of Solomon's
employment with the Company, or any act, occurrence, or omission occurring prior
to the date of this Agreement. For the consideration expressed herein, Solomon
hereby releases, acquits, satisfies, and forever discharges the Company, its
predecessors, successors, assigns, parents, affiliates, subsidiaries, and
related companies, their officers, directors, shareholders, agents, servants,
employees, and insurers from all liability for damages and agrees not to
institute any claim for damages, nor authorize any other party, governmental or
otherwise, to seek individual remedies for Solomon via administrative or legal
proceedings. Solomon's release of claims is intended to extend to and include,
among other things, claims of any kind arising under or based upon the Minnesota
Human Rights Act, Minn. Stat. (S)(S) 363.01, et seq.; Title VII of the Civil
Rights Act, 42 U.S.C. (S)(S) 2000e, et seq.; the Age Discrimination in
Employment Act, 29 U.S.C. (S)(S) 621, et seq.; the Employee Retirement Income
Security Act of 1973, 29 U.S.C. (S)(S) 1001, et seq.; the Americans with
Disabilities Act, 42 U.S.C. (S)(S) 12101, et seq.; any other federal, state, or
local law, rule, or regulation prohibiting employment discrimination or
otherwise relating to employment; any claims based upon, among other things,
common
14
<PAGE>
law theories of recovery, including, but not limited to, those in contract,
quasi contract, or tort; and any claims based upon any other theory, whether
legal or equitable, arising from or related to any matter or fact arising prior
to the signing of this Agreement, including, but not limited to, any matter or
fact arising out of the events giving rise to this Agreement.
13. Solomon has been informed of his right to revoke this Agreement
insofar as it extends to potential claims under the Age Discrimination in
Employment Act, 29 U.S.C. (S)(S) 621, et seq. by informing the Company of his
intent to revoke this Agreement within seven (7) calendar days after his
execution of this Agreement.
Solomon has been informed of his right to rescind this Agreement
insofar as it extends to potential claims under the Minnesota Human Rights Act,
Minn. Stat. (S)(S) 363.01, et seq., by written notice to the Company within
fifteen (15) calendar days after his execution of this Agreement. Solomon has
been informed and he understands that any such rescission must be in writing and
delivered to the Company in care of Mark B. Knudson, Ph.D., Chairman of the
Board, by hand or mail within the applicable time period. If delivered by mail,
the rescission must be: (i) postmarked within the applicable period; (ii) sent
by certified mail, return receipt requested; and (iii) addressed as follows:
Mark B. Knudson, Ph.D., Chairman of the Board, Integ Incorporated, 2800 Patton
Road, Roseville, Minnesota 55113.
15
<PAGE>
Solomon has also been informed that the terms of this Agreement will
be open for acceptance and execution by him for a period of twenty-one (21) days
during which time he may consult with an attorney and consider whether to accept
this Agreement. Changes to this Agreement, whether material or immaterial, will
not restart the running of this twenty-one (21) day acceptance period.
Solomon understands that the Company will have no obligations under
this Agreement in the event a notice a revocation or rescission by Solomon is
timely delivered, and, in the event Solomon revokes or rescinds this Agreement,
Solomon agrees to repay to the Company any payment made to him or benefits
conferred upon him pursuant to this Agreement prior to the date of revocation or
rescission.
14. As a condition precedent to the rights and benefits conferred
under this Agreement, Solomon agrees to execute, on the Resignation Date, the
General Release attached hereto as Exhibit A and by this reference incorporated
herein. The Company shall have no obligations to Solomon under this Agreement
until after Solomon has executed the General Release attached hereto as Exhibit
A, and until after the rescission and revocation periods contained in paragraph
2 of the General Release attached hereto as Exhibit A have passed without
Solomon exercising his rescission and revocation rights. Solomon understands
that the Company will have no obligations under this Agreement in the event a
notice of rescission or revocation by Solomon is timely delivered, and, in the
event Solomon rescinds or revokes the General Release attached
16
<PAGE>
hereto as Exhibit A, Solomon agrees to repay to the Company any payments made to
him or benefits conferred upon him pursuant to this Agreement prior to the date
of rescission or revocation.
15. The Company states that it is not currently aware of any claims
which it has or may have against Solomon as a result of any act, occurrence, or
omission occurring prior to the signing of this Agreement. Following the
execution of this Agreement and until the Resignation Date, the Company agrees
to promptly inform Solomon of any claims which it believes it has or may have
against Solomon. If, prior to the Resignation Date, the Company has not provided
Solomon with such notice and so long as the Company is not otherwise aware of
any claims it has or may have against Solomon as of the Resignation Date, the
Company will provide Solomon with a letter in the form attached hereto as
Exhibit C at the same time as Solomon executes the General Release attached
hereto as Exhibit A.
