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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
SEPTEMBER 30, 1998
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[ ] 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
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Integ Incorporated
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(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: (651) 639-8816
---------------------------------
(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 October 30, 1998, the registrant had 9,526,267 shares of $.01 par value
common stock issued and outstanding.
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INTEG INCORPORATED
INDEX
-----
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Balance Sheets as of September 30, 1998 and December 31, 1997 3
Statements of Operations for the three and nine months
ended September 30, 1998 and 1997 and for the period from
April 3, 1990 (inception) through September 30, 1998 4
Statements of Cash Flows for the three and nine months
ended September 30, 1998 and 1997 and for the period from
April 3, 1990 (inception) through September 30, 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) 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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INTEG INCORPORATED
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 December 31
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,736,009 $ 21,776,757
Prepaid expenses 113,707 137,037
------------ ------------
Total current assets 12,849,716 21,913,794
------------ ------------
Furniture and equipment 9,732,176 8,464,943
Less accumulated depreciation (2,441,419) (1,644,051)
------------ ------------
7,290,757 6,820,892
Other assets 151,836 481,607
------------ ------------
TOTAL ASSETS $ 20,292,309 $ 29,216,293
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,263,094 $ 1,384,551
Current portion of capital lease obligations 164,422 155,901
Current portion of long-term debt 1,115,245 799,913
------------ ------------
Total current liabilities 2,542,761 2,340,365
------------ ------------
Long-term liabilities:
Capital lease obligations, less current portion 35,859 159,673
Long-term debt, less current portion 2,683,654 2,870,061
------------ ------------
Total long-term liabilities 2,719,513 3,029,734
------------ ------------
Shareholders' equity:
Common Stock 95,263 93,667
Additional paid-in capital 54,538,629 54,518,671
Deficit accumulated during the development stage (39,479,175) (30,438,348)
------------ ------------
15,154,717 24,173,990
Deferred compensation (124,682) (327,796)
------------ ------------
Total shareholders' equity 15,030,035 23,846,194
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 20,292,309 $ 29,216,293
============ ============
</TABLE>
3
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INTEG INCORPORATED
(A Development Stage Company)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Three Months Ended Nine Months Ended April 3, 1990
September 30 September 30 (Inception) to
---------------------------- ---------------------------- September 30
1998 1997 1998 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and development $ 1,092,630 $ 1,176,786 $ 4,395,774 $ 3,472,858 $ 20,481,923
Manufacturing development 472,628 614,512 1,755,799 1,753,453 6,752,988
Clinical and regulatory 400,028 285,784 1,023,226 861,554 3,392,600
General and administrative 350,485 506,436 1,401,789 1,558,530 8,205,973
Sales and marketing 30,393 179,675 372,741 628,194 2,568,591
------------ ------------ ------------ ------------ ------------
OPERATING LOSS (2,346,164) (2,763,193) (8,949,329) (8,274,589) (41,402,075)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 197,275 378,018 722,785 1,217,111 4,261,663
Interest expense (303,321) (150,222) (908,931) (463,149) (2,207,511)
Other (net) -- -- 94,648 -- (131,252)
------------ ------------ ------------ ------------ ------------
(106,046) 227,796 (91,498) 753,962 1,922,900
------------ ------------ ------------ ------------ ------------
NET LOSS FOR THE PERIOD AND
DEFICIT ACCUMULATED DURING
THE DEVELOPMENT STAGE $ (2,452,210) $ (2,535,397) $ (9,040,827) $ (7,520,627) $(39,479,175)
============ ============ ============ ============ ============
NET LOSS PER SHARE:
Basic and diluted ($0.26) ($0.27) ($0.96) ($0.81) ($14.61)
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic and diluted 9,517,034 9,312,865 9,459,875 9,296,197 2,701,337
============ ============ ============ ============ ============
</TABLE>
4
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INTEG INCORPORATED
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Three Months Ended Nine Months Ended April 3, 1990
September 30 September 30 (Inception) to
--------------------------- --------------------------- September 30
1998 1997 1998 1997 1998
--------------------------- --------------------------- ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (2,452,210) $ (2,535,397) $ (9,040,827) $ (7,520,627) $(39,479,175)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation 272,596 228,546 798,034 569,305 2,478,250
Deferred compensation amortization 19,016 73,622 71,243 221,475 1,068,772
Amortization of loan committment fee 96,207 -- 293,029 77,463 543,103
(Gain) Loss on sale of equipment and deposit write-off -- (537) -- (537) 95,645
Value of options and warrants related to debt
financing, lease guarantee, extension of
options and consulting services 4,567 5,750 13,779 17,251 384,915
Changes in operating assets and liabilities:
Receivables -- 30,596 -- 85,718 (28,829)
Prepaid expenses and other assets 6,418 (35,911) 24,264 (6,446) (205,743)
Accounts payable and accrued expenses (101,674) (178,415) (121,457) (530,290) 1,263,094
------------ ------------ ------------ ------------ ------------
Net cash used in operating activities (2,155,080) (2,411,746) (7,961,935) (7,086,688) (33,879,968)
------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Purchase of furniture and equipment (107,159) (930,101) (1,269,010) (3,936,271) (9,063,725)
Proceeds from sale of furniture and equipment 1,111 3,750 1,111 3,750 47,940
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (106,048) (926,351) (1,267,899) (3,932,521) (9,015,785)
------------ ------------ ------------ ------------ ------------
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 -- 1,246,285 754,989 2,995,879 5,103,142
Payments on long-term debt (221,072) (124,875) (604,034) (256,719) (1,134,897)
Payments on capital lease obligations (39,412) (35,907) (115,293) (106,016) (493,784)
Proceeds from sale of Common Stock 71,225 18,085 153,424 39,397 26,467,569
------------ ------------ ------------ ------------ ------------
Net cash provided by financing activities (189,259) 1,103,588 189,086 2,672,541 55,631,762
------------ ------------ ------------ ------------ ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,450,387) (2,234,509) (9,040,748) (8,346,668) 12,736,009
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,186,396 27,767,449 21,776,757 33,879,608 --
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,736,009 $ 25,532,940 $ 12,736,009 $ 25,532,940 $ 12,736,009
============ ============ ============ ============ ============
</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 September 30, 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 words
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 September 30, 1998, the Company has incurred losses
totaling $39.5 million, consisting of $20.5 million of research and development
expenses, $8.2 million of general and administrative expenses, $6.8 million of
manufacturing development expenses and $4 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 has
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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.
Based on the results of a large-scale internal study, the Company announced in
August 1998 that it would be replacing the LifeGuide infrared measurement system
with an alternate proven measurement technology. Furthermore, the Company
announced that it would explore potential corporate alliances that could
expedite this change. As a result of this decision, the Company restructured in
August to reduce the cash burn rate and the financial statements for the three
month period ended September 30, 1998 reflect this reduction.
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 and Nine Months Ended September 30, 1998 and 1997
General: The Company's net loss totaled $2,452,210 and $9,040,827 during the
three and nine months ended September 30, 1998, as compared to $2,535,397 and
$7,520,627 during the same periods in 1997. The Company expects net losses to
continue for the next several years.
Research and development expenses: Research and development expenses decreased
8% to $1,092,630 during the three months ended September 30, 1998 from
$1,176,786 during the same period in 1997. This decrease was primarily due to
decreased staffing costs ($141,000) as well as reductions in prototype expenses
($138,000). The impact of these decreases was partially offset by increases in
the amount of pilot plant costs allocated to research and development ($97,000)
and the one-time charge for the workforce reduction ($93,000). For the first
nine months of 1998, research and development expenses increased 26% to
$4,395,774, up from $3,472,858 during the first nine months of 1997. The year-
to-date increase in research and development expenses is a combination of pilot
plant costs allocated to research and development ($616,000), increases in
consulting and contract expenses ($467,000), the one-time charge for the
workforce reduction ($188,000) and increased staffing costs ($50,000). These
were offset by decreases in prototype expenses ($347,000) and depreciation
expense ($27,000).
