-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CMO8s/tNkHviuiGWjIY/7td9+QIJqsR+VHoo4B5waQWwpN+8e7Ulr2uAg3KtUUgu OymwzCq+8e8f4nmMJZBWqQ== 0000950123-00-003006.txt : 20000331 0000950123-00-003006.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950123-00-003006 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: I STAT CORPORATION /DE/ CENTRAL INDEX KEY: 0000882365 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 222542664 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-19841 FILM NUMBER: 586196 BUSINESS ADDRESS: STREET 1: 303A COLLEGE RD EAST CITY: PRINCETON STATE: NJ ZIP: 08540 BUSINESS PHONE: 6092439300 MAIL ADDRESS: STREET 1: 303 COLLEGE ROAD EAST CITY: PRINCETON STATE: NJ ZIP: 08540 10-K405 1 I-STAT CORPORATION 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 2000 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR |_| 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 0-19841 i-STAT Corporation (Exact name of Registrant as specified in its charter) DELAWARE 22-2542664 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 104 Windsor Center Drive, East Windsor, NJ 08520 (Address of principal executive offices) (Zip code) (609) 443-9300 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.15 per share Series A Preferred Stock Purchase Rights 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 such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| Number of shares of Common Stock outstanding as of March 20, 2000: 18,199,795 The aggregate market value of the Registrant's voting stock held by non-affiliates of the Registrant as of March 20, 2000 is approximately $201,682,782. Shares of voting stock held by each executive officer and director and by each person who owns 5% or more of any voting stock have been excluded in that such persons may be deemed affiliates of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes. DOCUMENTS INCORPORATED BY REFERENCE (To The Extent Indicated Herein) Part III incorporates certain information by reference to the Registrant's Proxy Statement for its 2000 Annual Meeting of Stockholders. 2 Table of Contents Item Page Part I 1. Business................................................................1 2. Properties.............................................................10 3. Legal Proceedings......................................................10 4. Submission of Matters to a Vote of Security Holders....................10 Part II 5. Market for the Registrant's Common Equity and Related Stockholder Matters........................................12 6. Selected Consolidated Financial Data...................................13 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..............................................13 7(a). Quantitative and Qualitative Disclosures about Market Risk.............18 8. Financial Statements and Supplementary Data (a) Financial Statements...............................................18 (b) Selected Quarterly Financial Data..................................41 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....................18 Part III 10. Directors and Executive Officers of the Registrant................11, 19 11. Executive Compensation................................................19 12. Security Ownership of Certain Beneficial Owners and Management......................................19 13. Certain Relationships and Related Transactions........................19 Part IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....................................19 3 SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS CERTAIN STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K, UNDER THE SECTIONS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "BUSINESS" AND ELSEWHERE RELATE TO FUTURE EVENTS AND EXPECTATIONS AND AS SUCH CONSTITUTE "FORWARD-LOOKING STATEMENTS," WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS," AND SIMILAR EXPRESSIONS IN THIS REPORT ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS AND TO VARY SIGNIFICANTLY FROM REPORTING PERIOD TO REPORTING PERIOD. SUCH FACTORS INCLUDE, AMONG OTHERS, THOSE LISTED IN "FACTORS THAT MAY AFFECT FUTURE RESULTS" UNDER ITEM 1 BELOW AND OTHER FACTORS DETAILED FROM TIME TO TIME IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. Part 1 Item 1. Business i-STAT Corporation ("i-STAT" or the "Company"), was incorporated in Delaware in 1983, and develops, manufactures and markets medical diagnostic products for blood analysis that provide health care professionals with immediate and accurate critical diagnostic information at the point of patient care. The Company's current products, known as the i-STAT System(R), consist of portable, hand-held analyzers and single-use, disposable cartridges, each of which simultaneously performs different combinations of commonly ordered blood tests in approximately two minutes. The i-STAT System uses a simple, one-step procedure, the results of which can be easily linked by infrared transmission to a health care provider's information system. As of December 31, 1999, i-STAT had one primary customer, Abbott Laboratories ("Abbott") as well as customers in the United States, Japan, Europe, Canada, South America and Asia. The Company intends for the i-STAT System to become the standard of care for blood analysis at the patient's side, enabling rapid clinical intervention, improved patient outcomes, and lower operational costs. The i-STAT System provides accurate and reliable blood test results more quickly and more simply than the most advanced clinical laboratory equipment. Blood analysis performed at the point of patient care with the i-STAT System permits more timely diagnosis and therapeutic intervention and reduces the occurrence of common testing errors. The Company believes these attributes of the i-STAT System result in improved patient care and lower overall health care costs. In addition, the Company believes that the i-STAT System reduces or eliminates the need for expensive capital equipment, specialized labor force, equipment maintenance and space required for traditional testing laboratories. The original i-STAT System, introduced in September 1992, was capable of performing six of the most commonly ordered blood tests, which are tests for sodium, potassium, chloride, glucose, urea nitrogen and hematocrit. In 1994, the Company expanded the testing capabilities of the i-STAT System through the introduction of cartridges which perform tests for pH, ionized calcium and bicarbonate. In 1995, the Company introduced cartridges which measure arterial blood gases (pH, PCO2 and PO2). In 1998, the Company added a creatinine test. In 1999, the Company added a lactate test, and in early 2000, the Company added a Celite(R) ACT (activated clotting time) test. The Company believes that 95% of the approximately 200 million blood tests (electrolyte and blood gas) performed on a "stat" basis in the United States each year now can be performed using the i-STAT System. The Company believes that because the i-STAT System can now perform the vast majority of the tests required on a "stat" basis, it is substantially more attractive as a total replacement for hospital "stat" laboratories. The Company has additional tests under development. By virtue of a strategic technology and marketing alliance concluded in mid-1995 between the Company and Hewlett-Packard Company ("HP"), the i-STAT System was introduced and marketed in Europe by HP in 1996. In addition, i-STAT and HP have jointly developed a blood analysis device (the "Integrated Analyzer"), based on the i-STAT System, for integration into HP's customer installed base of patient monitoring systems. This device was introduced in 1997. In order to accelerate and increase sales of the i-STAT System, in September 1998 the Company entered into a long-term global product marketing and product development alliance with Abbott. During 1999, approximately 79% of the Company's revenues were derived from Abbott. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Long-Term Sales, Marketing and Research Alliance with Abbott Laboratories". 1 4 i-STAT System Components The i-STAT System is composed of two types of analyzers, which are hand-held, portable instruments, and various single-use, disposable cartridges, which contain the electrochemical biosensors necessary to perform the desired blood tests. One of the Company's analyzers is thermostatically controlled and can be used for all cartridges manufactured by the Company and the other can be used for all cartridges manufactured by the Company except the arterial blood gas cartridges. The Company's single-use, disposable cartridges currently allow the i-STAT System to perform blood tests for sodium, potassium, chloride, glucose, creatinine, urea nitrogen, hematocrit, ionized calcium, lactate, Celite(R) ACT, arterial blood gases, (pH, PCO2 and PO2), and bicarbonate and to derive certain other values, such as total carbon dioxide, base excess, anion gap, hemoglobin and O2 saturation, by calculation from the tests performed. The i-STAT System also includes peripheral components that enable the results of tests to be transmitted by infrared means to both a proprietary information system for managing the user's point-of-care testing program and to the user's information systems for billing and archiving. i-STAT believes its proprietary thin-film, biosensor technology provides the Company with significant competitive advantages over other technologies. As a result of the Company's proprietary know-how and the attributes of its thin-film biosensors, the i-STAT System produces accurate results in approximately two minutes in an easy, single step procedure, is small enough to be hand-held and to be carried from patient to patient, operates with only two to three drops of blood and is virtually maintenance free. The Company's thin-film technology uses micro-fabrication techniques which permit dimensionally small product features resulting in faster reactions than larger configurations such as those used in thick-film technology. Thin-film technology permits i-STAT's biosensors to "wet-up" quickly with small amounts of calibrant and blood samples, thereby enabling the Company to package its biosensors in a dry state while retaining the ability to produce results in approximately two minutes. The Company believes that packaging its biosensors in a dry state facilitates extended shelf life and simplifies the calibration process. The Company's disposable cartridges have a shelf life ranging from a minimum of six months to a maximum of twelve months. In addition, the Company's thin-film biosensor technology permits the cartridges in the i-STAT System to be configured to perform multiple tests and combinations of tests. The Company believes products based on other existing technologies cannot achieve performance characteristics or product design features of the type described above. Marketing and Distribution The i-STAT System is currently marketed primarily to the critical care departments of hospitals in the United States, where the highest volume of blood tests are performed on a "stat" basis. The i-STAT System also is marketed to hospitals in Japan, Europe, Canada, South America and Asia. Prior to November 1998, the Company marketed and distributed the i-STAT System in the United States and Canada principally through its own direct sales and marketing organization, in Europe through HP, in Japan through Japanese marketing partners and in South America and Asia through selected distribution channels. Since November 1998, Abbott has become, subject to the existing rights of the Company's other international distributors, the exclusive worldwide distributor of the Company's hand-held blood analyzer products (including cartridges) and any new products the Company may develop for use in the professionally attended human healthcare delivery market. Revenues from Abbott represented approximately 79% of the Company's worldwide revenues for 1999. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Long-Term Sales, Marketing and Research Alliance with Abbott Laboratories." The Company's strategy also has included partnering with large purchasing organizations, including large hospital networks and health maintenance organizations. In November 1997, the Company entered into a sole source three year contract with Premier Inc. for point-of-care blood gas analyzers pursuant to which Premier members may purchase the Company's products at reduced cost in exchange for minimum blood gas commitments. Premier is a group purchasing organization (GPO) of leading hospitals and healthcare systems across the U.S., representing more than 1,800 member hospitals and healthcare facilities. In January 1998, the Company entered into a three year contract with Kaiser Permanente pursuant to which Kaiser Permanente is recommending the Company's products to its facilities nationwide, by designating the Company a "preferred provider". Kaiser Permanente is the largest non-profit health maintenance organization in the U.S. In March 1998, VHA, Inc., renewed its existing contract with the Company for an additional two years. Under that agreement, the Company has been named as the sole contracted provider of point-of-care blood gas analyzers. VHA is a nationwide network of more than 1,900 leading community owned healthcare organizations and their physicians, which comprises over 25% of the nation's community hospitals. The Company has assigned its rights to these contracts to Abbott under the terms of its Distribution Agreement with Abbott. 2 5 In July 1995, the Company entered into license and distribution agreements with HP. The Company's distribution agreement with HP was terminated in November 1999. The Company's license agreement with HP, since assigned to Agilent Technologies, Inc. ("Agilent"), a subsidiary of HP, provides for the grant by the Company to HP of a perpetual, world wide license under certain of the Company's intellectual property to develop and distribute the Integrated Analyzer to professionally attended human healthcare institutions. The license does not include the right to make, use or sell the Company's cartridges and provides for the payment of royalties to the Company. If the Company grants to any third party a license to make and distribute Integrated Analyzers on royalty terms more favorable to the third party than under the HP license agreement, then HP's royalty obligations generally will be adjusted to such third party's rates. The license agreement is scheduled to expire generally at the time of expiration of the Company's last-to-expire patent covering the licensed technology. In August of 1997, the Company signed an agreement with HP to supply electromechanical components to HP for use in the HP Integrated Analyzer. This electromechanical mechanism is substantially equivalent to the mechanism used in the Company's portable hand-held analyzer. The agreement is subject to yearly extensions. Revenues from HP represented approximately 5.3% of the Company's worldwide revenues for 1999. In August 1988, the Company entered into product commercialization and distribution agreements with JCR Pharmaceuticals Inc. and FUSO Inc., two Japanese pharmaceutical and medical device companies. Pursuant to such agreements, i-STAT granted product distribution rights covering Japan, South Korea and Taiwan for an initial exclusive period which expired, and a non-exclusive period from December 1997 to December 2002 which covers only Japan. The Company understands that JCR has assigned to FUSO all distribution rights under these agreements. Sales to FUSO represented approximately 8.6% of the Company's worldwide revenues for 1999. The Company also markets its products to veterinarians' offices in the United States and selected other countries through a three year distribution agreement with Heska Corporation ("Heska"), signed in February 1999. Sales to Heska represented approximately 4% of the Company's worldwide revenues for 1999. See "Government Regulation" for a description of the regulatory framework impacting the marketing of the Company's products in certain geographical areas and alternate site markets. Competition The Company competes principally with manufacturers of traditional blood analysis equipment used by clinical laboratories. Historically, most clinical testing has been performed in the hospital or commercial laboratory setting. These clinical laboratories provide analyses similar to those conducted by the i-STAT System and have traditionally been effective at processing large panels of tests with the use of skilled technicians and complex equipment. While i-STAT cannot provide the same range of tests, the Company believes that its products offer several advantages over clinical laboratories, including lower costs, faster results and reduced opportunity for error. In addition, the i-STAT System's testing capabilities currently are sufficiently broad to enable larger health care facilities to close "stat" laboratories and replace them wholly with the i-STAT System. Other companies may introduce products performing the same or similar functions as the i-STAT System. In such case, the Company may not be able to compete effectively with these products, or these products may render the Company's products obsolete. The Company is aware of products that have been developed and are being marketed for point-of-care analysis of some or all of the analytes measured by the i-STAT System. The Company believes that these products are more difficult to use, less efficient and test for fewer analytes than the i-STAT System, and otherwise do not offer the same features and benefits. To the extent that the i-STAT System achieves penetration into non-hospital markets such as veterinarians' offices, doctors' offices, nursing homes and outpatient clinics, it may face competition from commercial laboratories and from established pharmaceutical and medical device companies which have developed multitest blood analyzers specifically for use in these markets. The Company believes that its products are capable of competing favorably with these other products on the basis of ease-of-use, speed, the ability to conduct tests without a skilled technician, variety of test menu, cost-effectiveness and accuracy of results. Manufacturing The Company's products are manufactured by the Company with various components being supplied by outside vendors. The Company manufactures its biosensors in order to protect the proprietary nature of the Company's products and to control the development and enhancement of its proprietary technology. Other cartridge components are manufactured to the Company's specifications by outside vendors. Final assembly, quality testing and inspection of cartridges are performed by 3 6 the Company. All components of the analyzers as well as peripheral components, such as the infrared data communication link, are either custom fabricated by outside suppliers or purchased by the Company from outside sources. Software for the analyzers and peripheral systems is engineered and maintained by the Company. All major assembly, software download and final quality testing and inspection are performed by the Company. Most product manufacturing and cartridge assembly by the Company is conducted in two adjoining facilities totaling 80,012 square feet located in Kanata, Ontario, Canada. These leased facilities include 13,525 square feet of Class 1,000 and 10,000 cleanrooms. In addition, the Company assembles analyzers at its principal offices in East Windsor, New Jersey. In mid-1998, the Company commenced the transfer of its New Jersey cartridge assembly and inspection operations to the Kanata facility and completed that transfer in April 1999. See "Properties" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". The Company believes that its manufacturing capacity is sufficient to meet its immediately foreseeable production requirements. The Company is currently manufacturing its cartridges at a rate of over 10,000,000 cartridges per year, utilizing three cartridge assembly lines. The Company has the capacity to manufacture over 30,000,000 cartridges at full factory utilization using the current generation of its biosensor chips and taking into account planned yield and productivity improvements and the addition of three cartridge assembly lines within the existing facilities. The Company maintains a comprehensive quality assurance and quality control program, which includes complete documentation of all material specifications, operating procedures, maintenance and equipment calibration procedures, training programs and quality control test methods. To control the quality of its finished products, the Company utilizes statistical process control systems during the manufacturing process and comprehensive performance testing of finished goods. The Company believes that it operates in accordance with all applicable regulations including the Food and Drug Administration (the "FDA") Good Manufacturing Practices. The Company has received ISO 9001 and EN 46001 certification of its Quality Assurance System. ISO 9001 comprises a set of standards covering the quality of design, development, production, installation, and servicing of products and systems. EN 46001 is the European quality standard for the manufacture of medical devices. Compliance with these standards is increasingly required by European buyers of manufactured products. The majority of the raw materials and purchased components used to manufacture the Company's products are readily available from more than one source. The Company is also developing alternative sources for some of the raw materials it presently obtains from a single source. Some of the components of the i-STAT System are custom manufactured by a limited number of outside vendors. Research and Development From commencement of the Company's operations in 1984 until 1992, most of its financial resources were dedicated to the development of the core technology that has resulted in the i-STAT System. The Company continues to engage in research and development in order to improve its existing products and develop new products based on the i-STAT System technology. In the fourth quarter of 1999, the Company commenced shipments of its new lactate test incorporated into a cartridge that also tests for blood gases. In early 2000, the Company received FDA clearance to market its first coagulation test, the Celite(R) ACT (activated clotting time) and commenced shipments in March 2000. The Company is pursuing the development of three other coagulation tests, kaolin ACT, prothrombin time ("PT") and activated partial thromboplastin time ("aPTT"). The Company is working jointly with Abbott to study the development of cartridges that will incorporate cardiac marker tests. The Company is currently developing a cartridge to combine its glucose test onto its combination blood gas/electrolyte cartridge and developing an expanded measurement range for its glucose measurements. The Company is developing a new analyzer that will combine the current measurement capabilities of the i-STAT System with the measurement capabilities of an Abbott point of patient care glucose testing system and incorporate additional advanced features. It is also developing an associated suite of peripheral equipment and data management tools. In connection with their strategic alliance, the Company and Abbott entered into a Research Agreement pursuant to which certain of the Company's research and development may be funded by Abbott. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Long-Term Sales, Marketing and Research Alliance with Abbott Laboratories". See also "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of research and development costs during 1997, 1998 and 1999. Patents and Proprietary Rights i-STAT pursues a policy of seeking patent protection, both in the United States and abroad, for each of the areas of invention embodied in the i-STAT System. The Company holds 30 United States utility patents related to the i-STAT System, the earliest of which was issued on September 5, 1989, which on average have over 12 years remaining on their patent terms, and two United States design patents related to the i-STAT System. These patents relate to the unique functional features and fabrication 4 7 of the electrode technology contained in the i-STAT cartridges, operation of the cartridges, the technologies used in the i-STAT analyzers, in-house quality control instrumentation and matters related to other potential uses of the i-STAT System. The Company has five pending United States utility patent applications. The Company has received patents in Japan, Europe, Canada and Taiwan corresponding to certain of the patents issued in the United States and has filed or plans to file for patent protection in certain countries which represent a significant segment of the intended market for its products. There can be no assurance that additional patents for i-STAT's products will be obtained, or that issued patents will provide substantial protection or be of commercial benefit to i-STAT. In addition to its patent protection, i-STAT also relies upon trade secrets, know-how and continuing technological innovation. The Company maintains a policy requiring all employees and consultants to sign confidentiality agreements under which they agree not to use or disclose i-STAT's confidential information as long as that information remains proprietary or, in some cases, for fixed time periods. There can be no assurance, however, that such proprietary technology will not be independently developed or that secrecy will not be breached. Under Company policy, all technical employees are required to agree to assign to the Company all rights to any inventions made during their employment or relating to the Company's activities and not to engage in activities similar to the Company's for any other person or entity during the term of their employment or for at least six months thereafter. Government Regulation The i-STAT System comprises several In Vitro Diagnostic (IVD) medical devices subject to the provisions of the Food, Drug and Cosmetic Act (the "FDC Act") and implementing regulations. The 1976 Medical Device Amendments and the Safe Medical Device Amendments of 1990 to the FDC Act provide comprehensive regulation of all stages of development, manufacture, distribution and promotion of medical devices. There are two regulatory routes by which to bring a medical diagnostic device to market: the Pre-market Approval Application ("PMA") and the Pre-market Notification ("510(k) Notification"). The PMA requires a comprehensive review of specified pre-clinical and clinical data, prior to an FDA finding that a device is safe and effective for its designated indicated use. The 510(k) Notification permits marketing upon a demonstration to the FDA's satisfaction that a device is substantially equivalent to a device already in commercial distribution. The clearance process can require extended periods of testing, both prior to and after submissions are made. Review of submissions can take protracted periods of time and involve significant resource expenditure. There is no certainty that the FDA will clear any given device for marketing. All of the Company's current IVD devices have received clearance to market for use by health care professionals pursuant to 510(k) Notifications. Any change or modification of an analyzer or a cartridge that could significantly affect the safety or efficacy of the device would require the filing of a new 510(k) Notification, and the Company would not be able to market the i-STAT System as modified until FDA clearance is received. The FDA may not concur in any such modification, and any such concurrence may be subject to delay and require significant resources to provide the FDA with needed data. FDA regulations classify medical devices into three classes that determine the degree of regulatory control to which the manufacturer of the device is subject. The FDA classified the i-STAT System (as currently configured) in Class II, meaning that the device may at some time in the future also have to comply with mandatory performance standards or other "special controls" if it is to remain in commercial distribution. The Company cannot predict whether such additional standards or controls will ever be enacted, nor what impact the enactment of such standards or controls might have on its ability to produce and sell its products. Such standards or controls may relate to any aspect of product performance which must be controlled to minimize any risk associated with use of the device. All devices, including those manufactured in Canada, must be manufactured in accordance with Good Manufacturing Practices specified in implementing regulations under the FDC Act. These practices control every phase of production from the design control and incoming receipt of raw materials, components and subassemblies to the labeling, tracing of consignees after distribution and follow-up and reporting of complaint information. The FDA has the authority to conduct unannounced inspections of all facilities where devices are manufactured or assembled, and, if the investigator observes conditions which might be violations, those conditions must be corrected or satisfactorily explained, or the manufacturer could face regulatory action that might include physical removal of the product from the marketplace. The Company's New Jersey facilities have been inspected on four occasions by the FDA and currently there are no observed conditions which might result in violations. The FDA also regulates labeling and advertising for devices restricted to use by health care professionals, such as the i-STAT System. 5 8 Recently, the FDA has pursued a more rigorous enforcement program to ensure that regulated firms, such as the Company, comply with the provisions of the FDC Act. A firm not in compliance may face a variety of regulatory actions, ranging from warning letters, product detention, device alerts and mandatory recalls or field corrections, to seizures, injunction actions, civil penalties and criminal prosecutions of the firm or responsible individuals, employees, officers or directors. The commencement of any action against the Company of the type described above could seriously impact the Company's ability to conduct business. The Company's products are also affected by the Clinical Laboratory Improvement Act of 1988 ("CLIA"). This law is intended to assure the quality and reliability of all medical testing in the United States regardless of where tests are performed. The regulations require laboratories performing blood chemistry tests to meet specified standards in the areas of personnel qualification, administration, participation in proficiency testing, patient test management, quality control, quality assurance and inspections. The regulations have established three levels of regulatory control based on test complexity--"waived," "moderate complexity" and "high complexity." The Company's products have been designated as "moderate complexity." Subsequent categorization of the Company's products as "high complexity" tests could hinder the Company's ability to market its products. Expansion into alternate site markets, particularly doctors' offices, may be limited by the regulatory burden imposed by the classification of the i-STAT System as a moderately complex test under CLIA. There can be no assurance that CLIA regulations or future administrative interpretations of CLIA will not have an adverse impact on the Company. The Company and its products are also subject to a variety of state laws and regulations in those states where its products are marketed, sold or used. Certain states currently restrict or control, to varying degrees, the use of medical devices such as the i-STAT System outside the clinical laboratory by persons other than doctors or technologists. These restrictions have hindered the marketing of the Company's products in these locations. The Company is seeking interpretations, rulings or changes in relevant laws and regulations that will remove or ameliorate these restrictions. Although the Company has been successful in gaining favorable rulings and changes in certain relevant laws and regulations, there can be no assurance that the Company will be successful in its efforts to remove or ameliorate all these legal restrictions. The i-STAT System is currently distributed outside the United States in Japan, Europe, Canada, South America and Asia and the Company expects the i-STAT System to be distributed in other foreign countries under the terms of the Distribution Agreement with Abbott. The i-STAT System is and will be subject to a wide variety of laws and regulations in these markets, ranging from simple product registration in certain countries to complex clearance and production controls in others. Speaking generally, the extent and complexity of regulation of medical devices is increasing worldwide, with regulation in some countries already as comprehensive as that in the United States. The Company anticipates that this trend will continue and that the cost and time required to obtain approval to market in any given country will increase, with no assurance that such approval will be given. Because some of the Company's production facilities currently are located in Canada, sales of the Company's products in the United States are subject to U.S. laws regulating international trade practices. The Company does not believe that these laws will materially and adversely affect its marketing strategy or operations generally, although such laws are subject to change and the Company cannot accurately predict the impact on the Company of any future changes. Federal, state and foreign regulations regarding the sale of medical devices are subject to change. The Company cannot predict what impact, if any, such changes may have on its business. Reimbursement Third party payors can indirectly affect the pricing or the relative attractiveness of the Company's products by regulating the maximum amount of reimbursement provided for blood testing services. If the reimbursement amounts for blood testing services are decreased in the future, it may decrease the amount which physicians and hospitals are able to charge patients for such services and consequently the price the Company can charge for its products. Employees As of December 31, 1999, the Company employed 557 persons on a full-time basis. None of i-STAT's employees are covered by a collective bargaining agreement. i-STAT believes that its relationship with its employees is good and that its success is dependent on, among other things, achieving and retaining scientific and technological superiority and being capably managed. 6 9 Insurance The Company maintains a product liability insurance policy in the amount of $1 million, and an excess liability insurance policy in the amount of $20 million, which are the maximum payouts for all claims that could be made during a calendar year. If the Company does not or cannot maintain its existing or comparable product liability insurance, its ability to market its products may be significantly impaired. The amount and scope of any insurance coverage upon which the Company relies may not be adequate to protect the Company in the event a successful product liability claim is made upon the Company. No product liability insurance claim has ever been made against the Company. The Company also maintains general liability and business interruption liability insurance policies. The Company's Kanata, Ottawa, wafer fabrication facility is the only source of its proprietary thin film, biosensor chips, and, consequently, any damage to the facility as a result of fire or other causes could materially and adversely impact the Company. The amount and scope of any insurance coverage may not be adequate to protect the Company in the event of any such loss. Backlog Customers generally place orders on an as needed basis and the Company ships against those orders. Consequently, backlog is not a material factor in the Company's operations. Seasonality The Company's operating results may fluctuate from quarter to quarter due to many factors. Sales may be slower in the traditional vacation months, may be accelerated in the fourth calendar quarter by customers whose annual budgets are about to expire (especially affecting analyzer purchases), may be distorted by unusually large analyzer shipments from time to time, or may be affected by the timing of customer cartridge ordering patterns. (For example, a customer might order two quarterly cartridge shipments in one quarter, perhaps at the beginning and the end of the quarter, and none in the next quarter.) Geographic Segment Data Information regarding geographic segment data is provided in Note 18 to Notes to Consolidated Financial Statements. Factors That May Affect Future Results We Are Not Profitable; We Must Increase Sales Of Our Products To Be Profitable. We were formed in 1983, and we have not yet made a profit. We cannot guarantee that we will ever be profitable. Furthermore, we may incur additional losses. We cannot assure investors that we will be able to market our products at prices and in quantities that will generate a profit. We cannot assure investors that we can avoid potential delays and expenses in developing new products, problems with production and marketing or other unexpected difficulties. Additionally, because Abbott now exclusively distributes most of our products, our revenues will be significantly affected by the sales made through Abbott. Our future profitability will depend on Abbott's success in selling our products. Our Success Depends On Greater Commercial Acceptance; We Are Not Able To Predict Future Commercial Acceptance. Our future depends on the success of the i-STAT System, which depends primarily on hospitals accepting it as a reliable, accurate and cost-effective replacement for traditional blood measurement methods. We cannot predict how quickly the market will accept the i-STAT System. The i-STAT System is known as a "point-of-care" blood testing device, which is a relatively new way to analyze blood. Currently, central and "stat" laboratories within hospitals or independent commercial laboratories perform critical or "stat" blood testing. Although the market is increasingly accepting point-of-care blood testing, most acute care hospitals already use expensive blood testing instruments in their central and "stat" laboratories and many are reluctant to change their current procedures for performing blood analysis. In addition, the i-STAT System currently does not measure a large enough number or range of analytes for some hospitals to consider broadly adopting it. Although we continue to develop additional tests to respond to hospitals' needs, we cannot guarantee that we will be able to develop enough additional tests quickly enough or in a way that is cost-effective or at all. We Rely On Abbott Laboratories For The Marketing And Sales Of Our Products. In September 1998, the Company and Abbott signed agreements which provide for a long-term sales, marketing and research alliance. We signed a product distribution agreement with Abbott, under which Abbott became the exclusive distributor of the i-STAT System in most parts of the world and any new products we develop for use in the professionally attended human healthcare market. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Long Term Sales, Marketing and 7 10 Research Alliance with Abbott Laboratories." As a result of this alliance, we have reduced the expenses that were dedicated to our marketing and sales efforts. We expect to face significant marketing challenges in the future and we cannot assure investors that Abbott will be able to market our products effectively. If Abbott is unsuccessful in marketing the i-STAT System or our agreements with Abbott are terminated, we will have to hire and train marketing and sales personnel and/or enter into new product distribution agreements with another party. We cannot guarantee that we would be able to enter into new product distribution agreements or find a company that could provide a level of distribution or competent marketing and sales personnel equivalent to Abbott's, or that we could accomplish this in a short period of time. Moreover, our agreement with Abbott gives Abbott sole discretion to set the prices for our products, which can have a big effect on our revenues, margins and profits. Our Manufacturing Is Subject To Certain Risks. We may face unexpected technical problems in trying to transfer product ideas from the development stage to the manufacturing stage. These technical problems could delay our plans for new product releases. In addition, our manufacturing operations use highly technical processes involving unique, proprietary biosensor microfabrication techniques which our manufacturing personnel must continuously monitor and update, especially as we develop more products. Also, we may not be able to predict or satisfy changing customer demands for certain products and it could take longer than expected for us to change the manufacturing processes to respond to these demands. As a result, we may not have sufficient inventory to meet customer demands or we may have too much product inventory at times, which could affect our relationships with customers and negatively affect our working capital. In order to be profitable, we must manufacture greater quantities of products than we have to date and we must do this more efficiently than we have. We cannot assure investors that we will be able to produce our products at commercially reasonable costs. Some of the components of the i-STAT System are custom-made by only a few outside vendors. We may not be able to meet the demand for our products if one or more of these vendors could not supply us with the needed components or components which meet our specifications. We have experienced manufacturing problems because of vendor component issues as recently as the first quarter of 2000. Our Kanata, Ontario facility is the only cartridge manufacturing facility. If this facility were damaged or closed due to fire or other causes, it would negatively impact our business. We May Need Additional Funding In The Future And These Funds May Not Be Available To Us. We expect our existing funds to be sufficient to meet our obligations and our liquidity and capital requirements for the near term. However, numerous factors may change this expectation. We may need to spend more on new product development or to increase manufacturing capacity to respond to competitive conditions in the marketplace. We have no commitments for any additional financing and we cannot assure investors that any such commitment could be obtained on favorable terms, if at all. Any additional equity financing may cause dilution of our current stockholders, and any debt financing may require restrictions on our right to declare dividends or on other aspects of our business. We May Not Be Successful in Defending Our Proprietary Rights. Our commercial success depends partly upon our trade secrets, know-how, trademarks, patents and other proprietary rights. We actively seek patent protection for our proprietary technology in the United States and internationally, but we cannot assure investors that third parties will not challenge our patents or that they will not be invalidated or designed around or that they will provide a commercially significant level of protection. We cannot assure investors that any pending patent applications or applications filed in the future will result in a patent being issued to us. Furthermore, once issued, a patent is not always valid or enforceable, and a patent holder may still infringe the patent rights of others. If our key patents are invalidated or expire, this could lead to increased competition and would adversely affect our business. In addition, we may be found to have infringed the proprietary rights of others or may be required to respond to patent infringement claims and may have to litigate to determine the priority of inventions. We are in the middle of such litigation at this time. Litigation may be necessary to enforce our patents, trade secrets or know-how, or to determine the enforceability, scope and validity of the proprietary rights of others. It would be a substantial expense to our business and a diversion of our personnel's time and effort to defend and prosecute intellectual property suits and related legal and administrative proceedings. A determination against us could be very costly and/or require us to seek licenses from third parties which may not be available on commercially reasonable terms, if at all. Furthermore, we cannot assure investors that we will be able to maintain the confidentiality of our trade secrets or know-how or that others may not develop or acquire trade secrets or know-how that are similar to ours. We Compete Against Larger, Stronger Entities That Sell More Established Blood Analysis Products. Our success depends on our ability to establish and maintain a competitive position in the blood analysis market. We expect that manufacturers of conventional blood analysis products used in clinical laboratories will compete intensely to maintain their markets and revenues. Some of these manufacturers currently offer products which many perceive to be less expensive to operate and which include a broader range of tests than the products we offer and expect to offer. We cannot assure investors that competitive pressures will not result in price reductions of our products, which could adversely affect our profitability. In addition, health care providers may choose to maintain their current method of blood testing. We also face competition from manufacturers of other blood analyzers intended for point-of-care use. Many of our competitors have substantially 8 11 greater capital resources, research and development staffs and facilities than ours. Our products may become obsolete or non-competitive if rapid technological changes or developments occur. We may need to make substantial investments in and commit significant resources to product improvement and development in order to stay competitive and successfully introduce new products. We cannot assure investors that we will have the resources necessary to make such investments. If we do have the required resources, we cannot assure investors that we will be able to respond adequately to technological or market changes. We Depend On Key Members Of Our Staff And Must Retain And Recruit Qualified Individuals If We Are To Be Competitive. Our success depends on our ability to attract and retain certain scientific, technical, regulatory and managerial personnel. If we lose key personnel, it could have a materially adverse effect on our business. Competition for qualified personnel is intense and we cannot assure investors that we will be successful in recruiting or retaining such personnel in the future. Risks Associated With Our International Business. In recent years, we have experienced substantial sales growth in international markets and expect to continue to expand our product distribution internationally. We may face difficulties and risks in our international business, including changing economic or political conditions, export restrictions, currency risks, export controls relating to technology, compliance with existing and changing regulatory requirements, tariffs and other trade barriers, longer payment cycles, problems in collecting accounts receivable, reimbursement levels, and potentially adverse tax consequences. In addition, it may be difficult for us to enforce and collect receivables through a foreign country's legal system and to protect our intellectual property in foreign countries. International sales are invoiced and settled in U.S. dollars. However, the cartridge transfer price received from international partners, including Abbott, may be affected by changes in the value of the U.S. dollar relative to local currencies. This is because the international cartridge transfer price is set based on the price paid by customers in local currencies. When the values of foreign currencies change with respect to the U.S. dollar, the transfer price changes due to the foreign exchange conversion of local currency prices. Transfer price reductions are limited, however, by guaranteed minimum transfer prices established for each cartridge. We cannot assure investors that one or more of these factors will not have a material and adverse effect on our international business opportunities. Antitakeover Provisions. Our Certificate of Incorporation and Bylaws, Stockholder Rights Plan, and our agreements with Abbott contain provisions which may have the effect of delaying, deferring or preventing a change in control of the Company without further action by our stockholders. In addition, certain of these provisions may discourage bids for the Common Stock, may adversely affect the market price of the Common Stock, and may affect the voting and other rights of holders of Common Stock and may discourage takeover attempts not first approved by the Board of Directors (including takeovers which certain stockholders may deem to be in their best interests). We will be subject to Section 203 of the Delaware General Corporate Law which generally imposes restrictions upon certain acquirers and their affiliates and associates of 15% or more of our Common Stock. Management and Significant Shareholders Can Exercise Influence Over the Company. As of March 20, 2000, directors, executive officers and principal shareholders of the Company, including Abbott, beneficially owned approximately 38% of our outstanding voting securities. As a result, these shareholders, individually and/or acting together may be able to influence the outcome of shareholder votes. Examples of shareholder votes include those for the election of directors, changes in our Certificate of Incorporation and Bylaws and approving certain mergers or other similar transactions, such as a sale or all or substantially all of our assets. In addition, if we receive an offer for our voting securities or assets, we must provide Abbott notice of this offer. Furthermore, our exclusive distribution arrangement with Abbott and our licensing arrangement with HP could discourage a third party from making any such offer. The Company's Stock Price Is Volatile And Investing In Our Common Stock Involves A High Degree Of Risk. The market price of our Common Stock has fluctuated significantly and as a result, it has been described as "volatile." Future announcements concerning the Company or its competitors, including operating results, technological innovations or new commercial products, government regulations, developments concerning proprietary rights, or litigation could have a significant impact on the market price of our Common Stock. In addition, Abbott has the right to request under the Securities Act of 1933, as amended, that we register the 2,000,000 shares of Common Stock it beneficially owns for public sale. If we registered these shares, they would become freely tradeable, although subject to certain restrictions and certain rights of first refusal. In addition, Abbott's 2,000,000 shares may be freely tradeable without registration, although subject to certain volume and other limitations of Rule 144 under the Securities Act of 1933, as amended, and certain other restrictions and rights of first refusal. Sales of these shares, either upon their registration or under Rule 144, could also significantly impact the market price of our Common Stock. Furthermore, the stock market has from time to time experienced extreme price and volume fluctuations, which may adversely affect the market price of our Common Stock. Some of these fluctuations have particularly affected high technology companies and they have often been unrelated to the operating performance of such companies. In addition, general economic, political and market conditions may also adversely affect the market price of our Common Stock. We cannot assure investors that the trading price of our Common Stock will remain at or near its current level. 