16. If Solomon breaches any material obligation imposed under this
Agreement, including, but not limited to, the covenants set forth in paragraph
11 of this Agreement, the Company shall have the right to terminate this
Agreement and all further obligations the Company has under this Agreement to
Solomon or to others whose rights may derive from him will cease.
17. The Company shall indemnify Solomon to the full extent permitted
by Minnesota law and the Company's by-laws. Solomon shall cooperate fully, and
without
17
<PAGE>
further compensation, with the Company in defense of any action, suit, claim, or
proceedings commenced or threatened against him for which he is indemnified by
the Company and in the defense of any action, suit, claim, or proceeding
commenced or threatened against the Company in conjunction with any action suit,
claim, or proceeding commenced or threatened against him. In addition to the
foregoing, Solomon further agrees to provide assertions to the Company as may be
reasonably requested by the Company or its attorneys in connection with the
defense of any action, suit, claim, or proceeding brought against the Company or
any action, suit claim, or proceeding that the Company may initiate.
18. If any dispute arises between the parties with respect to the
application or interpretation of this Agreement (excluding any dispute that
gives the Company the right to seek injunctive relief against Solomon pursuant
to paragraph 11(c) of this Agreement), then such dispute will be submitted to
arbitration for resolution. The arbitrator will be selected and the arbitration
will be conducted pursuant to the then-current National Rules for the Resolution
of Employment Disputes of the American Arbitration Association ("AAA"). Any
request for arbitration must be made in writing by the party seeking arbitration
and must be delivered by hand or sent by registered or certified mail, return
receipt requested, first class postage prepaid, to both the other party and the
AAA, within 90 days after the date on which the dispute between the parties
first arose. The decision
18
<PAGE>
of the arbitrator regarding any such dispute will be final and binding on both
parties, and any court of competent jurisdiction may enter judgment upon the
award.
19. This Agreement, including the attached Exhibits A, B, and C
contains the entire understanding between the parties with respect to the
subject matter of this Agreement. This Agreement terminates, replaces, and
supplants any and all other agreements, whether written or oral, between the
parties relating in any way to the hiring or employment of Solomon by the
Company or the cessation of such employment, including, but not limited to, the
Change in Control Agreement dated May 1, 1996, by and between Solomon and the
Company, but excluding the various stock option agreements between the parties
and employee benefit plans sponsored by the Company in which Solomon is a
participant. However, if prior to the Resignation Date, the Company adopts an
improved change in control agreement applicable to the Company's executive
management team on an across the board basis and the improved change in control
agreement is triggered, and Solomon is otherwise entitled to receive the
payments and benefits provided for in this Agreement, Solomon shall be entitled
to receive, in accordance with the terms of this Agreement, the greater of the
payments and benefits provided for in the improved change in control agreement
or the payments and benefits provided for in paragraph 10 of this Agreement.
However, the Company shall have no obligation to provide payments or benefits
under either the improved change in control agreement or paragraph 10 of this
Agreement until after Solomon has executed the
19
<PAGE>
General Release attached hereto as Exhibit A and until after the rescission and
revocation periods contained in paragraph 2 of the General Release attached
hereto as Exhibit A have passed without Solomon exercising his rescission and
revocation rights. Moreover, should Solomon elect to receive the payments and
benefits provided for in the improved change of control agreement rather than
the payments and benefits provided for in paragraph 10 of this Agreement,
Solomon shall still be required to comply with all obligations imposed under
this Agreement including, but not limited to, the covenants set forth in
paragraph 11 of this Agreement.
20. This Agreement may not be modified, altered, or amended except by
an instrument in writing, signed by the parties hereto. No term or condition of
this Agreement shall be deemed to have been waived, nor shall there be any
estoppel against enforcement of any provision of this Agreement, except by
written instrument of the party charged with such waiver or estoppel. No such
written waiver shall be deemed a continuing waiver unless it is specifically
stated therein, and each such waiver shall operate only as to the specific term
or condition waived and shall not constitute a waiver of such term or condition
for the future or as to any act other than that specifically waived.