Manufacturing development expenses: Manufacturing development expenses decreased
30% to $472,628 during the three months ended September 30, 1998 from $614,512
during the same period in 1997. The decrease in manufacturing development
expenses is primarily attributable to decreased staffing costs ($112,000), the
allocation of pilot plant costs to research and development ($97,000), decreased
travel expenses ($37,000) and decreased prototype tooling expenses ($23,000).
These decreases were partially offset by increases in depreciation expense
($79,000) and samples and prototype expenses ($62,000). Manufacturing
development expenses increased slightly to $1,755,799 during the nine months
ended September 30, 1998 from $1,753,453 during the same period in 1997. There
were increases in samples and prototype expenses ($447,000), depreciation
expense ($275,000) as well as the one-time charge for the workforce reduction
($78,000). These increases were partially offset by the allocation of pilot
plant costs to research and development ($616,000) as well as decreases in
staffing costs ($89,000) and prototype tooling expenses ($74,000).
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Clinical and regulatory expenses: Clinical and regulatory expenses increased 40%
to $400,028 during the three months ended September 30, 1998 from $285,784
during the same period in 1997. This increase is primarily attributable to the
one-time charge for the workforce reduction ($183,000) partially offset by
decreased staffing costs ($36,000) and recruitment expenses ($8,000). For the
first nine months of 1998, clinical and regulatory expenses increased 19% to
$1,023,226 from $861,554 during the same period in 1997. This increase is
primarily the result of the one-time charge for the workforce reduction
($222,000) offset by decreases in recruitment ($41,000) and travel ($24,000)
expenses.
General and administrative expenses: General and administrative expenses
decreased 45% to $350,485 during the three months ended September 30, 1998 from
$506,436 during the same period in 1997. This decrease is primarily attributable
to decreased staffing costs ($150,000), bad debt expense recorded in the third
quarter of 1997 ($29,000) and decreases in recruitment expenses ($16,000). These
decreases were partially offset by increases in legal and audit expenses
($23,000) as well as the one-time charge for the workforce reduction ($12,000).
General and administrative expenses decreased 11% to $1,401,789 for the nine
months ended September 30, 1998 from $1,558,530 during the same period in 1997.
This decrease is primarily due to decreased staffing costs ($284,000) which were
partially offset by increases in legal and audit expenses ($56,000), recruitment
expenses ($52,000) and the one-time charge for the workforce reduction
($28,000).
Sales and marketing expenses: Sales and marketing expenses decreased 491% to
$30,393 during the three months ended September 30, 1998 from $179,675 during
the same period in 1997. This decrease was the result of decreases in staffing
costs ($104,000), advertising and promotion expenses ($18,000) and consulting
expenses ($17,000). For the first nine months of 1998, sales and marketing
expenses decreased 69% to $372,741 from $628,194 during the first nine months of
1997. This decrease was primarily due to decreases in staffing costs ($228,000),
advertising and promotion expenses ($62,000), website development expenses
($50,000), consulting expenses ($38,000) and travel expenses ($15,000). These
decreases were partially offset by the one-time charge for the workforce
reduction ($173,000).
Interest income: Interest income decreased to $197,275 and $722,785 for the
three and nine month periods ended September 30, 1998, compared to $378,018 and
$1,217,111 during the comparable 1997 periods. The decrease resulted from lower
average balances of cash and cash equivalents.
Interest expense: Interest expense increased to $303,321 and $908,931 for the
three and nine month periods ended September 30, 1998, compared to $150,222 and
$463,149 for the same periods 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 September 30, 1998 as
compared to $4.3 million as of September 30, 1997.
Other income: Other income totaled $94,648 for the nine months ended September
30, 1998. These amounts primarily consisted of a receivable written off in a
prior year which was paid in full ($26,000) and money received from the state of
Minnesota for a sales tax refund claim filed for prior years ($66,000).
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 September 30, 1998 the
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Company had cash and cash equivalents of approximately $12.7 million and working
capital of $10.3 million.
The Company believes that its current cash balances, when the impact of the
reduction in headcount implemented in August is taken into account, will be
sufficient to fund its operations until sometime in mid 2000. 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.
GENERAL DESCRIPTION OF THE YEAR 2000 ISSUE AND THE NATURE AND EFFECTS OF THE
YEAR 2000 ON INFORMATION TECHNOLOGY (IT) AND NON-IT SYSTEMS
The Year 2000 Issue is the result of computer programs that were written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company's plan to resolve the Year 2000 Issue involves the following four
phases: assessment, remediation, testing and implementation. To date, the
Company has completed its assessment of 65% of its systems that could be
significantly affected by the Year 2000. Assessments will be completed by the
end of the year on the remaining systems. The completed assessments indicated
that one of the Company's network servers will need to be upgraded to be
compliant. The Company's phone system as well as the shipping computer system
will also need to be upgraded.
For its information technology (IT) exposures, the Company plans on completing
the remediation phase by the end of the year. Once software is replaced, the
Company intends to begin testing and implementation. The remediation of
operating equipment (non-IT) is expected to be completed by April 15, 1999,
followed by verification testing which the Company expects to complete by June
30, 1999.
The Company is in the process of gathering information about the Year 2000
compliance status of its significant suppliers and subcontractors (external
agents). This assessment will be completed by the end of the year. The inability
of external agents to complete their Year 2000 resolution process in a timely
fashion could materially impact the Company. The potential effect on the Company
of non-compliance by external agents has not yet been determined.
The Company will utilize both internal and external resources to reprogram or
replace, test and implement its software and operating equipment for Year 2000
modifications. The total cost of the Year 2000 project has not yet been
determined. To date, the Company has incurred no expense related to the Year
2000 project.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of its Year 2000 program. In the event
that the Company does not complete any additional phases, the
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Company would be unable to take customer orders or manufacture and ship products
after January 1, 2000. In addition, disruptions in the economy generally
resulting from Year 2000 issues could also materially adversely affect the
Company.
The Company currently has no contingency plans in place in the event it does not
complete all phases of its Year 2000 program. The Company plans to evaluate the
status of its efforts in June 1999 to determine whether such a plan is
necessary.
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 $12,680,000
and money market funds
Capital expenditures 2,680,000
Research and development and clinical and regulatory
preparation 6,775,000
Manufacturing scale-up and marketing activities 2,815,000
Working capital and other general corporate purposes 1,150,000
-----------
Total use of proceeds $26,100,000
-----------
Except for officer compensation and relocation payments totaling $1,198,887 in
the aggregate, director compensation totaling $143,500 in the aggregate, and
consulting fees paid to a director totaling $91,125, 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 Integ Incorporated 1994 Long-Term Incentive and Stock Option
Plan, as revised and restated June 17, 1998.
10.2 Integ Incorporated 1996 Directors' Stock Option Plan, as revised
and restated June 17, 1998.
10.3 Separation Agreement and General Release between Katia P.
Breslawec and the Company.
27 Financial Data Schedule.
99.1 Cautionary Statement.
(b) No reports on Form 8-K were filed during the quarter ended September
30, 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: November 5, 1998 By: /s/ Susan L. Critzer
--------------------
Susan L. Critzer
Interim President and
Interim Chief Financial Officer
(principal executive officer, principal
financial and accounting officer)
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EXHIBIT INDEX
Exhibit Description
- ------- -----------
10.1 Integ Incorporated 1994 Long-Term Incentive and Stock Option
Plan, as revised and restated June 17, 1998.