9 12 Item 2. Properties The Company's principal manufacturing facilities are located in Kanata, Ontario, Canada, where it leases a 53,537 square foot building for a term expiring in February 2004. The Company also leases 26,475 square feet in an adjoining building for a term expiring in February 2004, subject to, at the Company's option, renewal for one five-year term. The Company also leases executive offices in East Windsor, New Jersey, where it occupies a 37,474 square-foot facility. The East Windsor lease expires in September 2003, subject to, at the Company's option, renewal for one five-year term. Item 3. Legal Proceedings The Company is a defendant in a case entitled Nova Biomedical Corporation, Plaintiff v. i-STAT Corporation, Defendant. The Complaint, which was filed in the United States District Court for the District of Massachusetts on June 27,1995, alleges infringement by i-STAT of Nova's U.S. Patent No. 4,686,479. In February 1998, the Court entered summary judgment in favor of the Company on the issue of patent infringement. The plaintiff appealed the dismissal to the Federal Circuit which affirmed two of the grounds of the dismissal (proper interpretation of the patent and the fact that the Company does not literally infringe), but remanded the case back to the District Court with instructions to reconsider whether the Company's device is the equivalent of the patented device and therefore infringes under the "doctrine of equivalents." The Company has submitted to the Court a motion for summary judgment in its favor on the "doctrine of equivalents," and oral argument on this motion has been set for late Spring 2000. Should the plaintiff prevail on this issue, it could have a material and adverse impact on the financial position, results of operations and cash flows of the Company. The Company is a defendant in a class action complaint entitled Susan Kaufman, on behalf of herself and all others similarly situated, Plaintiff, v. i-STAT Corporation, William P. Moffitt, Lionel M. Sterling, Imants R. Lauks and Matthias Plum, Jr. The class action was brought by Susan Kaufman on her behalf and on behalf of all purchasers of the Company's Common Stock between May 9, 1995 and March 19, 1996. The complaint, which was filed in the Superior Court of New Jersey in Mercer County on June 19, 1996, alleges New Jersey common law fraud and negligent misrepresentation, and is predicated on a "fraud on the market" theory in connection with certain sales of i-STAT stock by the Company's chief executive officer, chief technology officer and two outside directors during a nine-month period. The plaintiffs seek unspecified compensatory damages, interest and payment of all costs and expenses incurred in connection with the class action. The Company believes the complaint is without merit and, on April 28, 1998, the Court entered summary judgment in favor of all the defendants. The plaintiffs have appealed and on August 10,1999, the Appellate Division of the Superior Court filed an opinion sustaining the trial court's determination as to the negligent misrepresentation claims but reversing as to the common law fraud claims. The Company appealed the reversal and the New Jersey Supreme Court has granted a hearing certification of the appeal, but no date has yet been set for such hearing. Should the plaintiff prevail on this issue, it could have a material and adverse impact on the financial position, results of operations and cash flows of the Company. The Company is a defendant in a case entitled Customedix Corporation, Plaintiff v. i-STAT Corporation, Defendant. The complaint, which was filed in the United States District Court for the District of Connecticut on December 26, 1996, alleges infringement by i-STAT of Customedix's U.S. Patent No. 4,342,964. The plaintiff seeks injunctive relief and an accounting for i-STAT's profits and the damages to Customedix from such alleged infringement. The Company intends to contest the case vigorously and does not believe that it has infringed the Customedix patent. The Company has obtained an opinion from recognized patent counsel to the effect that no infringement has occurred. The Court has interpreted the Customedix patent in a way favorable to the Company and has denied Customedix's motion for reconsideration of that interpretation. The plaintiff has admitted that the Company does not literally infringe and is only pursuing infringement under the doctrine of equivalents. In February 2000, the Court denied the Company's motion for summary judgment on the basis that there remained certain factual issues to be decided, and the Company is awaiting the Court's decision on its motion to reconsider that denial. If the plaintiff should prevail in this matter, it could have a material and adverse impact on the financial position, results of operation and cash flows of the Company. Item 4. Submission of Matters to Vote of Security Holders Not applicable. 10 13 EXECUTIVE OFFICERS The executive officers of the Company and their respective ages and positions with the Company are as follows: William P. Moffitt Age 53. Mr. Moffitt is the President and Chief Executive Officer of the Company. He has held various offices since he joined the Company as Executive Vice President in July 1989. He has served as Chief Executive Officer of the Company since February 1993, as President since November 1991 and as a director since May 1990. From 1985 to 1989, Mr. Moffitt was President of the Physician Diagnostics Division of Baxter Healthcare Corp., a diversified health care company. Mr. Moffitt holds a B.S. from Duke University. Noah J. Kroloff Age 37. Mr. Kroloff is the Vice President of International Sales and Marketing and Corporate Development. He joined the Company in May 1994. From September 1990 to May 1994, he was a manager at McKinsey & Company, a leading management consulting firm, where he specialized in international alliances among medical products companies. Prior to joining McKinsey, he served in consulting and business development roles for several biotechnology companies and for Merck & Co., Inc. Mr. Kroloff holds an M.B.A. in finance and marketing from the MIT Sloan School of Management and a B.A. in general science from Brandeis University. Roger J. Mason Age 51. Mr. Mason has served as Vice President of Finance, Treasurer and Chief Financial Officer since he joined the Company in July 1996. From October 1994 to June 1996, he was Vice President, Finance and Treasurer, and Chief Financial Officer at Concurrent Computer Corporation, a publicly held, leading worldwide supplier of networked and distributed, high performance, real time, fault-tolerant computing systems. From April 1991 to October 1994, Mr. Mason served as Chief Financial Officer and Treasurer at Integral Peripherals Inc., a disk drive manufacturer. From 1981 to 1991, he held senior executive positions at Maxtor Corporation, a publicly held disk drive manufacturer, MiniScribe Corporation, a publicly held disk drive manufacturer whose assets were acquired by Maxtor Corporation, and Ironstone Group, Inc., a publicly held holding company. His experience also includes public accounting with Coopers & Lybrand and Honey, Perriam & Company. He is a fellow of the Institute of Chartered Accountants in England and Wales. Michael P. Zelin Age 39. Mr. Zelin has served as Senior Vice President, Research and Development, since February 1999. From March 1992 to January 1999, he was Vice President of Systems Development. Since joining the Company in February 1986 he has held various technical positions including Manager and Director of Systems Engineering, and has contributed to nine of the Company's U.S. patents or patents pending. Executive officers of the Company are elected by the Board of Directors of the Company. 11 14 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters Market Information The Company's Common Stock is traded on the NASDAQ National Market System under the symbol "STAT". The following table sets forth for the periods indicated the range of high and low prices for the Company's Common Stock as reported on NASDAQ.
1999 High Low - -------------------------------------------------------------------------------- First Quarter.................................... $ 12.25 $ 7.25 Second Quarter................................... $ 11.25 $ 8.13 Third Quarter.................................... $ 13.13 $ 7.69 Fourth Quarter................................... $ 16.63 $ 11.31 1998 High Low - -------------------------------------------------------------------------------- First Quarter.................................... $ 21.00 $ 12.80 Second Quarter................................... $ 14.75 $ 6.63 Third Quarter.................................... $ 14.00 $ 6.38 Fourth Quarter................................... $ 9.75 $ 5.38
Holders There were approximately 459 registered holders of the Company's Common Stock of record as of March 20, 2000. Rights On June 29, 1995, the Company declared a dividend distribution of rights (each, a "Right") to purchase a certain number of units at a price of $104.00, subject to adjustment. The Rights are deemed to attach to and trade together with the Common Stock. Each unit is equal to one one-hundredth of a share of Series A Junior Participating Preferred Stock of the Company. Rights are distributed in connection with issuances of shares of Common Stock and Series B Stock. The Rights are not exercisable until the occurrence of certain events enumerated in the Stockholder Protection Agreement between the Company and First Union National Bank, the Company's rights agent. Until a Right is exercised, no holder of Rights will have rights as a stockholder of the Company (other than rights resulting from such holder's ownership of Common Stock or Series B Stock), including, without limitation, the right to vote or to receive dividends. A description of the Rights is hereby incorporated by reference from the Company's Current Report on Form 8-K dated July 10, 1995, as amended. Dividends Except for the Rights, the Company has not declared or paid dividends on its Common Stock to date and intends to retain future earnings, if any, for use in its business for the foreseeable future. 15 Item 6. Selected Consolidated Financial Data The selected consolidated financial data set forth below has been derived from the audited financial statements of the Company. The consolidated financial statements of the Company as of December 31, 1999 and 1998 and for each of the years in the three-year period ended December 31, 1999, together with the notes thereto and the related report of PricewaterhouseCoopers LLP, independent accountants, are included elsewhere in this Report. The selected consolidated financial data set forth below should be read in conjunction with the consolidated financial statements, related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Report.
In thousands of dollars, except share and per share data Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 Statement of Operations Data: Net revenues ............................. $ 45,225 $ 39,101 $ 37,840 $ 30,330 $ 20,102 Cost of sales ............................ 36,401 30,664 30,962 26,291 22,013 Operating expenses: Research and development ................. 7,506 7,281 6,721 5,780 5,664 General and administrative ............... 7,264 7,152 5,761 5,778 4,937 Sales and marketing ...................... 8,293 12,956 13,020 11,991 11,506 Consolidation of operations .............. 70 1,115 -- -- -- Other income, net ........................ 1,507 1,672 1,651 2,054 1,010 Net loss ................................. (12,802) (18,395) (16,973) (17,456) (23,008) Basic and diluted net loss per share ..... ($0.73) ($1.15) ($1.17) ($1.31) ($1.90) Shares used in computing basic and diluted net loss per share ....................... 17,614,595 16,050,877 14,497,530 13,321,603 12,122,089 In thousands of dollars As of December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 Balance Sheet Data: Cash, cash equivalents and short-term investments ............... $ 25,575 $ 38,390 $ 32,914 $ 28,417 $ 49,519 Working capital .......................... 31,958 44,605 38,697 33,056 55,426 Total assets ............................. 58,124 68,906 59,170 55,365 74,050 Accumulated deficit ...................... (189,470) (176,668) (158,273) (141,300) (123,844) Total stockholders' equity ............... $ 44,663 $ 54,660 $ 53,045 $ 46,834 $ 63,594
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Background and Overview The Company was incorporated in Delaware in 1983 and develops, manufactures and markets medical diagnostic products for blood analysis that provide health care professionals with immediate and accurate critical, diagnostic information at the point of patient care. The Company's current products, known as the i-STAT System(R), consist of portable, hand-held analyzers and single-use disposable cartridges, each of which simultaneously performs different combinations of commonly ordered blood tests in approximately two minutes. The i-STAT System also includes peripheral components that enable the results of tests to be transmitted by infrared means to both a proprietary information system for managing the user's point-of-care testing program and to the user's information systems for billing and archiving. The i-STAT System currently performs blood tests for sodium, potassium, chloride, glucose, creatinine, urea nitrogen, hematocrit, ionized calcium, lactate, Celite(R) ACT (activated clotting time), arterial blood gases, and bicarbonate, and to derive certain other values, such as total carbon dioxide, base excess, anion gap, hemoglobin and O2 saturation, by calculation from the tests performed. The Company continues to engage in research and development in order to improve its existing products and develop new products based on the i-STAT System technology. The Company currently is developing three additional tests for 13 16 the measurement of coagulation: kaolin ACT, partial thromboplastin time ("aPTT"), and prothombin time ("PT"). The Company is also studying the development of cardiac marker tests. The Company also is in the process of developing an analyzer and associated peripheral equipment which, in addition to having the measurement capabilities currently possessed by the i-STAT System, will incorporate the glucose measurement capabilities of an Abbott Laboratories ("Abbott") product. Prior to November 1, 1998, the Company marketed and distributed its products in the United States and Canada principally through its own direct sales and marketing organization, in Japan through Japanese marketing partners, in Europe through Hewlett-Packard Company ("HP") and in Mexico, South America, China, Australia, and certain other Asian and Pacific Rim countries, through selected distribution channels. Pursuant to a technology collaboration between the Company and HP, in November 1997 HP commenced selling a patient monitoring system (the "Integrated Analyzer") which integrates all of the blood diagnostics capabilities of the i-STAT System. On September 2, 1998, the Company entered into a long-term sales, marketing and research alliance with Abbott which, among other things, has altered significantly the manner in which the Company markets and sells its products worldwide. The majority of the Company's revenues are now derived from Abbott. Please see "Long-Term Sales and Marketing Alliance with Abbott Laboratories" for a description of the Company's agreements with Abbott. Results of Operations The Company generated revenues of approximately $45.2 million, $39.1 million and $37.8 million in 1999, 1998 and 1997, including international revenues (as a percentage of worldwide revenues) of $13.8 million (30.5%), $9.8 million (25.1%) and $12.5 million (33.1%), respectively. International revenues for 1997 include deferred Japanese revenue which has been amortized to revenue at the rate of approximately $3.1 million. The deferred Japanese revenue was fully amortized to revenue during December 1997, when the period of exclusivity under the Company's agreements with its Japanese partners expired. The Company also received a one-time milestone payment of $0.9 million, net, from its Japanese marketing partners during the fourth quarter of 1997 for the development of the Company's creatinine product. Sales to its Japanese marketing partners represented approximately 10.2%, 9.7% and 21.0% of the Company's worldwide revenues (including deferred revenue and the milestone payment in 1997) for 1999, 1998 and 1997, respectively. The $6.1 million (15.7%) increase in revenues from 1998 to 1999 was primarily due to increased shipment volume of the Company's cartridges, reflecting higher cartridge consumption by existing hospital users and the addition of new hospital users in the U.S. and internationally. Worldwide cartridge shipments increased 31.3% to 7,941,115 units in 1999 from 6,046,825 units in 1998. Revenues from the increased cartridge shipments were partially offset by lower worldwide average selling prices per cartridge, which declined from approximately $4.66 to $3.84 per cartridge in the same periods. For the foreseeable future, cartridge average selling prices are expected to continue to decline because of the product transfer pricing arrangements applicable under the strategic alliance between the Company and Abbott. See "Long-Term Sales, Marketing and Research Alliance with Abbott Laboratories". The increase in revenues in the 1999 period also includes approximately $2,418,000 from Abbott (the "Abbott Reimbursements") to fund certain research and development and marketing expenses. The $1.3 million (3.3%) increase in revenues from 1997 to 1998 was primarily due to increased shipment volume of the Company's cartridges, reflecting higher cartridge consumption by existing hospital users and the addition of new hospital users in the U.S. and internationally. Worldwide cartridge shipments increased 32.8% to 6,046,825 units from 4,551,743 units for the twelve months ended December 31, 1998 and 1997, respectively. Revenues from the increased cartridge shipments were partially offset by lower worldwide average selling prices per cartridge, which declined from approximately $5.25 to $4.66 per cartridge in the same periods. The increase in revenues in 1998 was also partially offset by the absence of deferred revenue and a one-time milestone payment from the Company's Japanese marketing partner, totaling $4.0 million in 1997. The manufacturing costs associated with product sales in 1999, 1998 and 1997 were approximately $36.4 million, $30.7million and $31.0 million, respectively. This resulted in a gross profit (as a percentage of sales) of approximately $8.8 million (19.5%), $8.4 million (21.6%) and $6.9 million (18.2%) in 1999, 1998 and 1997, respectively. The improvement in gross profit each year was primarily due to increased shipment volume of the Company's cartridges and improvements in manufacturing productivity and yields, and, in 1999, the Abbott Reimbursements. The increase in gross profit in 1999 was partially offset by lower average selling prices per cartridge and lower average selling prices for analyzers, in each case because of the transfer pricing arrangement between the Company and Abbott. Gross profit in 1999 was also reduced by manufacturing process problems. The Company took a charge in the second and third quarters totaling $2.1 million to write-off inventory caused by quality problems with tape gasket material supplied by a vendor. The Company did generate higher than normal manufacturing efficiency gains in the third quarter in rebuilding its inventory which had a favorable and partially 14 17 offsetting impact on gross margin. The Company experienced a second problem in the fourth quarter also caused by defective tape from its tape supplier which resulted in a write-off of approximately $0.9 million of work-in-process inventory and a reduced level of production. The Company is in the process of certifying an additional tape gasket vendor to minimize any potential supply interruption issues. The Company operated at a significantly reduced level of production during the first quarter of 2000 due to the component supply issue, and as a result it is anticipated that revenues, gross margin and net loss will be negatively affected in the first quarter of 2000. The Japanese deferred revenue and milestone payment totaling $4.0 million contributed to the gross margin improvement in 1997. The Company incurred research and development costs (as a percentage of sales) of approximately $7.5 million (16.6%), $7.3 million (18.6%) and $6.7 million (17.8%) in 1999, 1998 and 1997, respectively, consisting of costs associated with the personnel, material, equipment and facilities necessary for conducting new product development. The Company's current research and development program includes the development of tests for coagulation, one of which, Celite(R) ACT (activated clotting time), received Food and Drug Administration clearance to market in early 2000. The Company also is studying the development of cardiac marker tests, and other tests to measure enzymes and other analytes. The Company also is in the process of developing an analyzer and associated peripheral equipment which, in addition to having the measurement capabilities currently possessed by the i-STAT System, will incorporate the glucose measurement capabilities of an Abbott product. Consequently, research and development expenditures are expected to increase over the next three years. The amount and timing of such increase will depend upon numerous factors including the level of activity at any point in time, the breadth of the Company's development objectives and the success of its development programs. Some portion of these expenditures may be funded by Abbott. See "Long-Term Sales, Marketing and Research Alliance with Abbott Laboratories". Abbott Reimbursements of $1,762,000 and $110,000 are included in net revenues in 1999 and 1998, respectively. The Company incurred general and administrative expenses (as a percentage of sales) of approximately $7.3 million (16.1%), $7.2 million (18.3%) and $5.8 million (15.2%) in 1999, 1998 and 1997, respectively. General and administrative expenses consisted primarily of salaries and benefits of personnel, office costs, professional fees and other costs necessary to support the Company's infrastructure. In January 1998, the Company decided to consolidate all its cartridge assembly operations in its manufacturing facility in Ontario, Canada. In order to facilitate this move, the Company relocated its cartridge assembly operation from Plainsboro, New Jersey, to its manufacturing facility in Ontario, Canada. The relocation of cartridge assembly commenced in June 1998, with the transfer of one assembly line to Canada, and the Company completed the relocation in April 1999. As a result of this consolidation of operations, 66 employees in the cartridge assembly operations were notified during the first quarter of 1998 that their employment would be terminated. The Company's lease for its instrument operations, engineering, customer support, selected research and development, marketing and administrative facility in Princeton, New Jersey, expired in September 1998. The Company relocated these activities to a 37,474 square foot leased facility in East Windsor, New Jersey. The product distribution operations formerly located in the Company's Plainsboro, New Jersey facility were relocated to the Company's East Windsor, New Jersey facility in early 1999. The charge to earnings in 1998 for these relocations, including severance and retention payments to affected employees, the physical move of equipment, rent and utilities on the unoccupied Plainsboro facility until that lease expired in February 1999, and miscellaneous costs was approximately $1.1 million. The charge to earnings in 1998 comprises approximately $1.0 million for severance and retention payments, and approximately $0.1 million for lease costs in respect of the unoccupied Plainsboro facility and other expenses associated with the move to the East Windsor facility. An additional charge to earnings of approximately $0.1 million occurred in 1999. Retention payments are charged to expense over the retention period. The Company incurred sales and marketing expenses (as a percentage of sales) of approximately $8.3 million (18.3%), $13.0 million (33.1%) and $13.0 million (34.4%) in 1999, 1998 and 1997, respectively, consisting primarily of salaries, commissions, benefits, travel and other expenditures for sales representatives, implementation coordinators, international marketing support, order entry, distribution, technical services, clinical affairs, product literature, market research, and other sales infrastructure costs. Sales and marketing expenses in 1998 include approximately $483,000 for severance and retention bonus amounts payable to the Company's sales representatives and sales management personnel. The employment of the majority of the Company's sales representatives was terminated on December 31, 1998, in connection with the Distribution Agreement with Abbott. Sales and marketing expenses decreased in 1999 as a result of the Distribution Agreement with Abbott. In addition, in connection with this agreement, YTD Abbott Reimbursements of $657,000 and $0 are included in net revenues in 1999 and 1998, respectively. See "Long-Term Sales, Marketing and Research Alliance with Abbott Laboratories". 