21. Solomon agrees to keep the terms and existence of this Agreement
(other than the terms of paragraph 11 of this Agreement) confidential and agrees
not to disclose any such information to any person other than his present or
future attorneys,
20
<PAGE>
accountants, tax advisors, immediate family, or as may be required in response
to a court order, subpoena, or valid inquiry by a government agency or
regulator. Solomon further agrees that if any information concerning the terms
or existence of this Agreement is revealed as permitted by this paragraph, he
shall inform the recipient of the information that it is confidential.
The Company agrees that it will not disclose the terms or existence of
this Agreement except to Company personnel in the ordinary course and scope of
their duties, to the Company's present and future attorneys, accountants, and
tax advisors, as the Company deems necessary in the course of legal proceedings
or in anticipation of litigation, or as required in response to a court order,
subpoena, or valid inquiry by a government agency or regulator. The Company
further agrees that if any information concerning the terms or existence of this
Agreement is revealed as permitted by this paragraph, it shall inform the
recipient of the information that it is confidential.
22. The validity, interpretation, construction, performance,
enforcement, and remedies of or relating to this Agreement, and the rights and
obligations of the parties hereunder, shall be governed by the laws of the State
of Minnesota.
23. Solomon and the Company agree that this Agreement is not an
admission by the Company of any wrongdoing or of any acts that might be
considered a violation of a federal, state, or local law, rule, or regulation,
with respect to the employment of Solomon or otherwise, and that this Agreement
should not be interpreted as such.
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24. If any provision of this Agreement is held to be illegal, invalid,
or unenforceable under present or future laws, such provision shall be fully
severable; this Agreement shall be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance from this Agreement. Furthermore, in
lieu of such illegal, invalid, or unenforceable provision, there shall be added
automatically as part of this Agreement a provision as similar in terms to such
illegal, invalid, or unenforceable provision as may be possible and be legal,
valid, and enforceable.
25. Solomon may not assign any of his rights, or delegate any of his
duties or obligations under this Agreement. The rights and obligations of the
Company under this Agreement shall inure to the benefit of and be binding upon
the successors (by purchase, merger, consolidation, or otherwise) and assigns of
the Company. In the event Solomon dies before all payments due to him under this
Agreement have been made, then all such payments shall continue to be made to
his wife, Joy A. Solomon, or if she is no longer living, then to his estate.
26. Solomon has read this Agreement and agrees to the conditions and
obligations set forth. Further, Solomon agrees that he has had adequate time to
consider the terms of this Agreement, that he is voluntarily entering into this
Agreement with a
22
<PAGE>
full understanding of its meaning, and that he has consulted with an attorney
prior to signing this Agreement.
IN WITNESS WHEREOF, Solomon and the Company, acting through its Board
of Directors after due consideration and authorization, have executed this
Agreement by their signatures below.
Dated: 2/2 , 1998 /s/ Frank A. Solomon
------------- -------------------------
Frank A. Solomon
Dated: 2/2 , 1998 INTEG INCORPORATED
-------------
By /s/ Mark B. Knudson
-------------------------
Its Chairman
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<PAGE>
EXHIBIT A
GENERAL RELEASE
This General Release is made and entered into as of the _______ day of
_____________, 1998, by and between Integ Incorporated (hereinafter the
"Company") and Frank A. Solomon (hereinafter "Solomon").
WHEREAS, Solomon and the Company are parties to a Separation Agreement
(hereinafter "Agreement") dated _____________________, 1998;
WHEREAS, Solomon and the Company intend to settle any and all claims
that Solomon may have against the Company as a result of any act, occurrence, or
omission occurring subsequent to the signing of the Agreement and prior to the
signing of this General Release, including, but not limited to, any matter or
fact arising out of the events giving rise to the Agreement or this General
Release;
WHEREAS, under the terms of the Agreement, which Solomon agrees is
fair and reasonable, Solomon agreed to enter into this General Release as a
condition precedent to the separation payments and benefits conferred under the
Agreement;
NOW, THEREFORE, in consideration of the provisions and of the mutual
covenants contained herein, the parties agree as follows:
1. Release. For the consideration expressed in the Agreement, Solomon
intends to settle any and all claims that he has or may have against the Company
as a result of the Company's hiring Solomon, Solomon's employment with the
Company, or the cessation of Solomon's employment with the Company, or any act,
occurrence, or omission occurring subsequent to the signing of the Agreement and
prior to the signing of this General Release, including, but not limited to, any
matter or fact arising out of the events giving rise to the Agreement or this
General Release. For the consideration expressed in the Agreement, Solomon
hereby releases, acquits, satisfies, and forever discharges the Company, its
predecessors, assigns, parents, affiliates, subsidiaries, and related companies
and their officers, directors, shareholders, agents, servants, employees, and
insurers from all liability for damages and agrees not to institute any claim
for damages, nor otherwise authorize any other party, governmental or otherwise,
to seek individual remedies for Solomon via administrative or legal proceedings.