10.2 Integ Incorporated 1996 Directors' Stock Option Plan, as
revised and restated June 17, 1998.
10.3 Separation Agreement and General Release between Katia P.
Breslawec and the Company.
27. Financial Data Schedule (Electronically Filed).
99.1 Cautionary Statement.
<PAGE>
Exhibit 10.1
INTEG INCORPORATED
(FORMERLY INOMET, INC.)
1994 LONG-TERM INCENTIVE
AND
STOCK OPTION PLAN
[AS REVISED AND RESTATED 6/17/98]
SECTION 1. PURPOSE OF PLAN AND EFFECT ON PRIOR PLANS.
(a) Purpose. This Plan shall be known as the "INTEG INCORPORATED
1994 LONG-TERM INCENTIVE AND STOCK OPTION PLAN" and is hereinafter referred to
as the "Plan." The purpose of the Plan is to aid in maintaining and developing
personnel capable of assuring the future success of Integ Incorporated (formerly
Inomet, Inc.), a Minnesota corporation (the "Company"), to offer such personnel
additional incentives to put forth maximum efforts for the success of the
business, and to afford them an opportunity to acquire a proprietary interest in
the Company through stock options and other long-term incentive awards as
provided herein. Options granted under this Plan may be either incentive stock
options ("Incentive Stock Options") within the meaning of Section 422 of the
Internal Revenue Code of 1986 (the "Code"), or options that do not qualify as
Incentive Stock Options. Awards granted under this Plan shall be SARs,
restricted stock or performance awards as hereinafter described.
(b) Effect on Prior Plans. From and after the Effective Date (as
defined in Section 18 hereof) of the Plan, stock options may be granted under
the Company's existing option plans. All outstanding stock options and
restricted stock awards previously granted under any other stock option plan
shall remain outstanding in accordance with the terms thereof.
SECTION 2. STOCK SUBJECT TO PLAN.
Subject to the provisions of Section 15 hereof, the stock to be
subject to options or other awards under the Plan shall be the Company's
authorized common shares, par value $0.01 per share (the "Common Shares"). Such
shares may be either authorized but unissued shares, or issued shares which have
been reacquired by the Company. Subject to adjustment as provided in Section 15
hereof, the maximum number of shares on which options may be exercised or other
awards issued under this Plan shall be 2,733,333 shares (as adjusted to reflect
the 2-for-3 reverse split of the Common Stock effected on April 24, 1996). If an
option or award under the Plan expires, or for any reason is terminated or
unexercised with respect to any shares, such shares shall again be available for
options or awards thereafter granted during the term of the Plan.
SECTION 3. ADMINISTRATION OF PLAN.
(a) The Plan shall be administered by the Board of Directors of
the Company or a committee thereof. The members of any such committee shall be
appointed by and serve at the pleasure of the Board of Directors. (The group
administering the Plan shall hereinafter be referred to as the "Committee".)
(b) The Committee shall have plenary authority in its
discretion, but subject to the express provisions of the Plan: (i) to determine
the purchase price of the Common Shares covered by each option or award, (ii) to
determine the employees to whom and the time or times at which such options and
awards shall be granted and the number of shares to be subject to each, (iii) to
determine the form of payment to be made upon the exercise of an SAR or in
connection with performance awards, either cash, Common Shares of the Company or
a combination thereof, (iv) to determine the terms of exercise of each option
and award, (v) to accelerate the time at which all or any part of an option or
award may be exercised, (vi) to amend or modify the terms of any option or award
with the consent of the optionee, (vii) to interpret the Plan, (viii) to
prescribe, amend and rescind rules and regulations relating to the Plan, (ix) to
determine the terms and provisions of each option and award agreement under the
Plan (which agreements need not be identical), including the designation of
those options intended to be Incentive Stock Options, and (x) to make all other
determinations necessary or advisable for the administration of the Plan,
subject to the exclusive authority of the Board of Directors under Section 16
herein to amend or terminate
<PAGE>
the Plan. The Committee's determinations on the foregoing matters, unless
otherwise disapproved by the Board of Directors of the Company, shall be final
and conclusive.
(c) The Committee shall select one of its members as its Chair
and shall hold its meetings at such times and places as it may determine. A
majority of its members shall constitute a quorum. All determinations of the
Committee shall be made by not less than a majority of its members. Any decision
or determination reduced to writing and signed by all of the members of the
Committee shall be fully effective as if it had been made by a majority vote at
a meeting duly called and held. The grant of an option or award shall be
effective only if a written agreement shall have been duly executed and
delivered by and on behalf of the Company following such grant. The Committee
may appoint a Secretary and may make such rules and regulations for the conduct
of its business as it shall deem advisable.
(d) The Chief Executive Officer of the Company shall have the
authority, as granted by the Committee pursuant to clause (ix) of subsection (b)
of this Section 3, to grant pursuant to the Plan options or other awards to
eligible persons who are not considered by the Company as its officers or
directors for purposes of Section 16 of the Securities Exchange Act of 1934, as
amended. The Chief Executive Officer of the Company shall provide information as
to any grants made pursuant to this subsection to the Committee at their next
meeting.
SECTION 4. ELIGIBILITY AND GRANT.
(a) Eligibility. Incentive Stock Options may only be granted
under this Plan to any full or part-time employee (which term as used herein
includes, but is not limited to, officers and directors who are also employees)
of the Company and of its present and future subsidiary corporations within the
meaning of Section 424(f) of the Code (herein called "subsidiaries"). Full or
part-time employees, consultants, directors (including directors who are not
employees of the Company) or independent contractors of the Company or one of
its subsidiaries shall be eligible to receive options which do not qualify as
Incentive Stock Options and awards. In determining the persons to whom options
and awards shall be granted and the number of shares subject to each, the
Committee may take into account the nature of services rendered by the
respective employees or consultants, their present and potential contributions
to the success of the Company and such other factors as the Committee in its
discretion shall deem relevant.
(b) Grant of Additional Options. A person who has been granted
an option or award under this Plan may be granted additional options or awards
under the Plan if the Committee shall so determine; provided, however, that for
Incentive Stock Options to the extent the aggregate fair market value
(determined at the time the Incentive Stock Option is granted) of the Common
Shares with respect to which all Incentive Stock Options are exercisable for the
first time by an employee during any calendar year (under all plans described in
subsection (d) of Section 422 of the Code of his or her employer corporation and
its parent and subsidiary corporations) exceeds $100,000, such options shall be
treated as options that do not qualify as Incentive Stock Options. Nothing in
the Plan or in any agreement thereunder shall confer on any employee any right
to continue in the employ of the Company or any of its subsidiaries or affect,
in any way, the right of the Company or any of its subsidiaries to terminate his
or her employment at any time.
(c) Award Limitations Under the Plan. No person who is an
employee of the Company at the time of grant may be granted any Option, Stock
Appreciation Right or performance award, the value of which option, right or
award is based solely on an increase in the value of the Common Shares after the
date of grant of such option, right or award, for more than 500,000 Common
Shares (subject to adjustment as provided for in Section 15 relating to stock
splits, etc.), in the aggregate, in any calendar year period beginning with the
period commencing January 1, 1998 and ending December 31, 1998. The foregoing
annual limitation specifically includes the grant of any awards representing
"qualified performance-based compensation" within the meaning of Section 162(m)
of the Code.
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<PAGE>
SECTION 5. PRICE.
The option price for all Incentive Stock Options granted under
the Plan shall be determined by the Committee but shall not be less than 100% of
the fair market value of the Common Shares at the date of grant of such option.