15 18 Investment income was approximately $1.5 million, $1.7 million and $1.6 million in 1999, 1998 and 1997, respectively. The changes in investment income primarily reflect changes in the level of cash and cash equivalent balances. Interest income is expected to decline in the near future as cash and cash equivalent balances decline. Net loss in 1999 decreased to approximately $12.8 million or $0.73 per share, from $18.4 million or $1.15 per share in 1998, and $17.0 million or $1.17 per share in 1997. The weighted average number of shares used in computing basic and diluted net loss per share was 17.61 million, 16.05 million and 14.50 million in 1999, 1998 and 1997, respectively. The increases in the weighted average number of shares primarily reflect the private placement of 1.85 million shares of Common Stock in June 1997 and the issuance of 2 million shares of Common Stock to Abbott in September 1998. Liquidity and Capital Resources At December 31, 1999, the Company had cash and cash equivalents of approximately $25.6 million, a decline of approximately $12.8 million from the December 31, 1998 balance of approximately $38.4 million. The decrease primarily reflects approximately $6.2 million of cash used in operating activities and equipment purchases of approximately $6.4 million during the year ended 1999. Working capital decreased by approximately $12.7 million from $44.6 million to $31.9 million during the same period, primarily reflecting the decrease in cash and cash equivalents. Changes in working capital during the year ended December 31, 1999, also reflect a reduction of approximately $0.5 million in accounts receivable, offset by an increase of approximately $1.1 million in accounts receivable from related parties, which primarily reflects the majority of the Company's revenues now being derived from Abbott, and a decrease of approximately $1.5 million in accrued expenses, which primarily reflects the payment of accrued retention bonuses and severance payments and other accrued expenses in 1999. Changes in working capital during the year ended December 31, 1999, also reflect an increase of approximately $1.0 million in deferred revenue, which reflects the receipt of $4.0 million from Abbott in January 1999, representing the second installment of prepayments for guaranteed future incremental cartridge sales, partially offset by the amortization of such prepayments to income as incremental cartridge sales (as defined in the Distribution Agreement with Abbott) are generated. The Company expects its existing funds from operations to continue to decline until its revenues are sufficient to support its growth, but, together with payments due from Abbott in respect of guaranteed future incremental cartridge sales (a further $10.8 million was received in January 2000), to be sufficient to meet its obligations and its liquidity and capital requirements for the near term. The Company regularly monitors capital raising alternatives in order to take advantage of opportunities to supplement its current working capital upon favorable terms, including joint ventures, strategic corporate partnerships or other alliances and the sale of equity and/or debt securities. The Company's need, if any, to raise additional funds to meet its working capital and capital requirements will depend upon numerous factors, including the results of its marketing and sales activities, its new product development efforts, manufacturing efficiencies and competitive conditions. At December 31, 1999, the Company had available for Federal income tax purposes net operating loss carry forwards of approximately $151 million, which expire in varying amounts through 2019. The timing and manner in which the operating loss carry forwards may be utilized in any year by the Company will be limited by Section 382 of the Internal Revenue Code. International sales are invoiced and settled in U.S. dollars. However, the cartridge transfer price received from international partners, including Abbott, may be affected by changes in the value of the U.S. dollar relative to local currencies. This is because the international cartridge transfer price is set based on the price paid by customers in local currencies. When the value of foreign currencies change with respect to the U.S. dollar, the transfer price changes due to the foreign exchange conversion of local currency prices. Transfer price reductions are limited, however, by guaranteed minimum transfer prices established for each cartridge. Cartridge production is conducted in Canada. Most manufacturing labor and overhead costs are incurred in Canadian currency funded by U.S. dollar transfers from the United States each week, while most raw material purchases are in U.S. dollars. In 1999, the accumulated other comprehensive loss related to foreign currency translation decreased by approximately $0.6 million to approximately ($0.7) million, and reflects the adjustment to translate the Canadian subsidiary's balance sheet to U.S. dollars at the December 31, 1999 exchange rate. The impact of inflation on the Company's business has been minimal and is expected to be minimal for the near-term. 16 19 Long-Term Sales, Marketing and Research Alliance with Abbott Laboratories On September 2, 1998, the Company and Abbott entered into agreements (the "Alliance Agreements") providing for a long-term sales, marketing and research alliance. The Alliance Agreements comprise a Distribution Agreement, a Research Agreement, a Stock Purchase Agreement, a Standstill Agreement and a Registration Rights Agreement. Under the Distribution Agreement, Abbott has become, subject to the existing rights of the Company's other international distributors, the exclusive worldwide distributor of the Company's hand-held blood analyzer products (including cartridges) and any new products the Company may develop for use in the professionally attended human healthcare delivery market. Abbott has assumed the Company's current product sales to U.S. customers (the "Base Business") at no profit to Abbott, and the Company and Abbott will share in the incremental profits derived from product sales beyond the Base Business. Abbott will prepay to the Company a total of $25,000,000 during the first three years of the Distribution Agreement as guaranteed future incremental product sales. Such prepayments will be repaid by the Company to Abbott as a credit against actual incremental product sales. The first prepayment of $5,000,000 was received on September 2, 1998, and is carried on the consolidated balance sheet as deferred revenue from related parties, non-current, at December 31, 1999 and 1998. A second prepayment of $4,000,000 was received in January 1999 and the unamortized revenue of $1,012,000 is included in deferred revenue-current at December 31, 1999. A third prepayment of $10.8 million was received in January 2000. Distribution under the Distribution Agreement commenced in the United States on November 1, 1998. A subsequent international rollout commenced in various countries during the second half of 1999. As a result of the Distribution Agreement, the majority of the Company's revenues are now derived from Abbott. The Distribution Agreement expires on December 31, 2003, subject to automatic extensions for additional one-year periods unless either party provides the other with at least 12 months prior written notice, except that the Company may terminate the Distribution Agreement after December 31, 2001 if Abbott fails to achieve a three-year milestone minimum growth rate in sales of the Company's products covered by the Distribution Agreement. If the Distribution Agreement is terminated, other than (i) by the Company for cause or for Abbott's failure to achieve the minimum growth rate; or (ii) by Abbott, if Abbott delivers the requisite notice terminating the Distribution Agreement after the initial term, then, the Company will be obligated to pay to Abbott a one-time termination fee calculated to compensate Abbott for a portion of its costs in undertaking the distribution relationship, and residual payments for five years following termination based on a percentage of Abbott's net sales of the Company's products during the final twelve months of the Distribution Agreement. In the event that such termination occurs within the first three years of the Distribution Agreement, the Company also must refund to Abbott any prepayments made and not yet credited to Abbott at the time of such termination. Under the terms of the Research Agreement, the Company will conduct research and will develop products primarily to be commercialized by Abbott. Such research and development will be funded by Abbott and Abbott will have exclusive worldwide commercialization rights to the products developed under the Research Agreement subject to certain limitations. The parties have identified two initial projects to pursue under the Research Agreement, including the research and development of tests useful in the diagnosis and treatment of myocardial infarction and coronary artery disease. The Company and Abbott will jointly own the intellectual property which is developed during the course of work performed under the Research Agreement. In connection with this agreement, Abbott Reimbursements of $1,762,000 and $110,000 are included in net revenues in 1999 and 1998, respectively. The Research Agreement terminates upon expiration or termination of the Distribution Agreement, unless earlier terminated as provided therein. Upon such expiration or earlier termination, both the Company and Abbott will be permitted to distribute the products developed under the Research Agreement in the territory covered by the Distribution Agreement. Under the Stock Purchase Agreement, Abbott purchased 2,000,000 shares (the "Purchased Shares") of the Company's Common Stock, at a price of $11.35 per share, resulting in net proceeds of $20,641,000. The Purchased Shares represented at closing approximately 11.5% of the outstanding voting securities of the Company. The Stock Purchase Agreement, together with the Registration Rights Agreement, contains certain terms and conditions pertaining to the voting and transfer of the Purchased Shares. The Standstill Agreement provides for limitations on Abbott's ability to purchase the Company's Common Stock, or to propose any merger or business combination with the Company or purchase of a material portion of the Company's assets. 17 20 The foregoing description of the Alliance Agreements is qualified in its entirety by reference to the actual text of such agreements, copies of which were filed with the Commission as exhibits to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998. The objective of the Abbott alliance is to strengthen the Company's product marketing and distribution capability and accelerate the development of new products. Because the alliance is still at an early implementation stage, it is difficult at this time for the Company to predict, within a reasonable degree of certainty, the likely impact of the alliance upon its operations, particularly in the long-term. The Company has reduced its sales and marketing expenses as Abbott assumes principal responsibility for many of the Company's marketing and sales activities. Year 2000 Issues The Company completed its program to address its potential Y2K issues prior to December 31, 1999 and experienced no disruption of operations from Y2K related problems on January 1, 2000 or during the first months of 2000. The costs directly associated with the Company's Y2K remediation efforts totaled approximately $200,000, mostly in the form of management time. Although all systems and equipment are Y2K compliant and no disruptions to the Company's operations have been experienced to date, the Company will continue to monitor its internal systems and equipment and third party relationships for any Y2K related problems that might develop. The Company does not expect any problems to develop that would have a material effect on the Company's operations or results. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as amended, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company presently does not have any derivative instruments or hedging activities and, consequently, SFAS No. 133 is not expected to have a material impact on the Company's consolidated results of operations, financial position or cash flows. All statements contained in this management's discussion and analysis of financial condition and results of operation other than statements of historical financial information, are forward-looking statements. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than historical facts. Although the Company believes that its expectations are based on reasonable assumptions, the Company operates in a high technology, emerging market environment that involves significant risks and uncertainties which may cause actual results to vary from such forward-looking statements and to vary significantly from reporting period to reporting period. These risks include, among others, those listed in "Factors That May Affect Future Results", in Item 1 of this Annual Report on Form 10-K, and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. The Company does not undertake to update the results discussed herein as a result of changes in risks or operating results. Item 7(a). Quantitative and Qualitative Disclosures about Market Risk Not applicable. Item 8. Financial Statements and Supplementary Data See Item 14 for an Index to Financial Statements and Financial Statement Schedules. Such Financial Statements and Schedules are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 18 21 Part III Item 10. Directors and Executive Officers of the Registrant Information concerning directors and executive officers of the Company and compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is included under the caption "Election of Directors" of the Proxy Statement for the 2000 Annual Meeting of Stockholders and is incorporated herein by reference. Item 11. Executive Compensation Information concerning executive compensation is included under the caption "Executive Compensation" of the Proxy Statement for the 2000 Annual Meeting of Stockholders and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information concerning security ownership of certain beneficial owners and management is included under the captions "Principal Stockholders" and "Election of Directors" of the Proxy Statement for the 2000 Annual Meeting of Stockholders and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information concerning transactions and other relationships, if any, between the Company and its directors, officers or principal stockholders is included under the caption "Certain Transactions" of the Proxy Statement for the 2000 Annual Meeting of Stockholders and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Financial Statements and Schedules (1) Financial Statements--The following are included in Item 8: Page Report of Independent Accountants.............................................24 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1999.............................25 Consolidated Balance Sheets at December 31, 1999 and 1998.....................26 Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 1999.............27 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1999.............................28 Notes to Consolidated Financial Statements....................................29 (2) Financial Statement Schedules--The following are included in Item 14(d): Report of Independent Accountants.............................................42 Schedule II--Valuation and Qualifying Accounts................................43 Consolidated financial statement schedules not filed herein have been omitted either because they are not applicable, not required or the equivalent information has been included in the consolidated financial statements and notes thereto or elsewhere herein. 19 22 (3) Exhibits: Exhibit No. Description (3.1) Restated Certificate of Incorporation (Form S-8/S-3 Registration Statement,File No. 33-48889)* (3.2) By-laws (Form 10-K for fiscal year ended December 31, 1996)* (3.3) Certificate of Designation, Preferences and Rights of Series A Preferred Stock (Form 8-K, dated July 10, 1995 and amended on September 11, 1995)* (3.4) Certificate of Designation, Preferences and Rights of Series B Preferred Stock (Form 8-K, dated July 10, 1995 and amended on September 11, 1995)* (4.1) Stockholder Protection Agreement, dated as of June 26, 1995, between Registrant and First Fidelity Bank, National Association (Form 8-K, dated July 10, 1995 and amended on September 11, 1995)* (10.1) Series A Convertible Preferred Stock Purchase Agreement (Form S-1 Registration Statement, File No. 33-44800)* (10.2) Restated Registration Rights Agreement, dated May 3, 1990, among the Registrant and certain of its stockholders (Form S-1 Registration Statement, File No. 33-44800)* (10.4.2)** Form of Incentive Stock Option Agreement under 1985 Stock Option Plan (U.S. Resident Affiliate) (Form 10-K for fiscal year ended December 31, 1992)* (10.4.4)** Form of Non-Statutory Stock Option Agreement under 1985 Stock Option Plan (U.S. Resident Affiliate) (Form 10-Q for quarter ended September 30, 1996)* (10.4.6)** Form of Non-Statutory Stock Option Agreement under 1985 Stock Option Plan (Ontario Resident Affiliate) (Form 10-Q for quarter ended September 30, 1996)* (10.11) Letter Agreement between the Registrant and Japanese corporate entities, dated August 23, 1988 (Form S-1 Registration Statement, File No. 33-44800)* (10.12) Letter Agreement between the Registrant and Japanese corporate entities, dated August 23, 1988 (Form S-1 Registration Statement, File No. 33-44800)* (10.13) Distribution Agreement between the Registrant and Japanese corporate entities, dated August 23, 1988 (Form S-1 Registration Statement, File No. 33-44800)* (10.15) Development Agreement between the Registrant and Japanese corporate entities, dated August 23, 1988 (Form S-1 Registration Statement, File No. 33-44800)* (10.21) Lease Agreement, dated December 23, 1991, between William S. Burnside (Canada) Limited, "In Trust" and the Registrant (Form 10-K for fiscal year ended December 31, 1993)* * These items are hereby incorporated by reference from the exhibits of the filing or report indicated (except where noted. Commission File No. 0-19841) and are hereby made a part of this Report. ** This exhibit is a management contract or compensatory plan required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c). 20 23 Exhibit No. Description (10.23) i-STAT 1994 Stock Award Plan (Form S-8 Registration Statement, File No. 33-76152)* (10.24) Form of Stock Award Agreement under 1994 Stock Award Plan (Form S-8 Registration Statement, File No. 33-76152)* (10.25)** Letter Agreement, dated April 15, 1994, between Registrant and Noah Kroloff (Form 10-Q for quarter ended June 30, 1994)* (10.28) Series B Preferred Stock Purchase Agreement, dated as of June 23, 1995, between the Registrant and Hewlett-Packard Company (Form 8-K, dated July 10, 1995 and amended on September 11, 1995)* (10.29) Registration Rights Agreement between the Registrant and Hewlett-Packard Company (Form 8-K, dated July 10, 1995 and amended on September 11, 1995)* (10.30) License Agreement between the Registrant and Hewlett-Packard Company (Form 8-K, dated July 10, 1995 and amended on September 11, 1995)* (10.31) Distribution Agreement between the Registrant and Hewlett-Packard Company (Form 8-K, dated July 10, 1995 and amended on September 11, 1995)* (10.33) Amendment, dated March 28, 1995 to Lease Agreement dated December 23, 1991, between William S. Burnside (Canada) Limited, "In Trust" and the Registrant (Form 10-Q for quarter ended March 31, 1996)* (10.34)** Letter Agreement, dated June 6, 1996 between the Registrant and Roger J. Mason (Form 10-Q for quarter ended June 30, 1996)* (10.35) Form of Officer Indemnification Agreement (Form 10-K for fiscal year ended December 31, 1996)* (10.36) Form of Director Indemnification Agreement (Form 10-K for fiscal year ended December 31, 1996)* (10.38)** 1985 Stock Option Plan, as amended (Form 10-K for fiscal year ended December 31, 1997)* (10.39)** Employment Agreement, dated January 23, 1998, between the Registrant and William P. Moffitt (Form 10-K for fiscal year ended December 31, 1997)* (10.40)** Non-Statutory Stock Option Agreement, dated January 23, 1998, between the Registrant and William P. Moffitt (Form 10-K for fiscal year ended December 31, 1997)* * These items are hereby incorporated by reference from the exhibits of the filing or report indicated (except where noted. Commission File No. 0-19841) and are hereby made a part of this Report. ** This exhibit is a management contract or compensatory plan required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c). 21 24 Exhibit No. Description (10.41) Lease Agreement, dated July 16, 1998, between Brandywine Operating Partnership L.P. and Registration (Form 10-Q for fiscal quarter ended June 30, 1998)* (10.42) Common Stock Purchase Agreement, dated as of August 3, 1998, between Registrant and Abbott Laboratories (Form 10-Q for fiscal quarter ended June 30, 1998)* (10.43) Standstill Agreement, dated as of August 3, 1998, between Registrant and Abbott Laboratories (Form 10-Q for fiscal quarter ended June 30, 1998)* (10.44) Form of Registration Rights Agreement entered into by Registrant and Abbott Laboratories on September 2, 1998 (Form 10-Q for fiscal quarter ended June 30, 1998)* (10.45) Marketing and Distribution Agreement, dated as of August 3, 1998, between Registrant and Abbott Laboratories (Form 10-Q for fiscal quarter ended June 30, 1998)* (10.46) Funded Research & Development and License Agreement, dated as of August 3, 1998, between Registrant and Abbott Laboratories (Form 10-Q for fiscal quarter ended June 30, 1998)* (10.48)** Form of Director Non-Statutory Stock Option Agreement (10.49) Lease Agreement dated August 27, 1998, between Urigold Holdings Ltd. and the Registrant (Form 10-K for the fiscal year ended December 31, 1998)* (10.50)** i-STAT Corporation Equity Incentive Plan, as amended (10.51)** Form of Executive Officer Restricted Share Agreement under Equity Incentive Plan (Form 10-Q for fiscal quarter ended March 31, 1999)* (10.52)** Form of Restricted Share Award Agreement with President and Chief Executive Officer (Form 10-Q for fiscal quarter ended March 31, 1999)* (10.53) Consulting Agreement between the Registrant and Imants R. Lauks dated as of September 1, 1999 (10.54)** Form of Director Restricted Share Award Agreement (21) Subsidiaries of the Registrant (Form S-1 Registration Statement, File No. 33-44800)* (23) Consent of PricewaterhouseCoopers LLP, Independent Accountants (24) Powers of Attorney, executed by certain officers of the Registrant and the individual members of the Board of Directors, authorizing such officers of the Registrant to file amendments to this Report, are located on the signature page of this Report. (27) Financial Data Schedule * These items are hereby incorporated by reference from the exhibits of the filing or report indicated (except where noted. Commission File No. 0-19841) and are hereby made a part of this Report. ** This exhibit is a management contract or compensatory plan required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c). 22 25 i-STAT CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Description Page Report of Independent Accountants.............................................24 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1999.........................................25 Consolidated Balance Sheets as of December 31, 1999 and 1998..................26 Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 1999.............27 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1999.........................................28 Notes to Consolidated Financial Statements....................................29 23 26 Report of Independent Accountants To the Board of Directors and Stockholders of i-STAT Corporation: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in stockholders' equity and cash flows present fairly, in all material respects, the financial position of i-STAT Corporation and its subsidiary (the "Company") at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Florham Park, New Jersey January 31, 2000, except for the last paragraph in Note 11 as to which the date is March 16, 2000 24 27 i-STAT Corporation Consolidated Statements of Operations