Solomon's release of claims is intended to extend to and include, among other
things, claims of any kind arising under or based upon the Minnesota Human
Rights Act, Minn. Stat. (S)(S) 363.01, et seq.; Title VII of the Civil Rights
Act, 42 U.S.C. (S)(S) 2000e et seq.; the Age Discrimination in Employment Act,
29 U.S.C. (S)(S) 621, et seq.; the Employee Retirement Income Security Act of
1973, 29 U.S.C. (S)(S) 1001, et seq.; the Americans with Disabilities Act, 42
U.S.C. (S)(S) 12101, et seq.; and any other federal, state, or local law, rule,
or
<PAGE>
regulation prohibiting employment discrimination or otherwise relating to
employment; any claims based upon, among other things, common law theories of
recovery, including, but not limited to, those in contract, quasi-contract, or
tort; and any claims based upon any other theory, whether legal or equitable,
arising from or related to any matter or fact arising subsequent to the signing
of the Agreement and prior to the signing of this General Release, including,
but not limited to, any matter or fact arising out of the events giving rise to
the Agreement or this General Release.
2. Rescission. Solomon has been informed of his right to revoke this
Agreement insofar as it extends to potential claims under the Age Discrimination
in Employment Act, 29 U.S.C. (S)(S) 621, et seq., by informing the Company of
his intent to revoke this Agreement within seven (7) calendar days after his
execution of this Agreement.
Solomon has been informed of his right to rescind this Agreement
insofar as it extends to potential claims under the Minnesota Human Rights Act,
Minn. Stat. (S)(S) 363.01, et seq., by written notice to the Company within
fifteen (15) calendar days after his execution of this Agreement. Solomon has
been informed and he understands that any such rescission must be in writing and
delivered to the Company in care of Mark B. Knudson, Ph.D., Chairman of the
Board, by hand or mail within the applicable time period. If delivered by mail,
the rescission must be: (i) post marked within the applicable period; (ii) sent
by certified mail, return receipt requested; and (iii) addressed as follows:
Mark B. Knudson, Ph.D., Chairman of the Board, Integ Incorporated, 2800 Patton
Road, Roseville, Minnesota 55113.
Solomon understands that neither Solomon nor the Company will have any
obligations under the Agreement in the event a notice of revocation or
rescission by Solomon is timely delivered, and, in the event Solomon revokes or
rescinds this General Release, Solomon agrees to repay to the Company any
payments made to him or benefits conferred upon him pursuant to the Agreement
prior to the date of rescission.
3. Breach. If Solomon violates any material obligation imposed under
either this General Release or the Agreement, including, but not limited to, the
covenants set forth in paragraph 11 of the Agreement, the Company shall have the
right to terminate the Agreement and all further obligations the Company has or
may have under the Agreement to Solomon or to others whose rights may derive
from him will cease.
4. Binding Agreement. This General Release shall be binding upon, and
inure to the benefit of, Solomon and the Company and their respective successors
and permitted assigns.
2
<PAGE>
5. Opportunity to Review. Solomon hereby acknowledges and states that
he has read this General Release and has been advised to consult with an
attorney prior to signing this General Release. Solomon further represents that
this General Release is written in language which is understandable to him, that
he fully appreciates the meaning of its terms, and that he enters into this
General Release freely and voluntarily.
IN WITNESS WHEREOF, Solomon, after due consideration, has authorized,
executed, and delivered this General Release all as of the date first written
above.
---------------------
Frank A. Solomon
3
<PAGE>
EXHIBIT B
EMPLOYEE AGREEMENT
The undersigned employee ("Employee") of InoMet, Inc. (hereafter "Employer")
acknowledges that Employer is a party to a Mutual Consulting Agreement
originally entered into between CorTrak Medical, Inc., Diametrics Medical, Inc.
and InoMet, Inc. providing for a mutual exchange of information between
employees and consultants of the Parties to the Mutual Consulting Agreement.
Employee acknowledges that as part of his or her employment obligations for
Employer, Employee will be providing information, ideas or consulting services
to the other Parties to the Mutual Consulting Agreement unless instructed to the
contrary by Employer.