The option price for options granted under the Plan that do not qualify as
Incentive Stock Options and, if applicable, the price for all awards shall also
be determined by the Committee. For purposes of the preceding sentence and for
all other valuation purposes under the Plan, the fair market value of the Common
Shares shall be as reasonably determined by the Committee. If on the date of
grant of any option or award hereunder the Common Shares are not traded on an
established securities market, the Committee shall make a good faith attempt to
satisfy the requirements of this Section 5 and in connection therewith shall
take such action as it deems necessary or advisable.
SECTION 6. TERM.
Each Option and award and all rights and obligations thereunder
shall expire on the date determined by the Committee and specified in the option
or award agreement. The Committee shall be under no duty to provide terms of
like duration for options or awards granted under the Plan, but the term of an
Incentive Stock Option may not extend more than ten (10) years from the date of
grant of such option and the term of options granted under the Plan which do not
qualify as Incentive Stock Options may not extend more than fifteen (15) years
from the date of granting of such option.
SECTION 7. EXERCISE OF OPTION OR AWARD.
(a) Exercisability. The Committee shall have full and complete
authority to determine whether an option or award will be exercisable in full at
any time or from time to time during the term thereof, or to provide for the
exercise thereof in such installments, upon the occurrence of such events (such
as termination of employment for any reason) and at such times during the term
of the option as the Committee may determine and specify in the option or award
agreement.
(b) No Violation of State or Federal Laws. The exercise of any
option or award granted hereunder shall only be effective at such time that the
sale of Common Shares pursuant to such exercise will not violate any state or
federal securities or other laws.
(c) Method of Exercise. An optionee or grantee electing to
exercise an option or award shall give written notice to the Company of such
election and of the number of shares subject to such exercise. The full purchase
price of such shares shall be tendered with such notice of exercise. Payment
shall be made to the Company in cash (including bank check, certified check,
personal check, or money order), or, at the discretion of the Committee and as
specified by the Committee, (i) by delivering certificates for the Company's
Common Shares already owned by the optionee or grantee having a fair market
value as of the date of grant equal to the full purchase price of the shares, or
(ii) by delivering the optionee's or grantee's promissory note, which shall
provide for interest at a rate not less than the minimum rate required to avoid
the imputation of income, original issue discount or a below-market-rate loan
pursuant to Sections 483, 1274 or 7872 of the Code or any successor provisions
thereto, or (iii) a combination of cash, the optionee's or grantee promissory
note and such shares. The fair market value of such tendered shares shall be
determined as provided in Section 5 herein. The optionee's or grantee's
promissory note shall be a full recourse liability of the optionee and may, at
the discretion of the Committee, be secured by a pledge of the shares being
purchased. Until such person has been issued the shares subject to such
exercise, he or she shall possess no rights as a shareholder with respect to
such shares.
SECTION 8. STOCK APPRECIATION RIGHTS.
(a) Grant. At the time of grant of an option or award under the
Plan (or at any other time), the Committee, in its discretion, may grant a Stock
Appreciation Right ("SAR") evidenced by an agreement in such form as the
Committee shall from time to time approve. Any such SAR may be subject to
restrictions on the exercise thereof as may be set forth in the agreement
representing such SAR, which agreement shall comply with
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<PAGE>
and be subject to the following terms and conditions and any additional terms
and conditions established by the Committee that are consistent with the terms
of the Plan.
(b) Exercise. An SAR shall be exercised by the delivery to the
Company of a written notice which shall state that the holder thereof elects to
exercise his or her SAR as to the number of shares specified in the notice and
which shall further state what portion, if any, of the SAR exercise amount
(hereinafter defined) the holder thereof requests is to be paid in cash and what
portion, if any, is to be paid in Common Shares of the Company. The Committee
promptly shall cause to be paid to such holder the SAR exercise amount either in
cash, in Common Shares of the Company, or any combination of cash and shares as
the Committee may determine. Such determination may be either in accordance with
the request made by the holder of the SAR or in the sole and absolute discretion
of the Committee. The SAR exercise amount is the excess of the fair market value
of one share of the Company's Common Shares on the date of exercise over the per
share exercise price in respect of which the SAR was granted, multiplied by the
number of shares as to which the SAR is exercised. For the purposes hereof, the
fair market value of the Company's shares shall be determined as provided in
Section 5 herein.
SECTION 9. RESTRICTED STOCK AWARDS.
Awards of Common Shares subject to forfeiture and transfer
restrictions may be granted by the Committee. Any restricted stock award shall
be evidenced by an agreement in such form as the Committee shall from time to
time approve, which agreement shall comply with and be subject to the following
terms and conditions and any additional terms and conditions established by the
Committee that are consistent with the terms of the Plan:
(a) Grant of Restricted Stock Awards. Each restricted stock
award made under the Plan shall be for such number of Common Shares as shall be
determined by the Committee and set forth in the agreement containing the terms
of such restricted stock award. Such agreement shall set forth a period of time
during which the grantee must remain in the continuous employment of the Company
in order for the forfeiture and transfer restrictions to lapse. If the Committee
so determines, the restrictions may lapse during such restricted period in
installments with respect to specified portions of the shares covered by the
restricted stock award. The agreement may also, in the discretion of the
Committee, set forth performance or other conditions that will subject the
Common Shares to forfeiture and transfer restrictions. The Committee may, at its
discretion, waive all or any part of the restrictions applicable to any or all
outstanding restricted stock awards.
(b) Delivery of Common Shares and Restrictions. At the time of a
restricted stock award, a certificate representing the number of Common Shares
awarded thereunder shall be registered in the name of the grantee. Such
certificate shall be held by the Company or any custodian appointed by the
Company for the account of the grantee subject to the terms and conditions of
the Plan, and shall bear such a legend setting forth the restrictions imposed
thereon as the Committee, in its discretion, may determine. The grantee shall
have all rights of a shareholder with respect to the Common Shares, including
the right to receive dividends and the right to vote such shares, subject to the
following restrictions: (i) the grantee shall not be entitled to delivery of the
stock certificate until the expiration of the restricted period and the
fulfillment of any other restrictive conditions set forth in the restricted
stock agreement with respect to such Common Shares; (ii) none of the Common
Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered or disposed of during such restricted period or until after the
fulfillment of any such other restrictive conditions; and (iii) except as
otherwise determined by the Committee, all of the Common Shares shall be
forfeited and all rights of the grantee to such Common Shares shall terminate,
without further obligation on the part of the Company, unless the grantee
remains in the continuous employment of the Company for the entire restricted
period in relation to which such Common Shares were granted and unless any other
restrictive conditions relating to the restricted stock award are met. Any
Common Shares, any other securities of the Company and any other property
(except for cash dividends) distributed with respect to the Common Shares
subject to restricted stock awards shall be subject to the same restrictions,
terms and conditions as such restricted Common Shares.
(c) Termination of Restrictions. At the end of the restricted
period and provided that any other restrictive conditions of the restricted
stock award are met, or at such earlier time as otherwise determined by the
Committee, all restrictions set forth in the agreement relating to the
restricted stock award or in the Plan shall lapse
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<PAGE>
as to the restricted Common Shares subject thereto, and a stock certificate for
the appropriate number of Common Shares, free of the restrictions and the
restricted stock legend, shall be delivered to the grantee or his or her
beneficiary or estate, as the case may be.
SECTION 10. PERFORMANCE AWARDS.
The Committee is further authorized to grant performance awards. Subject
to the terms of this Plan and any applicable award agreement, performance awards
granted under the Plan (i) may be denominated or payable in cash, Common Shares
(including, without limitation, restricted stock), other securities, other
awards, or other property and (ii) shall confer on the holder thereof rights
valued as determined by the Committee, in its discretion, and payable to, or
exercisable by, the holder of the performance awards, in whole or in part, upon
the achievement of such performance goals during such performance periods as the
Committee, in its discretion, shall establish. Subject to the terms of this Plan
and any applicable award agreement, the performance goals to be achieved during
any performance period, the length of any performance period, the amount of any
performance award granted, and the amount of any payment or transfer to be made
by the grantee and by the Company under any Performance award shall be
determined by the Committee.