In thousands of dollars, except share and per share data For the Years Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 Net Revenues: Related party sales .......................................................... $ 35,456 $ 7,617 $ 2,897 Third party sales ............................................................ 7,351 31,374 34,943 Other related party revenues ................................................. 2,418 110 -- -------------------------------------------- Total net revenues ......................................................... 45,225 39,101 37,840 Cost of sales .................................................................. 36,401 30,664 30,962 -------------------------------------------- Gross profit ................................................................. 8,824 8,437 6,878 Operating expenses: Research and development ..................................................... 7,506 7,281 6,721 General and administrative ................................................... 7,264 7,152 5,761 Consolidation of operations .................................................. 70 1,115 -- Sales and marketing .......................................................... 8,293 12,956 13,020 -------------------------------------------- Total operating expenses ................................................... 23,133 28,504 25,502 -------------------------------------------- Operating loss ........................................................... (14,309) (20,067) (18,624) Other income (expense): Investment income ............................................................ 1,507 1,694 1,612 Other ........................................................................ -- (22) 39 -------------------------------------------- Other income (expense), net ................................................ 1,507 1,672 1,651 Net loss ....................................................................... ($12,802) ($18,395) ($16,973) -------------------------------------------- Basic and diluted net loss per share............................................ ($0.73) ($1.15) ($1.17) ============================================ Shares used in computing basic and diluted net loss per share ............................................................. 17,614,595 16,050,877 14,497,530 ============================================
The accompanying notes are an integral part of these consolidated financial statements. 25 28 i-STAT Corporation Consolidated Balance Sheets
In thousands of dollars, except share and per share data December 31, - ---------------------------------------------------------------------------------------------------------- 1999 1998 Assets Current assets: Cash and cash equivalents ..................................................... $ 25,575 $ 38,390 Accounts receivable, net of reserve for doubtful accounts of $128 in 1999 and $190 in 1998 .................................................... 413 2,849 Accounts receivable from related parties ...................................... 4,185 2,843 Inventories (Note 2) .......................................................... 8,886 8,296 Prepaid expenses and other current assets ..................................... 1,185 1,473 ---------------------- Total current assets ........................................................ 40,244 53,851 Plant and equipment, net (Note 3) ............................................... 15,936 13,336 Intangible assets, net (Note 4) ................................................. 1,501 1,344 Other assets .................................................................... 443 375 ---------------------- Total assets ................................................................ $ 58,124 $ 68,906 ====================== Liabilities and Stockholders' Equity Current liabilities: Accounts payable .............................................................. $ 2,269 $ 2,684 Accrued expenses (Note 5) ..................................................... 4,453 6,003 Deferred revenue (inclusive of related party deferred revenue of $1,545 in 1999 and $407 in 1998) ......................................... 1,564 559 ---------------------- Total current liabilities ................................................. 8,286 9,246 ---------------------- Deferred revenue from related party, non-current ................................ 5,175 5,000 ---------------------- Total liabilities ......................................................... 13,461 14,246 ---------------------- Commitments and Contingencies Stockholders' Equity: Preferred Stock, $.10 par value, shares authorized 7,000,000: Series A Junior Participating Preferred Stock, $.10 par value, 1,500,000 shares authorized; none issued at December 31, 1999 and December 31, 1998 ..................................................... -- -- Series B Preferred Stock, $.10 par value, 2,138,702 shares authorized, issued and outstanding at December 31, 1999 and December 31, 1998 ................ 214 214 Common Stock, $.15 par value, shares authorized 25,000,000: shares issued and outstanding 15,761,630 at December 31, 1999 and 15,308,995 at December 31, 1998 ....................................... 2,364 2,296 Additional paid-in capital .................................................. 234,487 230,328 Unearned compensation ....................................................... (1,547) (169) Loan to officer, net ........................................................ (716) -- Accumulated deficit ......................................................... (189,470) (176,668) Accumulated other comprehensive loss ........................................ (669) (1,341) ---------------------- Total stockholders' equity .............................................. 44,663 54,660 ---------------------- Total liabilities and stockholders' equity ................................ $ 58,124 $ 68,906 ======================
The accompanying notes are an integral part of these consolidated financial statements. 26 29 i-STAT Corporation Consolidated Statements of Changes in Stockholders' Equity
Preferred Stock Common Stock --------- ------------------------------------------- Accumulated Other In thousands of dollars, Additional Unearned Compre- except share and per Par Number Par Paid-in Treasury Compen- Loan to hensive share data Value of Shares Value Capital Stock sation Officer Loss - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 .......... $214 11,215,214 $1,682 $186,434 $-- ($19) $-- ($177) Net loss for 1997 ................... Other comprehensive loss on foreign currency translation adjustments ........... (100) Total comprehensive loss ...... Shares issued at $525 to $23.125 per share under the 1985 Stock Option Plan (Note 9) ..................... 127,613 19 426 Private placement of Common Stock ...................... 1,850,000 278 22,555 Restricted Stock issued at $16.875 per share .............. 10,700 2 179 (181) Amortization of unearned compensation related to options and Restricted Stock ...... 19 Purchase of Treasury Stock .......... (13) ------------------------------------------------------------------------------------------- Balance, December 31, 1997 .......... 214 13,203,527 1,981 209,594 (13) (181) -- (277) Net loss for 1998.................... Other comprehensive loss on foreign currency translation adjustments ........... (1,064) Total comprehensive loss ..... Shares issued at $1.50 to $12.625 per share under the 1985 Stock Option Plan (Note 9) .............. 90,260 13 149 Private placement of Common Stock ... 2,000,000 300 20,341 Restricted Stock issued at $15.938 per share .............. 750 12 (12) Restricted Stock issued at $16.438 per share .............. 3,000 49 (49) Restricted Stock issued at $16.50 per share ............... 12,000 2 196 (198) Amortization of unearned compensation related to Restricted Stock .................. 271 Retirement of Treasury Stock ............................. (542) (13) 13 ------------------------------------------------------------------------------------------- Balance, December 31, 1998 .......... 214 15,308,995 2,296 230,328 -- (169) -- (1,341) Net loss for 1999 ................... Other comprehensive gain on foreign currency translation adjustments ........... 672 Total comprehensive loss ..... Shares issued at $1.50 to $10.50 per share under the 1985 Stock Option Plan (Note 9) .............. 125,132 19 857 Restricted Stock issued at $8.875 per share ............... 310,000 47 2,704 (2,751) Restricted Stock issued at $9.25 per share ................ 14,412 2 131 (133) Restricted Stock issued at $9.75 per share ................ 3,091 30 (30) Compensation related to options issued .................... 437 (479) Amortization of unearned compensation related to options and Restricted Stock ............................. 2,015 Loan to Officer ..................... (716) ------------------------------------------------------------------------------------------- Balance, December 31, 1999 .......... $214 15,761,630 $2,364 $234,487 $-- ($1,547) ($716) ($669) ========================================================================================== Total In thousands of dollars, Stock- except share and per Accumulated holders' share data Deficit Equity - ----------------------------------------------------------------- Balance, December 31, 1996 .......... ($141,300) $46,834 Net loss for 1997 ................... (16,973) Other comprehensive loss ----------- on foreign currency translation adjustments ........... Total comprehensive loss ...... (17,073) Shares issued at $525 to $23.125 per share under the 1985 Stock Option Plan (Note 9) ..................... 445 Private placement of Common Stock ...................... 22,833 Restricted Stock issued at $16.875 per share .............. Amortization of unearned compensation related to options and Restricted Stock ...... 19 Purchase of Treasury Stock .......... (13) -------------------------- Balance, December 31, 1997 .......... (158,273) 53,045 Net loss for 1998 ................... (18,395) Other comprehensive loss on foreign currency translation adjustments ........... Total comprehensive loss ..... (19,459) Shares issued at $1.50 to $12.625 per share under the 1985 Stock Option Plan (Note 9) .............. 162 Private placement of Common Stock ...................... 20,641 Restricted Stock issued at $15.938 per share .............. Restricted Stock issued at $16.438 per share .............. Restricted Stock issued at $16.50 per share ............... Amortization of unearned compensation related to Restricted Stock .................. 271 Retirement of Treasury Stock ............................. -------------------------- Balance, December 31, 1998 .......... (176,668) 54,660 Net loss for 1999 ................... (12,802) Other comprehensive gain on foreign currency translation adjustments ........... Total comprehensive loss ..... (12,130) Shares issued at $1.50 to $10.50 per share under the 1985 Stock Option Plan (Note 9) .............. 876 Restricted Stock issued at $8.875 per share ............... Restricted Stock issued at $9.25 per share ................ Restricted Stock issued at $9.75 per share ................ Compensation related to options issued .................... (42) Amortization of unearned compensation related to options and Restricted Stock ............................. 2,015 Loan to Officer ..................... (716) -------------------------- Balance, December 31, 1999 .......... ($189,470) $44,663 ==========================
The accompanying notes are an integral part of these consolidated financial statements. 27 30 i-STAT Corporation Consolidated Statements of Cash Flows
In thousands of dollars, except share and per share data For the Years Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 Cash flows from operating activities: Net loss .................................................................. ($12,802) ($18,395) ($16,973) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization ........................................... 4,362 4,591 3,878 Accounts receivable provision ........................................... -- 103 53 Gains on disposal of equipment .......................................... (4) -- (27) Amortization of deferred revenue ........................................ (4,013) (218) (3,022) Expense related to restricted stock and options.......................... 2,015 271 19 Change in assets and liabilities: Accounts receivable ....................................................... 2,436 1,875 1 Accounts receivable from related parties................................... (1,342) (2,464) (312) Inventories ............................................................... (325) (2,596) 1,340 Prepaid expenses and other current assets.................................. 98 (660) 180 Accounts payable .......................................................... (486) 568 476 Accrued expenses .......................................................... (1,648) 2,321 140 Restricted cash, letter of credit ......................................... 147 (219) 158 Deferred revenue .......................................................... 5,193 5,559 -- --------------------------------- Net cash used in operating activities ................................... (6,369) (9,264) (14,089) --------------------------------- Cash flows from investing activities: Purchases of investments .................................................. -- -- (22,976) Sales of investments ...................................................... -- -- 22,976 Purchase of equipment ..................................................... (6,250) (5,925) (4,376) Cost of intangible assets ................................................. (294) (193) (259) Proceeds from sale of equipment ........................................... 20 -- 56 --------------------------------- Net cash used in investing activities ................................... (6,524) (6,118) (4,579) --------------------------------- Cash flows from financing activities: Proceeds from issuance of Common Stock .................................... 834 162 445 Net proceeds from private placement of Common Stock ....................... -- 20,641 22,833 Retirement (purchase) of Treasury Stock ................................... -- 13 (13) Loan to officer ........................................................... (716) -- -- Other ..................................................................... -- 29 -- --------------------------------- Net cash provided by financing activities ............................... 118 20,845 23,265 --------------------------------- Effect of currency exchange rate changes on cash ............................ (40) 13 (100) --------------------------------- Net increase (decrease) in cash and cash equivalents ...................... (12,815) 5,476 4,497 Cash and cash equivalents at beginning of year ............................ 38,390 32,914 28,417 --------------------------------- Cash and cash equivalents at end of year .................................. $ 25,575 $ 38,390 $ 32,914 ================================= Supplemental disclosure of cash flow information: Cash paid for income taxes ................................................ -- -- -- ================================= Supplemental disclosures of cash flow information and non cash investing and financing activities: Equipment purchases included in accounts payable at year end .............. $ 276 $ 181 $ 33 =================================
The accompanying notes are an integral part of these consolidated financial statements. 28 31 i-STAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Principles of Consolidation and Nature of Operations The accompanying consolidated financial statements include the accounts of i-STAT Corporation and i-STAT Canada Limited, collectively known as i-STAT or the Company. All significant inter-company accounts and transactions have been eliminated in consolidation. The Company develops, manufactures and markets medical diagnostic products for blood analysis that provide health care professionals with immediate and accurate critical diagnostic information at the point of patient care. Since November 1998, the Company's products are marketed and distributed principally to hospitals by Abbott Laboratories ("Abbott") in connection with the Company's long-term sales and marketing alliance (see Note 12). The Company operates in a high technology, emerging market environment that involves significant risks and uncertainties which may cause results to vary significantly from reporting period to reporting period. These risks include, but are not limited to, among others, competition from existing manufacturers and marketers of blood analysis products who have greater resources than the Company, the uncertainty of new product development initiatives, difficulties in transferring new technology to the manufacturing stage, market resistance to new products and point-of-care blood diagnosis, domestic and international regulatory constraints, uncertainties of international trade, pending and potential disputes concerning ownership of intellectual property and dependence upon strategic corporate partners for assistance in development of new markets. Cash and Cash Equivalents Cash and cash equivalents include investments with original maturities of three months or less. Foreign Currency Translation/Transactions Consolidated Balance Sheet amounts have been translated using exchange rates in effect at the balance sheet dates and the translation adjustments have been included in the accumulated other comprehensive loss as a separate component of Consolidated Stockholders' Equity. The Consolidated Statements of Operations has been translated using the average exchange rates in effect each year. The transaction gains and losses, which are not material, have been included in other income. Inventories Inventories are carried at the lower of actual cost or market and cost is accounted for on the first-in first-out (FIFO) basis. Plant and Equipment Plant and equipment are stated at cost and are depreciated on a straight-line basis over their useful lives which are estimated to be three to five years. Leasehold improvements are amortized over five years or the term of the lease, whichever is less. The cost of major additions and betterments are capitalized; maintenance and repairs which do not improve or extend the life of the respective assets are charged to expenses as incurred. When depreciable assets are retired or sold the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the Consolidated Statements of Operations. Patents, Licenses and Trademarks Costs to obtain and maintain patents, licenses and trademarks are capitalized and amortized on a straight-line basis over their estimated useful lives or a period of 17 years, whichever is shorter. The Company reviews these items on a regular basis for realization. Valuation of Long-Lived Assets In accordance with the Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets. The carrying value of long-lived assets is considered impaired when the anticipated undiscounted cash flows are less than the carrying value. In that event, a loss is recognized based on the 29 32 i-STAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) amount by which the carrying value exceeds the fair market value of long-lived assets. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Unearned Compensation Unearned compensation related to stock options and Restricted Stock awards is amortized over the period during which the options vest or Restricted Stock awards are earned. Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), which requires an asset and liability approach for financial accounting and reporting of income taxes. In addition, deferred income taxes are adjusted for changes in income tax rates. SFAS No. 109 requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. Revenue Recognition Revenues are recorded at the time of shipment of products and when title transfers or upon performance of services. Revenues from service contracts are recognized in earnings over the term of the contract. Basic and Diluted Loss per Share Basic and diluted net loss per share is calculated using the weighted average number of common shares and preferred shares outstanding for all periods presented. Preferred shares have been included in the calculations since their date of issuance as they are convertible into common shares on a 1:1 basis and have substantially the same characteristics as common stock. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The Company has not included potential common shares in the diluted per-share computation as the result is antidilutive. Options to purchase 2,859,497 shares of Common Stock at $1.50 - $32.58 per share, which expire on various dates from February 2000 to October 2009, were outstanding at December 31, 1999. These shares were not included in the computation of diluted EPS because the effect would be antidilutive due to the net loss. Comprehensive Income SFAS No. 130, "Reporting Comprehensive Income", requires foreign currency translation adjustments, which prior to adoption were reported separately in stockholders' equity, to be included in other comprehensive earnings. The only components of accumulated other comprehensive loss for the Company are foreign currency translation adjustments. Prior year financial statements have been reclassified to conform to the requirements of SFAS No. 130.