1. Confidentiality
Employee acknowledges that all information received from Employer or from any of
the Parties to the Mutual Consulting Agreement (including Parties added
subsequent to the effective date of that Agreement) is confidential. Employee
will treat as confidential all such information and agrees not to disclose such
information or use such information without the prior written consent of the
party from whom such information was received. The obligations of
confidentiality shall not apply to any information which was in the public
domain, which was previously known by the Employee (and not subject to any
confidentiality restriction) or which, in the future, becomes part of the public
domain through no fault of the Employee.
2. Assignment
a. The Employee agrees to assign to Employer or its designee any and all
inventions, ideas, designs, works of authorship, copyrights, discoveries and
improvements (collectively "Inventions") (except those expressly excluded in
paragraph 2.b., below), whether sole or joint, patentable or unpatentable, made
or conceived by Employee during the course of any employment with Employer or
made or conceived using the trade secrets or other confidential business
information, equipment, supplies or facilities of Employer or of any signatory
to the Mutual Consulting Agreement. The rights assigned hereunder shall include
all U.S. and foreign patent or design rights or copyrights and Employee agrees
to cooperate (both during the course of employment and thereafter) with Employer
or its designee in applying for or perfecting such rights in the U.S. or any
foreign country.
b. This Agreement shall not apply to any invention for which no equipment,
supplies, facilities or trade secret information of Employer was used and which
was developed entirely on Employee's own time, and (1) which does not relate (a)
directly to the business of Employer or (b) to Employer's actual or demonstrably
anticipated research or development, or (2) which does not result from any work
performed by Employee for Employer.
<PAGE>
c. All work product of the Employee (including all notebooks, files and other
tangible products) made, compiled or otherwise produced during the course of
employment as part of work performed by Employee for Employer is the property of
Employer.
d. Employee expressly acknowledges that communications with, development work,
idea exchange and idea and product development with signatories to the Mutual
Consulting Agreement is the business of Employer and is part of the work
required by Employee for Employer. Any invention made or conceived while
providing information sharing or assistance with a signatory to the Mutual
Consulting Agreement is an invention related to the business of Employer and is
part of the work performed by Employee for Employer.
The terms and conditions of this Agreement and the resolution of any disputes
arising out of it shall be governed by and interpreted in accordance with the
laws of the State of Minnesota.
By /s/ Frank A. Solomon (Employee)
Date 2/22/91
2
<PAGE>
EXHIBIT C
Frank Solomon
- -----------------------
- -----------------------
Dear Mr. Solomon:
This is to inform you that, as of the date of this letter, Integ
Incorporated is not currently aware of any claims which it has or may have
against you as a result of any act, occurrence, or omission occurring prior to
the date of this letter.
INTEG INCORPORATED
By__________________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED MARCH 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
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<PAGE>
EXHIBIT 99.1
CAUTIONARY STATEMENT
Integ Incorporated ("Integ" or the "Company"), or persons acting on behalf of
the Company, or outside reviewers retained by the Company making statements on
behalf of the Company, or underwriters, from time to time, may make, in writing
or orally, "forward-looking statements" as defined under the Private Securities
Litigation Reform Act of 1995 (the "Act"). This Cautionary Statement is for the
purpose of qualifying for the "safe harbor" provisions of the Act and is
intended to be a readily available written document that contains factors which
could cause results to differ materially from those projected in such
forward-looking statements. These factors are in addition to any other
cautionary statements, written or oral, which may be made or referred to in
connection with any such forward-looking statement.
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 the Company. Reference to this Cautionary Statement
in the context of a forward-looking statement shall be deemed to be a statement
that any one or more of the following factors may cause actual results to differ
materially from those which might be projected, forecast, estimated or budgeted
by the Company in such forward-looking statement or statements:
DEVELOPMENT OF NEW TECHNOLOGY; DEPENDENCE ON THE LIFEGUIDE SYSTEM; UNCERTAINTY
OF MARKET ACCEPTANCE
The Company's future success is entirely dependent upon the successful
development, commercialization and market acceptance of the LIFEGuide System,
the development of which is ongoing and the complete efficacy of which has not
yet been demonstrated. The Company has tested benchtop prototypes and commercial
prototypes of the LIFEGuide Meter and the LIFEGuide Key. The Company has
experienced significant delays in completing the development of the LIFEGuide
Meter. There can be no assurance that the Company will not experience continuing
delays in this development effort. Also, there can be no assurance that
additional unforeseen problems will not occur in research and development,
clinical testing, regulatory submissions and approval, product manufacturing and
commercial scale up, marketing or product distribution. Any such occurrence
could materially delay the commercialization of the LIFEGuide System or prevent
its market introduction entirely. Further, even if successfully developed, the
commercial success of the LIFEGuide 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 System will represent a new practice in the monitoring of
glucose levels, the Company is unable to predict how quickly, if at all, its
products will be accepted by members of the medical community and people with
diabetes. There is no assurance that the Company will ever derive substantial
revenues from the sale of the LIFEGuide System.