SECTION 11. INCOME TAX WITHHOLDING AND TAX BONUSES.
(a) Withholding of Taxes. In order to comply with all applicable
federal or state income tax laws or regulations, the Company may take such
action as it deems appropriate to ensure that all applicable federal or state
payroll, withholding, income or other taxes, which are the sole and absolute
responsibility of an optionee or grantee under the Plan, are withheld or
collected from such optionee or grantee. In order to assist an optionee or
grantee in paying all federal and state taxes to be withheld or collected upon
exercise of an option or award which does not qualify as an Incentive Stock
Option hereunder, the Committee, in its absolute discretion and subject to such
additional terms and conditions as it may adopt, shall permit the optionee or
grantee to satisfy such tax obligation by (i) electing to have the Company
withhold a portion of the shares otherwise to be delivered upon exercise of such
option or award with a fair market value, determined in accordance with Section
5 herein, equal to such taxes or (ii) delivering to the Company Common Shares
other than the shares issuable upon exercise of such option or award with a fair
market value, determined in accordance with Section 5, equal to such taxes.
(b) Tax Bonus. The Committee shall have the authority, at the
time of grant of an option under the Plan or at any time thereafter, to approve
tax bonuses to designated optionees or grantees to be paid upon their exercise
of options or awards granted hereunder. The amount of any such payments shall be
determined by the Committee. The Committee shall have full authority in its
absolute discretion to determine the amount of any such tax bonus and the terms
and conditions affecting the vesting and payment thereafter.
SECTION 12. ADDITIONAL RESTRICTIONS.
The Committee shall have full and complete authority to
determine whether all or any part of the Common Shares of the Company acquired
upon exercise of any of the options or awards granted under the Plan shall be
subject to restrictions on the transferability thereof or any other restrictions
affecting in any manner the optionee's or grantee's rights with respect thereto,
but any such restriction shall be contained in the agreement relating to such
options or awards.
SECTION 13. TEN PERCENT SHAREHOLDER RULE.
Notwithstanding any other provision in the Plan, if at the time
an option is otherwise to be granted pursuant to the Plan the optionee owns
directly or indirectly (within the meaning of Section 424(d) of the Code) Common
Shares of the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or its parent or
subsidiary corporations, if any (within the meaning of Section 422(b)(6) of the
Code), then any Incentive Stock Option to be granted to such optionee pursuant
to the Plan shall satisfy the requirements of Section 422(c)(5) of the Code, and
the option price shall be not less than 110% of the
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<PAGE>
fair market value of the Common Shares of the Company determined as described
herein, and such option by its terms shall not be exercisable after the
expiration of five (5) years from the date such option is granted.
SECTION 14. NON-TRANSFERABILITY.
No option or award granted under the Plan shall be transferable
by an optionee or grantee, otherwise than by will or the laws of descent or
distribution. Except as otherwise provided in an option or award agreement,
during the lifetime of an optionee or grantee, the option shall be exercisable
only by such optionee or grantee.
SECTION 15. DILUTION OR OTHER ADJUSTMENTS.
If there shall be any change in the Common Shares through
merger, consolidation, reorganization, recapitalization, dividend in the form of
stock (of whatever amount), stock split or other change in the corporate
structure, appropriate adjustments in the Plan and outstanding options and
awards shall be made by the Committee. In the event of any such changes,
adjustments shall include, where appropriate, changes in the aggregate number of
shares subject to the Plan, the number of shares and the price per share subject
to outstanding options and awards and the amount payable upon exercise of
outstanding awards, in order to prevent dilution or enlargement of option or
award rights.
SECTION 16. AMENDMENT OR DISCONTINUANCE OF PLAN.
The Board of Directors may amend or discontinue the Plan at any
time. Subject to the provisions of Section 15 no amendment of the Plan, however,
shall without shareholder approval: (i) increase the maximum number of shares
under the Plan as provided in Section 2 herein, (ii) decrease the minimum price
provided in Section 5 herein, (iii) extend the maximum term under Section 6, or
(iv) modify the eligibility requirements for participation in the Plan. The
Board of Directors shall not alter or impair any option or award theretofore
granted under the Plan without the consent of the holder of the option.
SECTION 17. TIME OF GRANTING.
Nothing contained in the Plan or in any resolution adopted or to
be adopted by the Board of Directors or by the shareholders of the Company, and
no action taken by the Committee or the Board of Directors (other than the
execution and delivery of an option or award agreement), shall constitute the
granting of an option or award hereunder.
SECTION 18. EFFECTIVE DATE AND TERMINATION OF PLAN.
(a) The Plan was approved by the Board of Directors and the
shareholders of the Company on February 28, 1994 (the "Effective Date").
(b) Unless the Plan shall have been discontinued as provided in
Section 15 hereof, the Plan shall terminate February 28, 2004. No option or
award may be granted after such termination, but termination of the Plan shall
not, without the consent of the optionee or grantee, alter or impair any rights
or obligations under any option or award theretofore granted.
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<PAGE>
Exhibit 10.2
INTEG INCORPORATED
1996 DIRECTORS' STOCK OPTION PLAN
[As revised and restated 6/17/98]
1. Purpose of the Plan. The purpose of this Integ Incorporated 1996
Directors' Stock Option Plan is to attract and retain the best available
individuals for service as Directors of the Company and provide additional
incentive to the Outside Directors of the Company to serve as Directors.
None of the options granted hereunder shall be "incentive
stock options" within the meaning of Section 422 of the Code (as hereinafter
defined).
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Integ Incorporated, a Minnesota
corporation.
(e) "Continuous Status as a Director" shall mean the absence
of any interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any person, including officers and
Directors, employed by the Company or any parent or Subsidiary of the
Company. The payment of a Director's fee by the Company shall not be
sufficient in and of itself to constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(i) "Option" shall mean a stock option granted pursuant to the
Plan.
(j) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(k) "Optionee" shall mean an Outside Director who receives an
Option.
(l) "Outside Director" shall mean a Director who is not an
Employee.
(m) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 425(e) of the Code.
(n) "Plan" shall mean this 1996 Directors' Stock Option Plan.
(o) "Shares" shall mean shares of the Common Stock, as
adjusted in accordance with Section 11 of the Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 425(f) of the
Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 300,000 Shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
<PAGE>
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan. If Shares which were acquired upon
exercise of an Option are subsequently repurchased by the Company, such Shares
shall not in any event be returned to the Plan and shall not become available
for future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the
Plan shall be administered by the Board.
(b) Procedure for Grants. The provisions set forth in this
Section 4(b) shall not be amended more than once every six months,
other than to comport with changes in the Code, the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder. All
grants of Options hereunder shall be automatic and nondiscretionary and
shall be made strictly in accordance with the following provisions:
(i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to
determine the number of Shares to be covered by Options
granted to Outside Directors.
(ii) Each Outside Director shall be automatically
granted an Option (an "Initial Grant") to purchase 20,000
Shares upon the date on which such person first becomes a
Director, whether through election by the shareholders of the
Company or appointment by the Board of Directors to fill a
vacancy. Options granted under this section 4(b)(ii) shall
become vested and thereby exercisable with respect to 6,666
Shares on the twelve month anniversary date of such Initial
Grant and with respect to 6,667 at each successive anniversary
date; provided, however, an unvested portion of an Initial
Grant shall only vest so long as the Outside Director remains
a Director on the date such portion vests.