(In thousands of dollars) 1999 1998 1997 - -------------------------------------------------------------------------------- Net loss ............................... ($12,802) ($18,395) ($16,973) Other comprehensive income (loss): Foreign currency translation ........ 672 (1,064) (100) ------------------------------------ Comprehensive loss ..................... ($12,130) ($19,459) ($17,073) ====================================
Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 30 33 i-STAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Concentration of Credit Risk The Company's significant concentrations of credit risk are with its cash and cash equivalents and accounts receivable. Substantially all the Company's cash and cash equivalents at December 31, 1999 were invested in the securities of a single U.S. Government Agency. Accounts receivable are generally with distributors such as Abbott, Hewlett-Packard Company ("HP") and FUSO, Inc. The Company provides credit to its customers on an unsecured basis after evaluating their credit status. Segment Information The Company operates within one business segment comprising the i-STAT System. The i-STAT System consists of a portable handheld analyzer and single-use, disposable cartridges, which are interdependent on one another in the functionality of the system. Recently Issued Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as amended, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company presently does not have any derivative instruments or hedging activities and, consequently, SFAS No. 133 is not expected to have a material impact on the Company's consolidated results of operations, financial position or cash flow. 2. Inventories Inventories consist of the following:
In thousands of dollars December 31, - -------------------------------------------------------------------------------- 1999 1998 Raw materials.................................... $ 3,402 $ 2,537 Work in process.................................. 2,764 3,206 Finished goods................................... 2,720 2,553 ---------------------------- $ 8,886 $ 8,296 ============================
3. Plant and Equipment Plant and equipment, net, consists of the following:
In thousands of dollars December 31, - -------------------------------------------------------------------------------- 1999 1998 Equipment loaned to customers.................... $ 2,418 $ 2,496 Manufacturing equipment.......................... 33,100 26,297 Furniture and fixtures........................... 1,092 993 Leasehold improvements........................... 4,087 3,271 ---------------------------- 40,697 33,057 Less accumulated depreciation and amortization... (24,761) (19,721) ---------------------------- $ 15,936 $ 13,336 ============================
Depreciation expense was approximately $4,224,000, $4,412,000 and $3,622,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Accumulated depreciation and amortization includes accumulated depreciation on loaned equipment of approximately $2,033,000 and $1,532,000 for the years ended December 31, 1999 and 1998, respectively. 31 34 i-STAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 4. Intangible Assets Intangible assets, net, consist of the following:
In thousands of dollars December 31, - -------------------------------------------------------------------------------- 1999 1998 Patents, licenses and trademarks..................... $ 2,187 $ 1,892 Less accumulated amortization........................ (686) (548) ------------------------- $ 1,501 $ 1,344 =========================
Amortization expense was approximately $138,000, $179,000 and $95,000 for the years ended December 31, 1999, 1998 and 1997, respectively. 5. Accrued Expenses Accrued expenses consist of the following:
In thousands of dollars December 31, - -------------------------------------------------------------------------------- 1999 1998 Retention bonuses and severance....................... $ 27 $ 680 Accrued management incentive awards................... 601 466 Payroll and withholding taxes......................... 880 905 Professional fees..................................... 383 423 Accrued commissions................................... 276 184 Other................................................. 2,286 3,345 ------------------------- Total accrued expenses................................ $ 4,453 $ 6,003 =========================
6. Leasing Transactions The Company's leases for its manufacturing facilities in Ontario, Canada expire in February 2004, subject to, at the Company's option, renewal for one five-year term in the 430 Hazeldean Road building. Rent expense for these facilities was approximately $456,000, $368,000 and $342,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The Company's lease for its administrative, marketing and selected research and development facility in Princeton, New Jersey, expired on September 30, 1998. Rent expense for this facility was approximately $379,000 and $490,000 for the years ended December 31, 1998 and 1997, respectively. The Company relocated these activities to a 37,474 square foot leased facility in East Windsor, New Jersey. The lease expires September 30, 2003, subject, at the Company's option, to one five-year option to renew. Rent expense for this facility was approximately $656,000 and $164,000 for 1999 and 1998, respectively. At December 31, 1999, other assets include $386,000 in restricted cash which acts as collateral for the leasehold improvements made in the facility. The Company's lease for its assembly facility in Plainsboro, New Jersey expired in February 1999 (the assembly operation was relocated to the Ontario, Canada, location). At December 31, 1998, prepaid expenses and other current assets include $165,000 in restricted cash which acts as collateral for the leasehold improvements made in the facility. Rent expense for this facility was approximately $56,000, $492,000 and $441,000 for the years ended December 31, 1999, 1998 and 1997, respectively. As of December 31, 1999, future minimum lease payments are as follows:
Year Ending December 31: In thousands of dollars Operating Leases - -------------------------------------------------------------------------------- 2000................................................... $ 1,303 2001................................................... 1,276 2002................................................... 1,241 2003................................................... 1,067 2004................................................... 96 Thereafter............................................. -- -------------------- Total minimum lease payments........................... $ 4,983 ====================
32 35 i-STAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 7. Preferred Stock The Company has authorized 7,000,000 shares of Preferred Stock. The rights, preferences, qualifications, and voting powers are determined by the Board of Directors. In June 1995 the Board designated 1,500,000 shares as Series A Junior Participating Preferred Stock that may be issued in the future in connection with certain shareholder protection measures. Also in June 1995 the Board designated 2,138,702 shares as Series B Preferred Stock (the "Series B Stock"). The Series B Stock is convertible into Common Stock on a 1:1 basis, subject to certain potential adjustments and has substantially the same characteristics as the Common Stock. The Series B Stock was issued to HP at $28.50 per share in July 1995 for net proceeds of approximately $59.2 million. There were 2,138,702 shares of Series B Stock issued and outstanding at December 31, 1999, 1998, and 1997. During 1999, HP transferred its holding of Series B Stock to its subsidiary, Agilent Technologies, Inc. ("Agilent"). On June 29, 1995, the Company declared a dividend distribution of rights (each, a "Right") to purchase a certain number of units at a price of $104.00, subject to adjustment. The Rights are deemed to attach to and trade together with the Common Stock. Each unit is equal to one one-hundredth of a share of Series A Junior Participating Preferred Stock of the Company. Rights are distributed in connection with issuances of shares of Common Stock and Series B Stock. The Rights are not exercisable until the occurrence of certain events enumerated in the Stockholder Protection Agreement between the Company and First Union National Bank, the Company's rights agent. Until a Right is exercised no holder of Rights will have rights as a stockholder of the Company (other than rights resulting from such holder's ownership of Common Stock or Series B Stock), including, without limitation, the right to vote or to receive dividends. 8. Common Stock Offerings In September 1998, the Company completed the issuance of 2,000,000 common shares under the Stock Purchase Agreement with Abbott resulting in net proceeds of $20,641,000. In June 1997, the Company completed the issuance of 1,850,000 common shares through a private offering, resulting in net proceeds of $22,832,506. The proceeds of the offerings were used to further implement marketing plans, for product research and development programs and for working capital and other general corporate purposes. 9. Stock Options and Restricted Stock As incentives to Company personnel and others, the Board of Directors from time to time grants options to purchase shares of the Company's Common Stock. Most options are granted under the 1985 Stock Option Plan or Equity Incentive Plan ("the Plans"). The maximum number of issuable shares of Common Stock is 5,300,000 of which 1,864,642 are available for grant at December 31, 1999. Options under the 1985 Stock Option Plan can be issued until November 26, 2005, and options under the Equity Incentive Plan can be issued until March 31, 2008. The option price generally is based upon the fair market value of the Company's Common Stock at the time of the grant. Unexercised options issued under the Plans expire five to ten years from the date of grant or three months following termination of the optionee's employment, whichever occurs first. On December 14, 1998, upon unanimous consent of the Board of Directors, 824,277 previously issued and outstanding stock options with an exercise price greater than $6.125 were cancelled, except for outstanding options held by outside Board members, the Medical Advisory Board and executive officers of the Company. Stock options were reissued to the holders of the cancelled options to purchase 824,277 shares at $6.125, the market value on the date of grant. 33 36 i-STAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The table below is a summary of stock option activity for the years 1997, 1998, and 1999:
Weighted Weighted Options Average Average Granted Exercise Fair Value Options and Price per per Option Exercisable Outstanding Share Granted -------------------------------------------------------------------------- Balance December 31, 1996 ................. 746,700 $ 9.79 Balance December 31, 1996 ................. 1,492,199 $ 15.82 Options granted ........................... 327,523 $ 13.10 $ 7.49 Options exercised ......................... (127,613) ($ 3.49) Options forfeited ......................... (54,405) ($ 19.96) -------------------------------------------------------------------------- Balance December 31, 1997 ................. 937,322 $ 14.69 Balance December 31, 1997 ................. 1,637,704 $ 16.10 Options granted ........................... 778,559 $ 15.44 $ 15.27 Options exercised ......................... (90,260) $ 1.75 Options forfeited ......................... (184,138) $ 17.91 Options cancelled ......................... (824,277) $ 16.57 Options granted ........................... 824,277 $ 6.12 -------------------------------------------------------------------------- Balance December 31, 1998 ................. 1,087,030 $ 12.71 Balance December 31, 1998 ................. 2,141,865 $ 12.30 Options granted ........................... 1,070,063 $ 9.30 $ 9.21 Options exercised ......................... (125,132) $ 6.99 Options forfeited ......................... (227,299) $ 11.77 -------------------------------------------------------------------------- Balance December 31, 1999 ................. 1,349,002 $ 12.19 Balance December 31, 1999 ................. 2,859,497 $ 11.45 ==========================================================================
The weighted average remaining contractual lives of outstanding options at December 31, 1999 was approximately 6.54 years. The Company applies the provisions of Opinion 25 ("APB 25") and related Interpretations in accounting for its stock based compensation plans. Accordingly, compensation expense has been recognized in the financial statements in respect to the above plans to the extent required by APB 25. Had compensation costs for the above plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, "Accounting for Stock Based Compensation", the Company's net loss and net loss per share would have been increased to the pro forma amounts below:
In thousands of dollars, except per share data 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------ Pro forma net loss.......................................... ($17,125) ($22,035) ($19,426) Pro forma basic and diluted net loss per share.............. ($0.97) ($1.37) ($1.34)
As options vest over a varying number of years, and awards are generally made each year, the pro forma impacts shown here may not be representative of future pro forma expense amounts due to the annual grant of options by the Company. The pro forma additional compensation expense of approximately $4,323,000, $3,640,000 and $2,453,000 for 1999, 1998 and 1997, respectively, was calculated based on the fair value of each option grant using the Black-Scholes model with the following weighted average assumptions used for grants:
1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------ Dividend yield.............................................. 0% 0% 0% Expected volatility......................................... 62.00 60.00 57.28 Risk free interest rate..................................... 5.44% 5.49% 6.71% Expected option lives....................................... 5 years 5 years 5 years
34 37 i-STAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table summarizes information about stock options outstanding at December 31, 1999.
Options Outstanding Options Exercisable Number Number Range of Outstanding Weighted Average Weighted Average Exercisable Weighted Average Exercise Price at 12/31/99 Remaining Life Exercise Price at 12/31/99 Exercise Price ==================================================================================================================================== $ 1.50 - $ 2.25 1,620 0.98 $ 1.50 1,620 $ 1.50 $ 6.12 - $ 9.06 1,142,792 6.71 $ 7.12 576,036 $ 6.73 $ 9.62 - $ 12.625 904,488 6.80 $ 10.32 297,424 $ 10.57 $14.85 - $ 18.56 598,226 6.30 $ 16.68 287,551 $ 16.56 $22.37 - $ 32.58 212,371 5.31 $ 24.90 186,371 $ 25.01 - ------------------------------------------------------------------------------------------------------------------------------------ $ 1.50 - $ 32.58 2,859,497 6.54 $ 11.45 1,349,002 $ 12.19 - ------------------------------------------------------------------------------------------------------------------------------------
On February 5, 1999, the board of directors awarded 310,000 shares of restricted Common Stock to four executive officers of the Company. The restricted Common Stock had a fair value at the date of grant of approximately $2,751,250. One executive officer was awarded 250,000 shares of restricted Common Stock, 50,000 shares of which immediately vested on February 5, 1999, and the remaining 200,000 shares cliff vest on February 5, 2002. The 60,000 shares awarded to the other three executive officers vest over a three year period. In connection with the award of 250,000 shares to one executive officer, on June 30, 1999, the Company loaned the executive officer approximately $716,000 to pay withholding taxes. The promissory note for the withholding tax amount carries an interest rate of 5.37%, payable annually, and the principal amount of the loan is repayable three years from the date of the execution of a second promissory note for the remaining taxes which are expected to be loaned in the second quarter of 2000. One third of the principal amount of these loans will be forgiven on each anniversary date of the loan for the remaining taxes if the executive officer remains in the employment of the Company. The Company will also make a "tax gross-up" payment to the executive officer in connection with any taxes that may be due as result of the forgiveness of these loans. Compensation expense in the amount of approximately $1,379,000 was recorded in connection with these awards, the loan forgiveness and the associated tax gross-up payment during the year ended December 31, 1999. During 1999, 17,503 shares of restricted Common Stock were awarded to outside directors of the Board of Directors as part of their annual compensation. The restricted Common Stock had a fair value of $163,000 at the date of grant, which was recorded as compensation expense in 1999. The Company has a restricted stock plan whereby the Company can award shares of Common Stock to employees, other than its executive officers. The sale or transfer of the shares is limited during the restricted period, not exceeding four years. For the year ended December 31, 1999, no shares of restricted Common Stock were awarded. For the year ended December 31, 1998, the Company awarded 15,750 shares of restricted Common Stock which had a fair value at the date of grant of approximately $259,000. For the year ended December 31, 1997, the Company awarded 10,700 shares of restricted Common Stock which had a fair value at the date of grant of approximately $181,000. Compensation under the plan is charged to earnings over the restriction period and amounted to approximately $141,000, $271,000 and $2,000 in 1999, 1998 and 1997, respectively. 35 38 i-STAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 10. Development, Distribution and Manufacturing Rights Agreements In August 1988, the Company entered into development, distribution and instrument manufacturing license agreements with two Japanese companies. Total sales under these agreements were $3,900,000, $3,794,000 and $7,929,000 for the years ended December 31, 1999, 1998 and 1997, respectively, including deferred revenue of $0, $0 and $3,111,000, respectively. In addition, total sales for the year ended December 31, 1997 includes a payment, in the fourth quarter, of $900,000, net of Japanese withholding taxes, received as a development milestone payment for creatinine. The Company also has other license and distribution agreements, including agreements with HP and Abbott (see Notes 11 & 12). 11. Related Party Transactions One director of the Company has provided consulting services to the Company. Consulting fees incurred totaled approximately $15,000 for the year ended December 31, 1999 and $30,000 for each of the years ended December 31, 1998 and 1997. The Company had the following activity with Abbott and HP, primarily related to license and distribution agreements.
Abbott Laboratories In thousands of dollars 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- Revenues................................................ $ 35,499 $ 4,515 $ -- Receivable at year end.................................. $ 4,069 $ 2,439 $ -- Deferred revenue at year end............................ $ 6,474 $ 5,407 $ -- Hewlett-Packard Company In thousands of dollars 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- Revenues................................................ $ 2,375 $ 3,212 $ 2,897 Purchases............................................... $ 816 $ 728 $ 1,192 Receivable at year end.................................. $ 116 $ 404 $ 379
HP has assigned its license agreement with the Company and its holding of Series B Stock to Agilent. On March 16, 2000, Agilent converted its holding of 2,138,702 shares of Series B Stock into 2,138,702 shares of Common Stock, and sold its holding to two financial institutions and is no longer a related party. 12. Long-Term Sales, Marketing and Research Alliance with Abbott Laboratories On September 2, 1998, the Company and Abbott entered into agreements (the "Alliance Agreements") providing for a long-term sales, marketing and research alliance. The Alliance Agreements comprise a Distribution Agreement, a Research Agreement, a Stock Purchase Agreement, a Standstill Agreement and a Registration Rights Agreement. Under the Distribution Agreement, Abbott has become, subject to the existing rights of the Company's other international distributors, the exclusive worldwide distributor of the Company's hand-held blood analyzer products (including cartridges) and any new products the Company may develop for use in the professionally attended human healthcare delivery market. Abbott has assumed the Company's current product sales to U.S. customers (the "Base Business") at no profit to Abbott, and the Company and Abbott will share in the incremental profits derived from product sales beyond the Base Business. Abbott will prepay to the Company a total of $25,000,000 during the first three years of the Distribution Agreement as guaranteed future incremental product sales. Such prepayments will be repaid by the Company to Abbott as a credit against actual incremental product sales. The first prepayment of $5,000,000 was received on September 2, 1998, and is carried on the consolidated balance sheet as deferred revenue from related parties, non-current, at December 31, 1999 and 1998. A second prepayment of $4,000,000 was received in January 1999, and the unamortized revenue of $1,012,000 is included in deferred revenues-current at December 31, 1999. A further prepayment of $10,800,000 was received in January 2000. Distribution under the Distribution Agreement commenced in the United States on November 1, 1998, and a subsequent international rollout commenced in various countries during the second half of 1999. As a result of the Distribution Agreement, the majority of the Company's revenues are now derived from Abbott. The Distribution Agreement expires on December 31, 2003, subject to automatic extensions for additional one-year periods unless either party provides the other with at least 12 months prior written notice, except that the Company may terminate the Distribution Agreement after December 31, 2001 if Abbott fails to achieve a three-year milestone minimum growth rate in 36 39 i-STAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) sales of the Company's products covered by the Distribution Agreement. If the Distribution Agreement is terminated, other than (i) by the Company for cause or for Abbott's failure to achieve the minimum growth rate; or (ii) by Abbott, if Abbott delivers the requisite notice terminating the Distribution Agreement after the initial term, then, the Company will be obligated to pay to Abbott a one-time termination fee calculated to compensate Abbott for a portion of its costs in undertaking the distribution relationship, and residual payments for five years following termination based on a percentage of Abbott's net sales of the Company's products during the final twelve months of the Distribution Agreement. In the event that such termination occurs within the first three years of the Distribution Agreement, the Company also must refund to Abbott any prepayments made and not yet credited to Abbott at the time of such termination. Under the terms of the Research Agreement, the Company will conduct research and will develop products primarily to be commercialized by Abbott. Such research and development will be funded by Abbott and Abbott will have exclusive worldwide commercialization rights to the products developed under the Research Agreement subject to certain limitations. The parties have identified two initial projects to pursue under the Research Agreement, including the research and development of tests useful in the diagnosis and treatment of myocardial infarction and coronary artery disease. The Company and Abbott will jointly own the intellectual property which is developed during the course of work performed under the Research Agreement. The Company has recognized $1,762,000 and $110,000 as other related party revenues during the years ended December 31, 1999 and 1998, respectively, in connection with this agreement. Additionally, prepayments received in connection with this agreement of $462,000 and $407,000 are included in deferred revenue from related parties, current, on the consolidated balance sheet at December 31, 1999 and 1998, respectively. The Research Agreement terminates upon expiration or termination of the Distribution Agreement, unless earlier terminated as provided therein. Upon such expiration or earlier termination, both the Company and Abbott will be permitted to distribute the products developed under the Research Agreement in the territory covered by the Distribution Agreement. Under the Stock Purchase Agreement, Abbott purchased 2,000,000 shares (the "Purchased Shares") of the Company's Common Stock, at a price of $11.35 per share, resulting in net proceeds of $20,641,000. The Purchased Shares represented at closing approximately 11.5% of the outstanding voting securities of the Company. The Stock Purchase Agreement, together with the Registration Rights Agreement, contains certain terms and conditions pertaining to the voting and transfer of the Purchased Shares. The Standstill Agreement provides for limitations on Abbott's ability to purchase the Company's Common Stock, or to propose any merger or business combination with the Company or purchase of a material portion of the Company's assets. The foregoing description of the Alliance Agreements is qualified in its entirety by reference to the actual text of such agreements, copies of which were filed with the Commission as exhibits to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998. The objective of the Abbott alliance is to strengthen the Company's product marketing and distribution capability and accelerate the development of new products. Because the alliance is still at an early implementation stage, it is difficult at this time for the Company to predict, within a reasonable degree of certainty, the likely impact of the alliance upon its operations, particularly in the long-term. The Company has reduced its sales and marketing expenses as Abbott assumes principal responsibility for many of the Company's marketing and sales activities. 13. Income Taxes At December 31, 1999, the Company had a net operating loss carryforward of approximately $151,465,000 for United States Federal income tax purposes which expires in varying amounts through 2019. The Company also has unused research and development tax credits of approximately $1,414,000 for United States Federal income tax purposes which expire in varying amounts through 2019. Additionally, the Company has unused Canadian investment tax credits of approximately $3,594,000 which expire in varying amounts through 2008. The timing and manner in which the operating loss carry forwards and credits may be utilized in any year by the Company will be limited by Internal Revenue Code Section 382. 37 40 i-STAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Company accounts for income taxes in accordance with the provisions of SFAS No. 109. SFAS No. 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company provides a valuation allowance against the net deferred tax assets due to the uncertainty of realization. The increase in the valuation allowance for the years ended December 31, 1999 and 1998 was approximately $3,544,000 and $7,905,000, respectively. Temporary differences and carry forwards which give rise to the deferred tax assets and liabilities at December 31, 1999 and 1998 are as follows:
1999 1998 Deferred Tax Deferred Tax In thousands of dollars Assets (Liabilities) Assets (Liabilities) - ------------------------------------------------------------------------------------------------------ Net Operating Loss--United States .............. $ 51,498 $ 50,332 Net Operating Loss--(Canada) ................... 4,113 2,279 Net Operating Loss--Province (Canada) .......... 2,232 1,656 State Taxes .................................... 8,225 8,503 Deferred Revenue ............................... 2,291 1,886 Tax Credits--United States ..................... 1,414 1,314 Tax Credits--Canada ............................ 3,594 3,663 Intangibles .................................... (405) (425) Depreciation--United States .................... (495) 346 Depreciation--Canada ........................... 602 233 Depreciation--Province (Canada) ................ 816 459 Other .......................................... 1,546 1,641 ------------------ ----------------- 75,431 71,887 ------------------ ----------------- Valuation Allowance--United States.............. (55,849) (55,094) Valuation Allowance--Canada .................... (8,309) (6,175) Valuation Allowance--Province (Canada).......... (3,048) (2,115) Valuation Allowance--State ..................... (8,225) (8,503) ------------------ ----------------- Total Net Deferred Taxes ....................... $ -- $ -- ================== =================
Given that significant uncertainty exists regarding the realizability of the Company's deferred tax assets, a full valuation allowance is recorded. 14. Savings and Investment Retirement Plan The Company has a defined contribution savings and investment retirement plan under section 401(k) of the Internal Revenue Code, as amended, whereby substantially all U.S. employees are eligible to participate ("U.S. Plan"), and a deferred profit sharing plan for substantially all Canadian employees. In June 1999 the Company started to make matching contributions to these plans, and compensation expense in the amount of approximately $101,000 was recorded for the year ended December 31, 1999. The trustee for the U.S. Plan is Fidelity Management Trust Company, which is affiliated with a stockholder of the Company. 15. Supplementary Statement of Operations Information Maintenance and repairs expense for the years ended December 31, 1999, 1998 and 1997 was approximately $938,000, $865,000 and $757,000, respectively. 38 41 i-STAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 16. Commitments and Contingencies The Company is a defendant in a case entitled Nova Biomedical Corporation, Plaintiff v. i-STAT Corporation, Defendant. The Complaint, which was filed in the United States District Court for the District of Massachusetts on June 27,1995, alleges infringement by i-STAT of Nova's U.S. Patent No. 4,686,479. In February 1998, the Court entered summary judgment in favor of the Company on the issue of patent infringement. The plaintiff appealed the dismissal to the Federal Circuit which affirmed two of the grounds of the dismissal (proper interpretation of the patent and the fact that the Company does not literally infringe), but remanded the case back to the District Court with instructions to reconsider whether the Company's device is the equivalent of the patented device and therefore infringes under the "doctrine of equivalents." The Company has submitted to the Court a motion for summary judgment in its favor on the "doctrine of equivalents," and oral argument on this motion has been set for late Spring 2000. Should the plaintiff prevail on this issue, it could have a material and adverse impact on the financial position, results of operations and cash flows of the Company. The Company is a defendant in a class action complaint entitled Susan Kaufman, on behalf of herself and all others similarly situated, Plaintiff, v. i-STAT Corporation, William P. Moffitt, Lionel M. Sterling, Imants R. Lauks and Matthias Plum, Jr. The class action was brought by Susan Kaufman on her behalf and on behalf of all purchasers of the Company's Common Stock between May 9, 1995 and March 19, 1996. The complaint, which was filed in the Superior Court of New Jersey in Mercer County on June 19, 1996, alleges New Jersey common law fraud and negligent misrepresentation, and is predicated on a "fraud on the market" theory in connection with certain sales of i-STAT stock by the Company's chief executive officer, chief technology officer and two outside directors during a nine-month period. The plaintiffs seek unspecified compensatory damages, interest and payment of all costs and expenses incurred in connection with the class action. The Company believes the complaint is without merit and, on April 28, 1998, the Court entered summary judgment in favor of all the defendants. The plaintiffs have appealed and on August 10,1999, the Appellate Division of the Superior Court filed an opinion sustaining the trial court's determination as to the negligent misrepresentation claims but reversing as to the common law fraud claims. The Company appealed the reversal and the New Jersey Supreme Court has granted a hearing certification of the appeal, but no date has yet been set for such hearing. Should the plaintiff prevail on this issue, it could have a material and adverse impact on the financial position, results of operations and cash flows of the Company. The Company is a defendant in a case entitled Customedix Corporation, Plaintiff v. i-STAT Corporation, Defendant. The complaint, which was filed in the United States District Court for the District of Connecticut on December 26, 1996, alleges infringement by i-STAT of Customedix's U.S. Patent No. 4,342,964. The plaintiff seeks injunctive relief and an accounting for i-STAT's profits and the damages to Customedix from such alleged infringement. The Company intends to contest the case vigorously and does not believe that it has infringed the Customedix patent. The Company has obtained an opinion from recognized patent counsel to the effect that no infringement has occurred. The Court has interpreted the Customedix patent in a way favorable to the Company and has denied Customedix's motion for reconsideration of that interpretation. The plaintiff has admitted that the Company does not literally infringe and is only pursuing infringement under the doctrine of equivalents. In February 2000, the Court denied the Company's motion for summary judgment on the basis that there remained certain factual issues to be decided, and the Company is awaiting the Court's decision on its motion to reconsider that denial. If the plaintiff should prevail in this matter, it could have a material and adverse impact on the financial position, results of operation and cash flows of the Company. 17. Consolidation of Operations In January 1998, the Company decided to consolidate all its cartridge assembly operations in its manufacturing facility in Ontario, Canada. In order to facilitate this move, the Company relocated its cartridge assembly operation from Plainsboro, New Jersey to its manufacturing facility in Ontario, Canada. The relocation of cartridge assembly commenced in June 1998, with the transfer of one assembly line to Canada, and the Company completed the relocation by April 1999. As a result of this consolidation of operations, 66 employees in the cartridge assembly operations were notified during the first quarter of 1998 that their employment would be terminated. The Company's lease for its instrument operations, engineering, customer support, selected research and development, marketing and administrative facility in Princeton, New Jersey, expired in September 1998. The Company relocated these activities to a 37,474 square foot leased facility in East Windsor, New Jersey. The product distribution operations formerly located in the Company's Plainsboro, New Jersey facility were relocated to the Company's East Windsor, New Jersey facility in early 1999. The charge to earnings in 1999 was $70,000. The charge to earnings in 1998 for these relocations, including severance and retention payments to affected employees, the physical move of equipment, rent and utilities on the 39 42 i-STAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) unoccupied Plainsboro facility until that lease expired in February 1999, and miscellaneous costs was approximately $1.1 million. The charge to earnings in 1998 comprises approximately $1.0 million for severance and retention payments, and approximately $0.1 million for lease costs in respect to the unoccupied Plainsboro facility and other expenses associated with the move to the East Windsor facility. Retention payments are charged to expense over the retention period. 18. Geographic Segment Data The Company is engaged in the development, manufacturing and marketing of its proprietary blood analysis products in the health care sector. The Company's operations are classified into the following geographic areas:
In thousands of dollars Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 Net Revenues: Domestic.................................................... $ 31,437 $ 29,270 $ 25,300 Canada...................................................... 271 344 245 Japan....................................................... 4,610 3,794 7,929 Other International......................................... 8,907 5,693 4,366 -------------------------------------------------------------------- Total....................................................... $ 45,225 $ 39,101 $ 37,840 ==================================================================== In thousands of dollars Year Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 Long-Lived Assets: Domestic.................................................... $ 3,839 $ 8,533 $ 8,038 Canada...................................................... 14,041 6,522 6,310 -------------------------------------------------------------------- Total....................................................... $ 17,880 $ 15,055 $ 14,348 ====================================================================
The Company's net revenues from Abbott were approximately $35,499,000 and $4,515,000 for the years ended December 31, 1999 and 1998, respectively. Net sales to FUSO during 1997 were approximately $7,929,000. These amounts represent more than 10% of the consolidated net sales for each year. 40 43 i-STAT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 19. Quarterly Financial Information (unaudited)
1999 First Second Third Fourth In thousands of dollars, except share and per share data Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------ Net sales..................................................... $ 10,337 $ 11,426 $ 11,377 $ 12,085 Gross profit.................................................. $ 2,254 $ 1,004 $ 3,362 $ 2,204 Net loss...................................................... ($4,491) ($4,492) ($1,478) ($2,341) Basic and diluted net loss per share.......................... ($0.26) ($0.26) ($0.08) ($0.13) Weighted average shares used in computing basic and diluted net loss per share.............. 17,473,965 17,518,028 17,566,063 17,617,105 1998 First Second Third Fourth In thousands of dollars, except share and per share data Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------ Net sales.................................................... $ 8,786 $ 10,454 $ 9,268 $ 10,593 Gross profit................................................ $ 1,096 $ 2,023 $ 2,189 $ 3,129 Net loss..................................................... ($6,127) ($4,721) ($4,552) ($2,995) Basic and diluted net loss per share......................... ($0.40) ($0.31) ($0.28) ($0.17) Weighted average shares used in computing basic and diluted net loss per share............. 15,355,804 15,369,324 16,051,784 17,426,595
Basic and diluted net loss per common share amounts are calculated independently for each of the quarters presented. The sum of the quarters may not equal the full year basic and diluted net loss per common share amounts. 41 44 REPORT OF INDEPENDENT ACCOUNTANTS FINANCIAL STATEMENT SCHEDULE To the Board of Directors of i-STAT Corporation: Our audits of the consolidated financial statements referred to in our report dated January 31, 2000 appearing in this 1999 Annual Report on Form 10-K also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Florham Park, New Jersey January 31, 2000, except for the last paragraph in Note 11 as to which the date is March 16, 2000 42 45 i-STAT CORPORATION VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Charged to Balance at Beginning Costs and Other end of of Period Expenses Accounts Deductions Period - ------------------------------------------------------------------------------------------------------------------------------------ For the year ended December 31, 1999: Reserve for Doubtful Accounts.......................... $ 190 $ -- $ -- ($62)* $ 128 ========================================================================== For the year ended December 31, 1998: Reserve for Doubtful Accounts.......................... $ 109 $ 103 $ -- ($22)* $ 190 ========================================================================== For the year ended December 31, 1997: Reserve for Doubtful Accounts.......................... $ 195 $ 53 $ -- ($139)* $ 109 ========================================================================== For the year ended December 31, 1999: Tax Valuation Reserve.................................. $ 71,887 $ 3,544 $ -- $ -- $ 75,431 ========================================================================== For the year ended December 31, 1998: Tax Valuation Reserve.................................. $ 63,982 $ 7,905 $ -- $ -- $ 71,887 ========================================================================== For the year ended December 31, 1997: Tax Valuation Reserve.................................. $ 56,002 $ 7,980 $ -- $ -- $ 63,982 ==========================================================================
* Trade accounts receivable written off against the reserve for doubtful accounts. 43 46 Signatures Pursuant to the requirements of Section 13 or 15(d) 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, in New Jersey on the 30th day of March, 2000. i-STAT CORPORATION By: /s/ William P. Moffitt ------------------------------------- William P. Moffitt President and Chief Executive Officer POWERS OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William P. Moffitt and Roger J. Mason, or either of them, his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date /s/ William P. Moffitt President, Chief Executive Officer March 30, 2000 - ----------------------------------- and Director (Principal Executive Officer) William P. Moffitt /s/ Roger J. Mason Vice President of Finance, Treasurer March 30, 2000 - ----------------------------------- and Chief Financial Officer (Principal Roger J. Mason Financial and Accounting Officer) /s/ J. Robert Buchanan Chairman of the Board March 30, 2000 - ----------------------------------- J. Robert Buchanan /s/ Stephen D. Chubb Director March 30, 2000 - ----------------------------------- Stephen D. Chubb /s/ Lionel N. Sterling Director March 30, 2000 - ----------------------------------- Lionel N. Sterling /s/ Anne M. VanLent Director March 30, 2000 - ----------------------------------- Anne M. VanLent
44 47 Exhibit Index Exhibit No. Description 10.48 Form of Director Non-Statutory Stock Option Agreement 10.50 i-STAT Corporation Equity Incentive Plan, as amended 10.53 Consulting Agreement between the Registrant and Imants R. Lauks dated as of September 1, 1999 10.54 Form of Director Restricted Share Award Agreement 23 Consent of PricewaterhouseCoopers LLP, Independent Accountants 24 Powers of Attorney, executed by certain officers of the Registrant and the individual members of the Board of Directors, authorizing such officers of the Registrant to file amendments to this Report, are located on the signature page of this Report. 27 Financial Data Schedule 45 EX-10.48 2 FORM OF DIRECTOR NON-STATUTORY STOCK OPTIONS AGMT 1 U.S. RESIDENT (NON-EMPLOYEE DIRECTOR) i-STAT CORPORATION STOCK OPTION AWARD AGREEMENT NON-STATUTORY 1. Grant of Option. As of the date set forth on the signature page of this Agreement (the "Date of Grant"), i-STAT Corporation, a Delaware corporation (the "Company"), grants to ____________ (the "Director"), in consideration for service as a member of the Board of Directors of the Company, an option (the "Option"), pursuant to the Company's Equity Incentive Plan (the "Plan"), to purchase up to an aggregate of ________ shares (the "Shares") of Common Stock, _____ par value per share ("Common Stock"), of the Company at a price of ________ per Share (the "Exercise Price"), purchasable as set forth in and subject to the terms and conditions of this Agreement and the Plan. 2. Exercise of Option and Provisions for Termination. (a) Exercisability of Option. The Option may not be exercised prior to the later of (x) the date that is thirty (30) days following the Date of Grant and (y) the date that is the day immediately preceding the end of the Company's fiscal quarter in which the Date of Grant occurs, from and after which the Option will become fully exercisable. (b) Expiration Date. Except as otherwise provided in this Agreement, the Option may not be exercised after the date (hereinafter the "Expiration Date") that is the fifth anniversary of the Date of Grant. Notwithstanding the foregoing, if at any time during the six (6) months immediately preceding the Expiration Date the Director is precluded from selling Shares solely by reason of the application to the Director of the Company's "Policy Regarding Confidential Information and Insider Trading For All Employees and Directors" (or any similar successor policy), the Expiration Date shall be deemed automatically extended by a period equal to six (6) months beginning with the first day during which the Director shall no longer be so precluded. (c) Exercise Procedure. The Option shall be exercised by the Director's delivery of written notice of exercise to the chief financial officer of the 2 Company, specifying the number of Shares to be purchased and the aggregate Exercise Price to be paid therefor and accompanied by payment in full in accordance with Section 3. Such exercise shall be effective upon receipt by the chief financial officer of the Company of such written notice together with the required payment. The Director may purchase less than the total number of Shares covered hereby, provided that no partial exercise of the Option may be for any fractional Share or for less than five hundred (500) whole Shares. (d) Continuous Service Required. Except as otherwise provided in this Section 2, the Option may not be exercised unless the Director, at the time he or she exercises the Option, is, and has been at all times since the Date of Grant of the Option, a director of the Company. (e) Cessation of Service. If the Director ceases to serve as such for any reason other than death or disability or removal, as provided in subsections (f) and (g) below, the right to exercise the Option shall terminate three months after such cessation (but in no event after the Expiration Date). If the Director's relationship with the Company changes in a manner that does not constitute a complete cessation of service with the Company, a Parent Corporation or a Subsidiary (as such terms are defined in the Plan); for example, if upon such cessation the Director becomes a consultant to or employee of the Company or any Parent Corporation or Subsidiary, the Board of Directors of the Company (or any Committee thereof appointed by the Board pursuant to the Plan) shall have authority to determine whether or not such change constitutes a cessation of service for purposes of this paragraph. (f) Exercise Period Upon Death or Disability. If the Director dies or becomes disabled (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended) prior to the Expiration Date, while he or she is serving as such, or if the Director dies within three months after the Director ceases to serve as such (other than as the result of removal as specified in subsection (g) below), then, to the extent the Option was exercisable prior to such event, the Option shall remain exercisable, for a period of one year following the date of death or disability of the Director (but in no event after the Expiration Date), by the Director, the Director's legal representative (in the event of legal incapacity) or by the person to whom the Option is transferred by will or the laws of descent and distribution. Except as otherwise indicated by the context, the term "Director", as used in this Agreement, shall be deemed to include the estate of the Director, or any person who acquires the right to exercise the Option by bequest or inheritance or otherwise by reason of the death of the Director. 2 3 (g) Removal. If the Director, prior to the Expiration Date, ceases to serve as such because he or she is removed from office, the right to exercise the Option shall terminate immediately upon such removal. 3. Payment of Exercise Price. Payment of the aggregate Exercise Price for Shares purchased upon any exercise of the Option shall be made, at the option of the Director, by delivery to the Company of either (i) cash or a check to the order of the Company, or (ii) shares of Common Stock, in each case in an amount equal to the aggregate Exercise Price of such Shares. For purposes of the preceding sentence, Common Stock shall be valued at its "fair market value" as defined in the Plan, for which purposes the "Value Date" shall be deemed to be the effective date of such exercise. 4. Delivery of Shares. The Company shall, upon payment of the aggregate Exercise Price for the number of Shares purchased and paid for, make prompt delivery of such Shares to the Director, provided that if any law or regulation requires the Company to take any action with respect to such Shares before the issuance thereof, then the date of delivery of such Shares shall be extended for the period necessary to complete such action. No Shares shall be issued and delivered upon exercise of the Option unless and until, in the opinion of counsel for the Company, any applicable registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), any applicable listing requirements of any national securities exchange on which stock of the same class is then listed, and any other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery, shall have been fully complied with. 5. Non-transferability of Option. Except as provided in subsection (f) of Section 2 or as otherwise agreed to by the Board of Directors or a committee thereof appointed pursuant to the Plan, the Option is personal and no rights granted hereunder may be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) nor shall any such rights be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of the Option or of such rights contrary to the provisions hereof, or upon the levy of any attachment or similar process upon the Option or such rights, the Option and such rights shall, at the election of the Company, become null and void. 6. Rights as a Shareholder. The Director shall have no rights as a shareholder with respect to any Shares which may be purchased by exercise of the Option unless and until a certificate representing such Shares is duly issued and delivered to the Director. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued except as provided for in Sections 7 or 8 of this Agreement. 3 4 7. Recapitalization. If the outstanding shares of Common Stock of the Company are changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any recapitalization, reclassification, stock split, stock dividend, combination or subdivision, appropriate adjustment shall be made in the number and kind of Shares with respect to which the Option shall be exercisable. Such adjustment to the Option shall be made without change in the total Exercise Price applicable to the unexercised portion of the Option, but a corresponding adjustment in the Exercise Price per Share shall be made. No such adjustment shall be made if, in the opinion of counsel to the Company, stockholder approval thereof is required to be obtained in order to preserve for optionees under the Plan the benefits available pursuant to Rule 16b-3 under the Securities Exchange Act of 1934, as amended, (the "Exchange Act") or any similar or successor rule thereto. 