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HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; EXPECTATION OF FUTURE LOSSES
The Company has generated no revenue and has sustained significant operating
losses each year since its inception. As of March 31, 1998, the Company had an
accumulated deficit of $33.7 million. The Company expects such losses to
continue through 2000 and to increase at least through the end of 1999. The
Company may never generate substantial operating revenue or achieve
profitability. The Company's ability to generate revenue from operations and
achieve profitability is dependent upon successful development, regulatory
approval and commercialization of the LIFEGuide System and the Company's
successful transition from a development stage company to a fully operating
company.
LIMITED CLINICAL TESTING EXPERIENCE; UNCERTAINTY OF OBTAINING FDA CLEARANCES
Testing of the LIFEGuide System has been performed on benchtop prototypes and
hand-held prototypes solely by Company personnel under controlled circumstances.
After the Company has completed the design of the LIFEGuide System and
demonstrated the efficacy of the product, the Company expects to make commercial
prototypes of the LIFEGuide System available for clinical testing by people with
diabetes and to use the data derived from this testing to support a 510(k)
notification with the Food and Drug Administration ("FDA") to permit
commercialization of the LIFEGuide System. There can be no assurance that the
Company will not encounter problems in clinical testing that will cause the
Company to further delay commercialization of the LIFEGuide System, and there
can be no assurance that the LIFEGuide System will prove to be accurate and
reliable on a consistent basis. Even if accurate and reliable, there can be no
assurance that such testing will show the Company's product to be safe or
effective. There can also be no assurance that the required FDA clearances will
be obtained on a timely basis or at all. The Company believes and has confirmed
with the FDA that the LIFEGuide System will be eligible for a 510(k) clearance
from the FDA. Still, there can be no assurance that the required FDA clearances
or approvals will be obtained on a timely basis or at all or that the FDA would
change its criteria and apply the more stringent PMA (pre-market approval)
process to the LIFEGuide System. The Company has no experience in obtaining
regulatory approval.
HIGHLY COMPETITIVE MARKETS; RISK OF TECHNOLOGICAL OBSOLESCENCE
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 non-invasive
glucose monitoring products competitive with the proposed LIFEGuide System.
There can be no assurance that the Company's competitors and potential
competitors will not succeed in developing or marketing technologies and
products that will be more accepted in the marketplace than the proposed
LIFEGuide System or that would render the Company'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 the
Company's products could be mitigated or become entirely nonexistent.
Most of the Company's competitors and potential competitors have substantially
greater capital resources, research and development staffs and facilities than
the Company. In addition, most of the Company's competitors and potential
competitors have substantially greater experience than the
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Company in research and new product development, obtaining regulatory approvals
and manufacturing and marketing medical devices. Many of the Company's potential
competitors have already entered into distribution and marketing agreements with
major marketing partners. Competition within the glucose monitoring industry
could also result in reductions of the prices of the Company's products and the
use of purchase incentive programs that could adversely affect the Company's
revenues and profitability.
LACK OF MANUFACTURING CAPABILITY; DEPENDENCE ON CONTRACT MANUFACTURERS AND
SUPPLIERS
The Company's LIFEGuide System is still in development and the Company has not
yet created or manufactured a commercial prototype of its device. To be
successful, the Company must manufacture the LIFEGuide System in compliance with
regulatory requirements, in a timely manner and in sufficient quantities while
maintaining product quality and acceptable manufacturing costs. The LIFEGuide
Meter will be manufactured for the Company by an outside vendor from primarily
off-the-shelf components. The LIFEGuide Key will be assembled by the Company
from components to be purchased from outside suppliers. The Company ordered the
initial automated manufacturing line for the LIFEGuide Key in late 1996 and
anticipates producing initial LIFEGuide Keys from this line in mid-1998.
However, one component of the LIFEGuide Key is available from a single source.
If the Company were unable to obtain this component from its supplier, the
Company would be required to make modifications to its existing LIFEGuide System
and to obtain an alternative component from an alternative supplier. Any
interruption in the supply of this component would have a material adverse
effect on the Company's business, financial condition and results of operation.