(iii) Each Outside Director shall automatically
receive, on the date of each Annual Meeting of Shareholders,
an Option to purchase 6,000 Shares of the Company's Common
Stock. Options granted under this section 4(b)(iii) shall
become vested and thereby exercisable with respect to 2,000
Shares on each of the twelve, twenty-four and thirty-six month
anniversary dates of the date of grant; provided, however, an
unvested portion of such a grant shall only vest so long as
the Outside Director remains a Director on the date such
portion vests; and provided, further, that such Option shall
only be granted to Outside Directors who have served since the
date of the last Annual Meeting of Shareholders and will
continue to serve after the date of grant of such Option.
(iv) The terms of an Option granted hereunder shall
be as follows:
(A) the term of the Option shall be ten (10)
years.
(B) the Option shall be exercisable only
while the Outside Director remains a Director of the
Company, except as set forth in Section 8 hereof.
(C) the exercise price per Share shall be
100% of the fair market value per Share on the date
of grant of the Option.
(D) to the extent necessary to comply with
the applicable provisions of Rule 16b-3 promulgated
under the Exchange Act ("Rule 16b-3"), no Option will
be exercisable until a date more than six months
subsequent to the date of the grant of that Option.
2
<PAGE>
(c) Powers of the Board. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its
discretion: (i) to determine, upon review of relevant information and
in accordance with Section 7(b) of the Plan, the fair market value of
the Common Stock; (ii) to determine the exercise price per share of
Options to be granted, which exercise price shall be determined in
accordance with Section 7(a) of the Plan; (iii) to interpret the Plan;
(iv) to prescribe, amend and rescind rules and regulations relating to
the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option
previously granted hereunder; and (vi) to make all other determinations
deemed necessary or advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations
and interpretations of the Board shall be final and binding on all
Optionees and any other holders of any Options granted under the Plan.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate his directorship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier of
(i) its adoption by the Board or (ii) its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 12 of the Plan.
7. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be 100% of
the fair market value per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value ("Fair Market
Value") of a Share shall be determined by the Board in its discretion;
provided however, that where there is a public market for the Common
Stock, the fair market value per Share shall be the closing price of
the Common Stock in the over-the-counter market on the date of grant,
as reported in The Wall Street Journal (or, if not so reported, as
otherwise reported by the National Association of Securities Dealers
Automated Quotation ("NASDAQ") System) or, in the event the Common
Stock is traded on the NASDAQ National Market System or listed on a
stock exchange, the fair market value per Share shall be the closing
price on such system or exchange on the date of grant of the Option, as
reported in The Wall Street Journal.
(c) Form of Consideration. Subject to compliance with
applicable provisions of Section 16(b) of the Exchange Act, (or other
applicable law), the consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment,
shall be determined by the Board and may consist entirely of (i) cash,
(ii) check, (iii) other Shares which (X) in the case of Shares acquired
upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (Y) have a Fair Market
Value on the date of exercise equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (iv)
authorization for the Company to retain from the total number of Shares
as to which the Option is exercised that number of Shares having a Fair
Market Value on the date of exercise equal to the exercise price for
the total number of Shares as to which the Option is exercised, (v)
delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company
the amount of sale or loan proceeds required to pay the exercise price,
(vi) by delivering an irrevocable subscription agreement for the Shares
which irrevocably obligates the option holder to take and pay for the
Shares not more than twelve months after the date of delivery of the
subscription agreement, (vii) any combination of the foregoing methods
of payment or (viii) such other consideration and method of payment for
the issuance of Shares as may be permitted under applicable laws. In
making its determination as to the type of consideration to accept, the
Board
3
<PAGE>
shall consider whether acceptance of such consideration may be
reasonably expected to benefit the Company.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times as are set
forth in Section 4(b) hereof; provided however, that no Options shall
be exercisable until shareholder approval of the Plan in accordance
with Section 16 hereof has been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is
exercised has been received by the Company. Full payment may consist of
any consideration and method of payment allowable under Section 7(c) of
the Plan. Until the issuance (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to
vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise
of the Option. A share certificate for the number of Shares so acquired
shall be issued to the Optionee as soon as practicable after exercise
of the Option. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised.
(b) Termination of Status as a Director. If an Outside
Director ceases to serve as a Director, he may, but only within five
years after the date he ceases to be a Director of the Company,
exercise his Option to the extent that he was entitled to exercise it
at the date of such termination. To the extent that he was not entitled
to exercise an Option at the date of such termination, or if he does
not exercise such Option (which he was entitled to exercise) within the
time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 8(b) above, in the event an Optionee is unable to continue his
service as a Director with the Company as a result of his total and
permanent disability (as defined in Section 22(e)(3) of the Code) he
may, but only within seven (7) months from the date of termination,
exercise his Option to the extent he was entitled to exercise it at the
date of such termination. To the extent that he was not entitled to
exercise the Option at the date of termination, or if he does not
exercise such Option (which he was entitled to exercise) within the
time specified herein, the Option shall terminate.
(d) Death of Optionee. Notwithstanding the provisions of
Section 8(b) above, in the event of the death of an Optionee:
(i) during the term of the Option who is at the time
of his death a Director of the Company and who has been in
Continuous Status as a Director since the date of grant of the
Option, the Option may be exercised, at any time within seven
(7) months following the date of death, by the Optionee's
estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of
the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as a
Director for six (6) months after the date of death; or
(ii) within thirty (30) days after the termination of
Continuous Status as a Director, the Option may be exercised,
at any time within seven (7) months following the date of
death, by
4
<PAGE>
the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date
of termination.
9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution or Merger.
(a) In the event that the number of outstanding shares of
Common Stock of the Company is changed by a stock dividend, stock
split, reverse stock split, combination, reclassification or similar
change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares
subject to outstanding Options and the exercise price per share of such
Options shall be proportionately adjusted, subject to any required
action by the Board or shareholders of the Company and compliance with
applicable securities laws; provided however, that no certificate or
scrip representing fractional shares shall be issued upon exercise of
any Option and any resulting fractions of a Share shall be ignored.
Such adjustment shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive.
(b) In the event of a dissolution or liquidation of the
Company, a merger in which the Company is not the surviving
corporation, a transaction or series of related transactions in which
100% of the then outstanding voting stock is sold or otherwise
transferred, or the sale of substantially all of the assets of the
Company, any or all outstanding Options shall, notwithstanding any
contrary terms of the written agreement governing such Option,
accelerate and become exercisable in full at least ten days prior to
(and shall expire on) the consummation of such dissolution,
liquidation, merger or sale of stock or sale of assets on such
conditions as the Board shall determine unless the successor
corporation assumes the outstanding Options or substitutes
substantially equivalent options.
11. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
12. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend, or discontinue the Plan, but no amendment,
alteration, suspension, or discontinuance shall be made which would
impair the rights of any Optionee under any grant theretofore made,
without his or her consent. In addition, to the extent necessary and
desirable to comply with Rule 16b-3 under the Exchange Act (or any
other applicable law or regulation), the Company shall obtain
shareholder approval of any Plan amendment in such a manner and to such
a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and
such Options shall remain in full force and effect as if this Plan had
not been amended or terminated, unless mutually agreed otherwise
between the Optionee and the Board, which agreement must be in writing
and signed by the Optionee and the Company.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
5
<PAGE>
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of the Shares available
for issuance pursuant to this Plan as shall be sufficient to satisfy the
requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval.
(a) The Plan shall be subject to approval by the shareholders
of the Company within twelve (12) months of its adoption by the Board.