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. There can be no
assurance, however, that the Company will be able to install and qualify an
initial automated manufacturing line or subsequent commercial productions lines
on a timely basis or at all. There also can be no assurance that the Company
will be able to achieve and maintain product quality and reliability when
producing the LIFEGuide System in the quantities required for commercial
operations or within a period that will permit the Company to introduce its
products in a timely fashion, or that the Company will be able to assemble and
manufacture its products at an acceptable cost.
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success 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. As of the date of this Form 10-Q, the Company has two issued United
States patents relating to the methods of drawing an ISF sample from the outer
layers of the skin, and five additional United States Patent Applications
directed toward various aspects of the technologies underlying the LIFEGuide
System. There can be no assurance, however, that any additional patents will be
issued, that the scope of any patent protection granted to the Company will
prevent competitors from introducing products competitive with the LIFEGuide
System or that any of the Company'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 which issue pertaining to such technologies. The Company also relies upon
unpatented trade secrets, and no assurance can be given that others will not
independently develop or otherwise acquire unpatented technologies substantially
equivalent to those of the Company. In addition, even if the patents for which
the Company has applied are ultimately issued, other parties may hold or receive
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<PAGE>
patents that contain claims covering the LIFEGuide System and which may delay or
prevent the sale of the LIFEGuide System or require licenses resulting in the
payment of fees or royalties by the Company in order for the Company to carry on
its business. There can be no assurance that needed or potentially useful
licenses will be available 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. Litigation could result in
substantial costs to and a diversion of effort by the Company, but may be
necessary to enforce any patents issued to the Company, protect trade secrets or
know-how owned by the Company, defend the Company against claimed infringement
of the rights of others or determine the scope and validity of the proprietary
rights of others. The Company is not currently a party to any patent or other
litigation. The Company routinely monitors patent issuances by others in its
industry, and as a result became aware in 1996 of a patent that may relate to a
feature of the LIFEGuide System. The Company engaged outside patent counsel,
Moore & Hansen, to review the patent, and such counsel rendered its opinion to
the Company that the patent is not infringed by the Company's technology. In
addition, such counsel advised the Company that if the patent was challenged,
those claims which the Company believes may apply to the LIFEGuide System would
be likely to be held invalid based on the existence of prior art not cited by
the patent examiner. There can be no assurance, however, that the holder of the
patent will not pursue litigation which could be costly to the Company. An
adverse determination in any litigation, including any litigation commenced by
the holder of the patent referred to above, could subject the Company to
significant liabilities to third parties, require the Company to seek licenses
from or pay royalties to third parties or prevent the Company from
manufacturing, selling or using its proposed products, any of which could have a
material adverse effect on the Company's business and prospects.
GOVERNMENT REGULATION; NEED FOR ADDITIONAL GOVERNMENT CLEARANCES
Government regulation in the United States and other countries is a significant
factor in the Company's business. The Company's products will be regulated by
the FDA under a number of statutes including the Federal Food, Drug and Cosmetic
Act, as amended (the "FDC Act"), and the Safe Medical Devices Act of 1990 (the
"SMDA"), and the FDA Modernization Act (the "FDAMA"). Manufacturers of medical
devices must comply with applicable provisions of the FDC Act, the SMDA, the
FDAMA and certain associated regulations governing the development, testing,
manufacturing, labeling, marketing and distribution of medical devices and the
reporting of certain information regarding their safety. The FDC Act, the SMDA,
and the FDAMA require certain clearances from the FDA before medical devices,
such as the Company's proposed LIFEGuide System, can be marketed.
The Company has not obtained FDA clearance to market the LIFEGuide System. The
regulatory process may delay the marketing of new products for lengthy periods,
impose substantial additional costs and provide an advantage to those of the
Company's competitors who have greater financial resources. FDA marketing
clearance regulations depend heavily on administrative interpretation. There can
be no assurance that interpretations made by the FDA or other regulatory bodies,
with possible retroactive effect, will not adversely affect the Company. There
can be no assurance that any such clearance will be obtained in a timely manner,
or at all. In addition, even if obtained, FDA clearances are subject to
continual review, and if the FDA believes that the Company is not in compliance
with the FDC Act, the SMDA, the FDAMA or their associated regulations, it can
institute proceedings to detain or seize the Company's products, require a
recall, enjoin future violations and assess civil and criminal penalties against
the Company, its directors, officers or employees. The FDA
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<PAGE>
may also withdraw market approval for the Company's products or require the
Company to repair, replace or refund the cost of any device manufactured or
distributed by the Company.