If such shareholder approval is obtained at a duly held shareholders'
meeting, it may be obtained by the affirmative vote of the holders of a
majority of the outstanding shares of the Company present or
represented and entitled to vote thereon. If such shareholder approval
is obtained by written consent, it may be obtained by the written
consent of the holders of a majority of the outstanding shares of the
Company.
(b) Any required approval of the shareholders of the Company
shall be solicited substantially in accordance with Section 14(a) of
the Exchange Act and the rules and regulations promulgated thereunder.
17. Information to Optionees. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports to shareholders, proxy statements and
other information provided to all shareholders of the Company.
6
<PAGE>
Exhibit 10.3
SEPARATION AGREEMENT AND GENERAL RELEASE
----------------------------------------
This Separation Agreement and General Release ("Agreement") is between
Katia P. Breslawec ("you") and Integ Incorporated (the "Company"). You have
voluntarily resigned your employment effective August 31, 1998. The Company will
provide you with severance pay in consideration of your signing this Agreement.
You and the Company agree as follows:
1. Resignation of Employment. You have resigned your employment
effective August 31, 1998. In consideration of the Company's agreement to pay
the severance pay referenced in Section 3 of this Agreement, you agree to remain
employed by the Company through August 31, 1998. You agree to devote your full
time, attention, knowledge, and skill exclusively to the loyal service of the
Company through that date, and to use your best efforts to carry out all of the
duties and responsibilities that are or may be assigned to you.
2. Nondisclosure of Resignation. You agree to keep your resignation
strictly confidential. You agree not to disclose your resignation at any time
prior to August 14, 1998, to any other person, whether within the Company or
outside of the Company, including to any current or former employee of the
Company, or to any prospective employer. This Section is subject to the
exceptions specified in Section 13, below.
If the Company believes that you have breached your nondisclosure
obligations contained in this Section 2, it will provide written notice to you
of such belief. You and the Company agree to submit the issue of your alleged
breach to binding arbitration under the applicable rules of the American
Arbitration Association, within 60 days of the Company's written notice. The
Company will have the burden in the arbitration to prove by a preponderance of
the evidence that you breached your nondisclosure obligations. If the Company
proves such a breach, you will not be entitled to any severance pay under this
Agreement, and you agree to repay any severance pay already paid to you, within
60 days of the arbitrator's decision.
3. Severance Pay. The Company will continue, as severance pay, your
salary in effect on August 31, 1998, for a period of twelve months following
August 31, 1998, subject to required tax withholding. Such severance pay shall
be paid in installments over the twelve-month period, in accordance with the
Company's normal payroll practices. The Company will also pay to you for 1998 a
pro rata portion of any bonus to which you would have been entitled had you
remained employed for the entire calendar year; such pro rata portion of such
bonus will be based upon the period from January 1, 1998, to August 31, 1998,
provided you remain employed through August 31, 1998, and perform your duties in
accordance with Section 1 of this Agreement.
<PAGE>
You have no duty or obligation to find other employment during the
twelve-month severance pay period. However, if and to the extent that you earn
income related to new employment or other work, including consulting work,
performed by you during the twelve-month severance pay period, the severance pay
provided for in this Section will be reduced by the amount of such income. You
agree to promptly and fully disclose to the Company in writing the nature and
amount of any such earned income related to new employment or other work for
purposes of mitigation and reduction of the Company's obligations hereunder, and
you will be liable to repay any amounts paid by the Company which would have
been reduced but for your failure to make such disclosure.
You acknowledge that you are not entitled to the severance pay
referenced in this Section 3 unless you sign this Agreement.
4. Release. In consideration of the severance pay specified in Section
3, you fully release and discharge the following entities and persons from all
legal claims, known or unknown: the Company, its related or affiliated
companies, and all of the respective officers, shareholders, directors,
employees, agents, and insurers of the Company and its related or affiliated
companies.
You understand that by releasing all of your legal claims against these
entities and persons, you are releasing all of your rights to bring any claims
against them based on any actions, decisions, or events occurring through the
date of your signing of this Agreement, including the terms and conditions of
your employment and your resignation of your employment. Your release includes
any claims based upon:
* Federal, state or local employment discrimination laws,
regulations or requirements, including the Minnesota Human
Rights Act, Minn. Stat. Ch. 363; Minn. Stat. ss.181.81; Title
VII of the Civil Rights Act, 42 U.S.C. ss.2000e, et seq.; the
Age Discrimination in Employment Act, 29 U.S.C. ss.621, et
seq.; and the Americans with Disabilities Act, 42 U.S.C.
ss.12101, et seq.;
* Any other statute, ordinance, or regulation;
* Any contract, quasi-contract or promissory estoppel, including
any claim based upon the Change in Control Agreement between
you and the Company dated May 1, 1996, or the Employment
Agreement between you and the Company dated April 6, 1998;
2
<PAGE>
* Any tort, including wrongful discharge, misrepresentation,
fraud, infliction of emotional distress, or defamation; or
* Any other theory, whether developed or undeveloped.
Your release of claims does not apply to any rights you may have under
COBRA to insurance continuation coverage.
5. Additional Release. You agree to execute the additional release
attached as Exhibit A on or after August 31, 1998.
6. Previous Agreements Superseded. This Agreement supersedes the
Employment Agreement entered into between you and the Company dated April 6,
1998, and the Change in Control Agreement entered into between you and the
Company dated May 1, 1996, except that the Non-Competition and Non-Solicitation
provisions contained in Section 5 of the Change in Control Agreement are
incorporated herein by reference, and shall continue in full force and effect.
7. Your Continuing Obligations Under the Agreement Relating to
Improvements, Confidential Information, Trade Secrets, Know-How and Related
Matters. You acknowledge that the Integ Incorporated Agreement Relating to
Improvements and Inventions, Confidential Information, Trade Secrets, Know-how
and Related Matters that you entered into on May 1, 1996, remains in full force
and effect, and you agree to comply with your continuing obligations under that
agreement. Nothing in this Agreement supersedes or negates any provision of that
May 1, 1996 agreement.
8. Employment References. You agree to refer all inquiries by
prospective employers regarding your candidacy for employment to Lisa Brezonik
or any successor to her duties. The Company agrees that, if a prospective
employer contacts Ms. Brezonik (or her successor) seeking a reference for you,
Ms. Brezonik (or her successor) will respond with the statement contained in
Exhibit B.
9. Acceptance Period. The terms of this Agreement will be open for
acceptance by you for a period of 21 days, during which time you may consider
whether or not to accept this Agreement and seek counsel to advise you regarding
this Agreement. You agree that changes to this Agreement, whether material or
immaterial, will not restart this acceptance period.
3
<PAGE>
10. Right to Revoke. You have the right to revoke this Agreement within
fifteen (15) calendar days following your signing of it. To be effective, your
revocation must be in writing and hand-delivered to the Company or, if sent by
mail, postmarked within the fifteen-day time period and sent by certified mail,
return receipt requested. Your revocation must be delivered or sent to the
following address: Lisa Brezonik, Manager of Human Resources, Integ
Incorporated, 2800 Patton Road, Roseville, MN 55113.
You agree that if you exercise your right of revocation, this Agreement
will be null and void, and neither party will have any rights or obligations
under this Agreement.
11. Return of Company Property. You agree that you will deliver to the
Company, within 15 days after August 31, 1998, all Company property, including
all Company computers, credit cards, security cards, records, manuals, books,
documents (including all customer lists, letters, memoranda, notes, notebooks,
and reports) and other data, and all copies thereof, and all other tangible
Company property, which is in your possession or under your control.
12. Passwords and Password-Protected Documents. You agree to promptly
provide to the Company all of your computer passwords, a list of any documents
that you created or of which you are otherwise aware that are
password-protected, and the password(s) necessary to access such
password-protected documents.
13. Confidentiality. You agree to keep the terms of this Agreement
confidential. You agree not to disclose any information concerning this
Agreement to any person, including any present or former employee of the
Company. These confidentiality provisions are subject to the following
exceptions: you may disclose this Agreement to your present or future attorneys,
accountants, tax advisors or immediate family, in the course of legal
proceedings involving the Company, or in response to a court order, subpoena or
inquiry by a government agency.
14. No Admission. This Agreement is not an admission by the Company
that it has acted wrongfully toward you or anyone else, and shall not be
interpreted as such.
15. Successors and Assigns. This Agreement is personal to you and may
not be assigned by you. The payments to be provided to you shall be made to your
estate in the event of your death prior to your receipt thereof. 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.
4
<PAGE>
16. Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Minnesota. If any part of this Agreement is construed
to be in violation of any law, such part shall be stricken or, if possible,
modified to achieve the objective of the parties to the fullest extent
permitted, and the balance of this Agreement shall remain in full force and
effect.
17. Entire Agreement. You agree that this Agreement, including those
provisions of the Change in Control Agreement that are incorporated herein by
reference, and the Integ Incorporated Agreement Relating to Improvements and
Inventions, Confidential Information, Trade Secrets, Know-how and Related
Matters, are the entire agreement between you and the Company with respect to
your separation from employment and that there are no other promises or
understandings with respect to your separation. Any modification of or addition
to this Agreement must be in a writing signed by you and the Company.
18. ACKNOWLEDGMENT. YOU AFFIRM THAT YOU HAVE READ THIS AGREEMENT. YOU
ARE HEREBY ADVISED TO CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT.
YOU AGREE THAT THE PROVISIONS OF THIS AGREEMENT ARE UNDERSTANDABLE TO YOU AND
THAT YOU HAVE ENTERED INTO THIS AGREEMENT FREELY AND VOLUNTARILY.
Dated: June 23, 1998 /s/ Katia P. Breslawec
----------------------------------
Katia P. Breslawec
Dated: June 22, 1998 INTEG INCORPORATED
By /s/ S.L. Critzer
--------------------------------
Its Interim President
-------------------------------
5
<PAGE>
EXHIBIT A TO SEPARATION AGREEMENT AND GENERAL RELEASE
-----------------------------------------------------
In consideration of the severance pay specified in Section 3 of the
attached Separation Agreement and General Release, you fully release and
discharge the following entities and persons from all legal claims, known or
unknown: the Company, its related or affiliated companies, and all of the
respective officers, shareholders, directors, employees, agents, and insurers of
the Company and its related or affiliated companies.
You understand that by releasing all of your legal claims against these
entities and persons, you are releasing all of your rights to bring any claims
against them based on any actions, decisions, or events occurring through the
date of your signing of this Exhibit A, including the terms and conditions of
your employment and your resignation of your employment. Your release includes
any claims based upon:
* Federal, state or local employment discrimination laws,
regulations or requirements, including the Minnesota Human
Rights Act, Minn. Stat. Ch. 363; Minn. Stat. ss.181.81; Title
VII of the Civil Rights Act, 42 U.S.C. ss.2000e, et seq.; the
Age Discrimination in Employment Act, 29 U.S.C. ss.621, et
seq.; and the Americans with Disabilities Act, 42 U.S.C.
ss.12101, et seq.;
* Any other statute, ordinance, or regulation;
* Any contract, quasi-contract or promissory estoppel, including
any claim based upon the Change in Control Agreement between
you and the Company dated May 1, 1996, or the Employment
Agreement between you and the Company dated April 6, 1998;
* Any tort, including wrongful discharge, misrepresentation,
fraud, infliction of emotional distress, or defamation; or
* Any other theory, whether developed or undeveloped.
Your release of claims does not apply to any rights you may have under
COBRA to insurance continuation coverage.
You have the right to revoke your release of Age Discrimination in
Employment Act claims under this Exhibit A (but not your release of such claims
under the attached Separation Agreement and General Release) within seven (7)
calendar days following your signing of this Exhibit A. You likewise have the
right to revoke your release of
<PAGE>
Minnesota Human Rights Act claims under this Exhibit A (but not your release of
such claims under the attached Separation Agreement and General Release) within
fifteen (15) calendar days following your signing of this Exhibit A.
Any revocation must be in writing and hand-delivered to the Company or,
if sent by mail, postmarked within the applicable time period and sent by
certified mail, return receipt requested. Any revocation must be delivered or
sent to the following address: Lisa Brezonik, Manager of Human Resources, Integ
Incorporated, 2800 Patton Road, Roseville, MN 55113.
You agree that if you exercise either or both of your rights of
revocation, the Company may at its option either nullify the attached Separation
Agreement and General Release in its entirety, or keep it in effect in all
respects other than as to that portion of your release in this Exhibit A that
you have revoked (Age Discrimination in Employment Act and/or Minnesota Human
Rights Act claims). If the Company opts to keep the Agreement in effect in all
respects other than as to that portion of your release in this Exhibit A that
you have revoked, your release of claims contained in the Separation Agreement
and General Release (including your release of claims under the Age
Discrimination in Employment Act and Minnesota Human Rights Act) will not in any
way be affected by your revocation, but rather shall continue in full force and
effect.
YOU AFFIRM THAT YOU HAVE READ THIS EXHIBIT A. YOU ARE HEREBY ADVISED TO CONSULT
WITH AN ATTORNEY PRIOR TO SIGNING THIS EXHIBIT A. YOU AGREE THAT THE PROVISIONS
OF THIS EXHIBIT A ARE UNDERSTANDABLE TO YOU AND THAT YOU HAVE ENTERED INTO THIS
EXHIBIT A FREELY AND VOLUNTARILY.
Dated: June 23, 1998 /s/ Katia P. Breslawec
------------------------------------
Katia P. Breslawec
ii
<PAGE>
EXHIBIT B TO SEPARATION AGREEMENT AND GENERAL RELEASE
-----------------------------------------------------
* Katia Breslawec was employed at Integ Incorporated from April
1996 to August 1998 as Vice President, Quality and Regulatory.
* She served as the chief clinical, regulatory, quality and
safety officer dealing with both internal and external aspects
of the business.
* She developed and implemented the regulatory, quality,
clinical and safety programs at Integ and was the primary
interface with state and federal regulatory agencies.
* She was responsible for all administrative and financial
functions of these departments, including 15 direct reports
and a budget exceeding $3 million.
* Katia voluntarily resigned from the Company.
<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 AND NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 12,736,009
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,849,716
<PP&E> 9,732,176
<DEPRECIATION> 2,441,419
<TOTAL-ASSETS> 20,292,309
<CURRENT-LIABILITIES> 2,542,761
<BONDS> 2,719,513
0
0
<COMMON> 95,263
<OTHER-SE> 14,934,772
<TOTAL-LIABILITY-AND-EQUITY> 20,292,309
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,949,329
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 908,931
<INCOME-PRETAX> (9,040,827)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,040,827)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,040,827)
<EPS-PRIMARY> (.96)
<EPS-DILUTED> (.96)
</TABLE>
<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.
1
<PAGE>
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 September 30, 1998, the Company had
an accumulated deficit of $39.5 million. The Company expects such losses to
continue for the next several years. 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 installed
the initial automated manufacturing line for the LifeGuide Key in the second
quarter of 1998 and is currently producing LifeGuide Keys for development trials
from this line. 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 subsequent commercial production 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 five issued United
States patents relating to its ISF collection technology, and two 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 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.
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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 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
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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. 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.
FUTURE CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE AVAILABLE
The Company believes that 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 in
mid 2000. 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.
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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.
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