The FDC Act will regulate the Company's development, quality control and
manufacturing procedures by requiring the Company to demonstrate compliance with
current Good Manufacturing Practices. The FDA monitors compliance with these
requirements by requiring manufacturers to register with the FDA, which subjects
them to periodic FDA inspections of their manufacturing facilities. In order to
ensure compliance with these requirements, the Company will be required to
expend time, resources and effort in the areas of production and quality
control. If violations of the applicable regulations are noted during FDA
inspections, the continued marketing of any products manufactured by the Company
may be halted or adversely affected.
The Company also plans to eventually distribute its products in several foreign
countries. The Company's products will be subject to a wide variety of laws and
regulations in these markets. Generally, the extent and complexity of the
regulation of medical devices is increasing worldwide, with regulations in some
countries already nearly as exhaustive as those applicable in the United States.
This trend may continue and the cost and time required to obtain marketing
approval in any given country may increase. There can be no assurance that any
foreign approvals will be allowed on a timely basis or at all.
LACK OF COMMERCIAL SALES OR MARKETING EXPERIENCE
The Company has no experience in marketing the LIFEGuide System and has not yet
entered into any marketing or distribution arrangements for its proposed
LIFEGuide System. In addition, many of the Company's potential competitors have
already entered into distribution and marketing agreements with major marketing
partners. There can be no assurance that the Company will be able to build a
suitable sales force or enter into satisfactory marketing arrangements with
third parties when commercial potential develops, if ever, or that its sales and
marketing efforts will be successful.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL
The success of the Company is dependent in large part upon the ability of the
Company to attract and retain key management and operating personnel. Qualified
individuals are in high demand and are often subject to competing offers. The
Company is currently searching for a successor to its President and Chief
Executive Officer, Frank Solomon. It is expected that Mr. Solomon will remain as
President, Chief Executive Officer and Director until his successor commences
employment with the Company or September 30, 1998, whichever is sooner. There
can be no assurance, however, that the Company will be able to find a suitable
successor to Mr. Solomon in a timely fashion. In the future, the Company will
also need to add additional skilled personnel in the areas of research and
development, sales, marketing and manufacturing. There can be no assurance that
the Company will be able to attract and retain the qualified personnel needed
for its business. The loss of the services of additional members of the
Company's research, manufacturing or management group or the inability to hire
additional personnel as needed would likely have a material adverse effect on
the Company's business and prospects.
5
<PAGE>
FUTURE CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE AVAILABLE
At its current rate of spending, the Company's existing cash, when combined with
the unused portion of its equipment loan agreement, will be sufficient to fund
the Company's operations until sometime during the second half of 1999. The
Company will require substantial additional funds to meet its working capital
requirements for a full-scale commercial introduction of its proposed LIFEGuide
System. In order to meet its needs beyond this period, the Company may be
required to raise additional funds through public or private financings,
including equity financings. Adequate funds for the Company's operations,
whether from financial markets or from other sources, may not be available when
needed on terms attractive to the Company or at all. Insufficient funds may
require the Company to delay, scale back or eliminate some or all of its
programs designed to facilitate the commercial introduction of the LIFEGuide
System or prevent such commercial introduction altogether.
UNCERTAINTY OF THIRD PARTY REIMBURSEMENT
Sales of the Company's proposed products in certain markets will be dependent in
part on availability of adequate reimbursement for personal glucose monitoring
products from third-party healthcare payors, such as government and private
insurance plans, health maintenance organizations and preferred provider
organizations. Third party payors are increasingly challenging the pricing of
medical products and services. There can be no assurance that adequate levels of
reimbursement will be available to enable the Company to achieve market
acceptance of the LIFEGuide System or maintain price levels sufficient to
realize an appropriate return on its investment in the development or
manufacture of its proposed LIFEGuide System. Without adequate support from
third-party payors, the market for the Company's LIFEGuide System may be
limited.
PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE
The Company faces an inherent business risk of exposure to product liability
claims in the event that an end-user is adversely affected by its prospective
products. The Company currently carries a product liability insurance policy
covering the Company's clinical testing with an aggregate limit of $1.0 million.
Although the Company expects to obtain product liability insurance coverage in
connection with the commercialization of the LIFEGuide System, there can be no
assurance that such insurance will be available on commercially reasonable
terms, or at all, or that such insurance, even if obtained, would adequately
cover any product liability claim. A product liability or other claim with
respect to uninsured liabilities or in excess of insured liabilities could have
a material adverse effect on the business and prospects of the Company.
The foregoing review of factors pursuant to the Act should not be construed as
exhaustive or as any admission regarding the adequacy of disclosures made by the
Company prior to the effective date of the Act.
6