8. Reorganization or Change in Control of the Company. (a) Reorganization. In case, prior to the Expiration Date, (i) the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, (ii) all or substantially all of the assets or more than 50% of the outstanding voting stock of the Company is acquired by any other corporation, or (iii) of a reorganization or liquidation of the Company, the Board of Directors of the Company, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Option, either (x) make appropriate provision for the protection of the Option by the substitution on an equitable basis of appropriate stock of the Company, or of the merged, consolidated or otherwise reorganized corporation which will be issuable in respect of the shares of Common Stock of the Company, provided that no additional benefits shall be conferred upon the Director as a result of such substitution, and the excess of the aggregate fair market value of the Shares subject to the Option immediately after such substitution over the Exercise Price hereof is not more than the excess of the aggregate fair market value of the Shares subject to the Option immediately before such substitution over the Exercise Price hereof, or (y) upon written notice to the Director, provide that the Option must be exercised within a specified number of days of the date of such notice or it will be terminated. In any such case, the Board of Directors may, in its discretion, accelerate the exercise dates of the Option; provided, however, that paragraph (b) below shall govern acceleration of the exercisability of the Option with respect to the events described in clauses (i), (ii) and (iii) of such paragraph. (b) Change in Control. In case, prior to the time that the Option becomes exercisable pursuant to Section 2(a), (i) of any consolidation or merger involving the Company, if the persons or entities who are shareholders of the Company immediately before such merger or consolidation do not own, directly or indirectly, immediately following such merger or consolidation, more than fifty percent (50%) of 4 5 the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the shares of Common Stock immediately before such merger or consolidation; (ii) of any sale, lease, license, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the business and/or assets of the Company or assets representing over 50% of the operating revenue of the Company; or (iii) any person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act, who was not, on April 21, 1995, a controlling person (as defined in Rule 405 under the Securities Act of 1933, as amended) (a "Controlling Person") of the Company shall become (x) the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of over 50% of the Company's outstanding Common Stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally or (y) a Controlling Person of the Company, then upon the occurrence of any such event the Option shall immediately become exercisable with respect to 100% of the Common Stock subject to the Option. 9. Withholding Taxes. The Company's obligation to deliver Shares upon the exercise of the Option shall be subject to the Director's satisfaction of all applicable federal, state and local income and other tax withholding requirements. 10. Restrictions on Transfer of Shares, Acknowledgment and Legend. (a) The Director acknowledges and agrees that (i) because of his position with the Company, the Director may be deemed to be an "affiliate" thereof (as such term is defined in Rule 144 promulgated under the Securities Act); (ii) the resale by an affiliate of the Company of Shares acquired upon any exercise of the Option is restricted by law, notwithstanding any registration of the Shares on Form S-8 (or similar successor form) promulgated under the Securities Act; (iii) any resale of the Shares by an affiliate of the Company pursuant to said Rule 144 would be subject to the volume limitations contained in paragraph (e) thereof; and (iv) the Director will not sell such Shares in violation of Rule 144(e) or any other rule or regulation under the Securities Act. In addition, the Director acknowledges that, for the purposes of ensuring compliance with the exemption from the "short swing profits" rules promulgated under the Exchange Act, no Share may be sold prior to the expiration of six months from the Date of Grant. (b) Legend on Stock Certificates. So long as the Director remains an affiliate of the Company, all stock certificates representing Shares issued to the Director upon exercise of the Option shall have affixed thereto a legend substantially in the following form, in addition to any other legends required by applicable state law: 5 6 "The shares of stock represented by this certificate are subject to the volume limitations of Rule 144(e) promulgated under the Securities Act of 1933, as amended." By making payment upon exercise of the Option, the Director shall be deemed to have reaffirmed, as of the date of such payment, the representations made in this Section 10. 11. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part , in any jurisdiction, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law in such jurisdiction, and such invalidity or unenforceability shall have no effect in any other jurisdiction. 12. Miscellaneous. (a) This Agreement and any instrument delivered pursuant to this Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey, without regard to the conflicts of law rules thereof. (b) Any controversy or claim arising out of or relating to this Agreement, or any breach thereof, shall be resolved through final and binding arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment upon any arbitration award rendered may be entered in any court having jurisdiction thereof. The arbitration shall be held in the area where the Company then has its principal place of business. The arbitration award may include an award of attorneys' fees and costs. (c) This Agreement shall extend to, be binding upon and inure to the benefit of Director and his legal representatives, heirs, successors and assigns (subject, however, to the limitations set forth in Section 5 with respect to the assignment of the Option or rights herein) and upon the Company and its successors and assigns, regardless of any change in the business structure of the Company, be it through spinoff, merger, sale of stock, sale of assets or any other transaction and shall be construed in a manner that is consistent with the provisions of the Plan. (d) This Agreement and the Plan contain the entire agreement of the parties with respect to the subject matter hereof. No waiver, modification or change of any provision of this Agreement will be valid unless in writing and signed by both parties. 6 7 (e) The waiver of any breach of any duty, term or condition of this Agreement shall not be deemed to constitute a waiver of any preceding or succeeding breach of the same or of any other duty, term or condition of this Agreement. (f) All notices pursuant to this Agreement will be in writing and will be sent by personal delivery, telecopier, electronic mail or by prepaid registered or certified mail, return receipt requested, addressed to the parties hereto at the addresses set forth beneath their names on the signature page hereto or to such other addresses as may hereafter be specified by like notice in writing by either of the parties, and will be deemed given (i) upon receipt if by personal delivery, (ii) on the day on which delivered if delivered by telecopier (with confirmation of receipt ( to be established by acceptable protocol), (iii) on the third day after mailing if sent by registered or certified mail or (iv) when transmitted if delivered by electronic mail (with satisfactory evidence of transmittal, to be established by acceptable protocol). Copies of all notices shall be sent to: Paul, Hastings, Janofsky & Walker LLP, 1055 Washington Boulevard, Stamford, Connecticut 06901, Attention: Esteban A. Ferrer, Esq., Telecopier No. 203-359-3031, E-mail Address: eaferrer@phjw.com. (g) The headings of the sections of this Agreement are inserted for convenience of reference only and will not be deemed to constitute a part hereof or to affect the meaning hereof. (h) This Agreement may be executed in counterparts, each of which will be deemed an original but all of which will together constitute one and the same agreement. [signature page follows this page] 7 8 Date of Grant: i-STAT CORPORATION ____________ By:______________________________ Name: Title: 104 Windsor Center Drive East Windsor, New Jersey 08520 8 9 DIRECTOR'S ACCEPTANCE The undersigned hereby accepts the foregoing Agreement and agrees to the terms and conditions thereof. The undersigned hereby acknowledges receipt of a copy of the Company's Equity Incentive Plan. DIRECTOR _____________________________ Name: Address: Telecopier No.: E-mail Address: EX-10.50 3 I-STAT CORPORATION EQUITY INCENTIVE PLAN 1 i-STAT CORPORATION EQUITY INCENTIVE PLAN 1. Purpose. The purpose of this plan (the "Plan") is to secure for i-STAT Corporation (the "Company") and its stockholders the benefits arising from capital stock ownership by employees and members of the Board of Directors of, and consultants and advisors to, the Company and any Parent Corporation, or Subsidiary (each as defined in Section 15 hereof), who are expected to contribute to the Company's future growth and success. 2. Types of Awards and Administration. (a) Types of Awards. Awards pursuant to this Plan shall be authorized by action of the Board of Directors of the Company (or a Committee designated by the Board of Directors) and may be (i) incentive stock options ("Incentive Stock Options") to purchase shares of the Company's Common Stock, par value $.15 per share ("Common Stock"), meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),(ii) non-statutory options to purchase shares of Common Stock, which are not intended to meet the requirements of Code Section 422 ("Non-Statutory Stock Options" and, together with Incentive Stock Options, "Options"), or (iii) shares of Common Stock ("Restricted Shares" and, together with "Options", "Awards"). (b) Administration. This Plan will be administered by the Board of Directors of the Company, whose construction and interpretation of the terms and provisions hereof shall be final and conclusive. The Board of Directors may in its sole discretion make Awards and authorize the Company to issue shares of Common Stock pursuant to such Awards, as provided in, and subject to the 2 terms and conditions of, this Plan. The Board shall have authority, subject to the express provisions of this Plan, to construe this Plan and the respective written agreements setting forth the terms and conditions of an Award (each, an "Award Agreement"), to prescribe, amend and rescind rules and regulations relating to this Plan, to determine the terms and provisions of Award Agreements, which need not be identical, to advance the lapse of any waiting, forfeiture or installment periods and exercise dates, and to make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration of this Plan. The Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in this Plan or in any Award Agreement in the manner and to the extent it shall deem expedient to carry this Plan into effect and it shall be the sole and final judge of such expediency. No director shall be liable for any action or determination taken or made in good faith under or with respect to this Plan or any Award. (c) Delegation of Authority. The Board of Directors may, to the full extent permitted by law, delegate any or all of its powers under this Plan to a committee (the "Committee") of two or more directors each of whom is a Non-Employee Director (as hereinafter defined), and if the Committee is so appointed all references to the Board of Directors in this Plan shall mean and relate to such Committee to the extent of the powers so delegated. For the purposes of this Plan, a director or member of such Committee shall be deemed to be a "Non-Employee Director" only if such person qualifies as a "Non-Employee Director" within the meaning of paragraph (b)(3) of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or any successor rule. (d) Limitation on Options Granted in Any Twelve Months. No individual may be granted, in any twelve-month period, Options under this Plan which are exercisable with respect to more than 200,000 shares of Common Stock. -2- 3 3. Eligibility. Awards shall be made only to persons who are, at the time of grant, officers, employees or directors of, or consultants or advisors to, (provided, in the case of Incentive Stock Options, such directors or officers are then also employees of) the Company or any Parent Corporation or Subsidiary. A person who has been granted an Award may, if such person is otherwise eligible, be granted an additional Award or Awards if the Board of Directors shall so determine. 4. Stock Subject to Plan. Subject to adjustment as provided in Sections 11 and 12 hereof, the maximum number of shares of Common Stock of the Company which may be issued and sold pursuant to Awards made under this Plan is 2,300,000 shares. Such shares may be authorized and unissued shares or may be shares issued and thereafter acquired by the Company. If either (i) Restricted Shares are forfeited following their award under this Plan, or (ii) Options granted under this Plan are canceled, or expire or terminate for any reason without having been exercised in full, the forfeited Restricted Shares, or the unpurchased shares of Common Stock subject to any such Option, as the case may be, shall again be available for subsequent Awards under this Plan. Restricted Shares, Options and shares of Common Stock issuable upon exercise of Options granted under this Plan may be subject to transfer restrictions, repurchase rights or other restrictions as shall be determined by the Board of Directors. 5. Award Agreements. As a condition to the grant of an Award under this Plan, each recipient of an Award shall sign an Award Agreement not inconsistent with this Plan in such form, and providing for such terms and conditions, as the Board of Directors shall determine at the time such Award is -3- 4 authorized to be granted. Such Award Agreements need not be identical but shall comply with, and be subject to, the terms and conditions set forth herein. 6. Options Generally. (a) Purchase Price. The purchase price per share of Common Stock deliverable upon the exercise of an Option (hereinafter sometimes referred to as the "exercise price") shall be not less than the fair market value of the Common Stock as determined by the Board of Directors on the date such Option is authorized to be granted. The "fair market value" of the Common Stock on any date (the "Value Date") shall mean (i) the closing price of the Common Stock, as reported on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or, if the Common Stock is listed on a stock exchange, the principal stock exchange on which the Common Stock is listed, on the last trading day prior to the Value Date for which a closing price is available, or (ii) if the Board of Directors determines, in the exercise of its business judgment, that such closing price does not properly reflect the fair market value of the Common Stock on the Value Date, then such other price as may then be determined in good faith by the Board of Directors. If the Common Stock is not reported on NASDAQ or listed on any stock exchange, then the "fair market value" shall be determined in good faith by the Board of Directors. (b) Payment of Exercise Price. Payment of the exercise price of an Option shall be in cash or, in the sole discretion of the Board of Directors, in capital stock of the Company, by the surrender of other rights to purchase capital stock of the Company (including Options)or by any other lawful means. The Company may, in its sole discretion, make loans to an Option holder in an amount equal to all or part of the exercise price of Options held by such Option holder; provided, that the grant of a loan on any occasion to one or more Option holder(s) shall not -4- 5 obligate the Company to grant loans on any other occasion or to such or any other Option holder. (c) Option Term. Each Option and all rights thereunder shall expire on such date as the Board of Directors shall determine on the date such Option is authorized to be granted, but in no event may any Option remain in effect after the expiration of ten years from the day on which such Option is granted (or five years in the case of Options described in paragraph (b) of Section 7 and in Section 9 hereof), and such Option shall be subject to earlier termination as provided in this Plan. Notwithstanding the foregoing, except with respect to Incentive Stock Options, if at any time during the last six (6) months of the term of any Option, the holder thereof is precluded from selling shares of Common Stock underlying such Option solely by reason of the application to such holder of the Company's "Policy Regarding Confidential Information and Insider Trading For All Employees and Directors" (or similar successor policy), the term of such Option shall be deemed automatically extended by a period equal to six (6) months beginning with the first day during which such Option holder shall no longer be so precluded. (d) Exercise of Options. Each Option shall be exercisable either in full or in installments at such time or times and during such period as shall be set forth in the Award Agreement evidencing such Option; provided, however, that, subject to the exception set forth in paragraph (c) above, (i) no Option shall have a term in excess of ten years from the date of grant (or five years in the case of Options described in paragraph (b) of Section 7 and in Section 9 hereof), and (ii) the periods of time following an Option holder's cessation of employment with the Company, any Parent Corporation or Subsidiary, or service as an Outside Director (as defined in Section 9 hereof), or as consultant or advisor to the Company, any Parent Corporation or Subsidiary, or following an Option holder's death or disability, during which an Option may be exercised, as provided in paragraph (f) below, shall not be included for -5- 6 purposes of determining the number of shares of Common Stock with respect to which such Option may be exercised. (e) Rights as a Stockholder. The holder of an Option shall have no rights as a stockholder with respect to any shares covered by the Option until the date of issue of a stock certificate to such person for such shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. (f) Effect of Cessation of Service. Notwithstanding anything contained in this Plan to the contrary, no Option may be exercised unless, at the time of such exercise, the recipient is, and has been continuously since the date of grant of such person's Option, employed by, or serving as an Outside Director, consultant or advisor to one or more of the Company, a Parent Corporation or a Subsidiary, except that if and to the extent the applicable Award Agreement so provides: (i) the Option may be exercised within the period of three months after the date the holder thereof ceases to be employed by or to serve as an Outside Director of or consultant or advisor to any of the foregoing entities (or within such lesser period as may be specified in the Award Agreement) for any reason other than death or disability; (ii) if the holder thereof dies while in the employ of, or serving as an Outside Director of or consultant or advisor to, the Company, a Parent Corporation or a Subsidiary or within three months after such holder ceases to be such an employee, Outside Director, consultant or advisor, the Option may be exercised by the person to whom it is transferred by will or the laws of descent and distribution within the period of one year after the date of death (or within such lesser period as may be specified in the Award Agreement); and -6- 7 (iii) if the holder thereof becomes disabled (within the meaning of Section 22(e)(3) of the Code) while in the employ of or serving as an Outside Director of or consultant or advisor to the Company, a Parent Corporation or a Subsidiary, the Option may be exercised within the period of one year after the date such holder ceases to be an employee or Outside Director of, or consultant or advisor to, any of the foregoing entities because of such disability (or within such lesser period as may be specified in the Award Agreement); provided, however, that in no event may any Option be exercised after the expiration date of the Option, except to the extent provided in paragraph (c) above. In the case of a holder of a Non-Statutory Stock Option whose relationship with the Company or any Parent Corporation or Subsidiary changes during the term of such Option in a manner that does not constitute a complete separation therefrom (for example, from employee to consultant or director, or vice versa), the Board shall have authority to determine whether or not such change constitutes a cessation of employment or service for purposes of this paragraph. (g) Transfer Restrictions. Except as otherwise approved by the Board of Directors, during the life of the holder thereof an Option shall be exercisable only by or on behalf of such person and no Option granted under the Plan shall be assignable or transferable by the person to whom it is granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution. (h) Other Awards. Awards of Options may be made alone, in addition to or in tandem with Awards of Restricted Shares under the Plan. 7. Incentive Stock Options. Options granted under the Plan which are intended to be Incentive Stock Options shall be specifically -7- 8 designated as Incentive Stock Options and shall be subject to the following additional terms and conditions: (a) Dollar Limitation. The aggregate fair market value (determined as of the respective date or dates of the grant) of the Common Stock with respect to which Incentive Stock Options granted to any employee under the Plan (and under any other incentive stock option plans of the Company, and any Parent Corporation and Subsidiary) are exercisable for the first time shall not exceed $100,000 in any one calendar year. In the event that Section 422 of the Code is amended to alter the limitation set forth therein so that following such amendment such limitation shall differ from the limitation set forth in this paragraph (a), the limitation of this paragraph (a) shall be automatically adjusted accordingly. (b) 10% Stockholder. If any employee to whom an Incentive Stock Option is to be granted under the Plan is at the time of the grant of such Option the owner of stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any Parent Corporation or any Subsidiary, then the following special provisions shall be applicable to the Incentive Stock Option granted to such individual: (i) the purchase price per share of Common Stock subject to such Incentive Stock Option shall not be less than 110% of the fair market value thereof at the time of grant; and (ii) the exercise period of such Incentive Stock Option shall not exceed five years from the date of grant. Except as modified by the preceding provisions of this Section 7, all the provisions of the Plan applicable to Options generally shall be applicable to Incentive Stock Options granted hereunder. -8- 9 8. Restricted Shares. (a) Awards of Shares. Awards of Restricted Shares may be made under this Plan on such terms and conditions as the Board of Directors may from time to time approve. Awards of Restricted Shares may be made alone, in addition to or in tandem with Awards of Options under this Plan. Subject to the terms of this Plan, the Board of Directors shall determine the number of Restricted Shares to be awarded to each recipient and the Board of Directors may impose different terms and conditions on a Restricted Share Award than on any other Award made to the same recipient or other Award recipients. Each recipient of Restricted Shares shall, except in the circumstances described in paragraph (b) below, be issued one or more stock certificates evidencing such Restricted Shares. Each such certificate shall be registered in the name of such recipient, and shall bear an appropriate legend referring to the terms and conditions applicable to the Restricted Shares evidenced thereby. (b) Forfeiture of Restricted Shares. In making an Award of Restricted Shares, the Board of Directors may impose a requirement that the recipient must remain in the employment or service (including service as an Outside Director, advisor or consultant) of the Company or any Parent Corporation or Subsidiary for a specified minimum period of time, or else forfeit all or a portion of such Restricted Shares. In the case of a holder of Restricted Shares whose relationship with the Company or any Parent Corporation or Subsidiary changes during the term of any applicable forfeiture period in a manner that does not constitute a complete separation therefrom (for example, from employee to consultant or director, or vise versa), the Board shall have authority to determine whether or not such change constitutes a cessation of employment or service for purposes of such requirement. In such case, the certificate(s) evidencing the Restricted Shares shall be held in custody by the Company until such Shares are no longer subject to forfeiture. -9- 10 (c) Rights as a Stockholder; Stock Dividends. Subject to any restrictions set forth in the applicable Award Agreement, a recipient of Restricted Shares shall have voting, dividend and all other rights of a stockholder of the Company as of the date such Shares are issued and registered in recipient's name (whether or not certificates evidencing such Shares are delivered to such recipient). Except as may otherwise be set forth in the applicable Award Agreement, stock dividends issued with respect to Restricted Shares shall be treated as additional Restricted Shares under the applicable Award Agreement and shall be subject to the same terms and conditions that apply to the Restricted Shares with respect to which such dividends are issued. 9. Annual Automatic Awards to Outside Directors. (a) Annual Automatic Awards of Options and Restricted Shares to Outside Directors. Each member of the Board of Directors of the Company who is not an employee of the Company or of any Parent Corporation or Subsidiary (each, an "Outside Director") shall be granted, upon such person's election and re-election as an Outside Director, (i) Non-Statutory Stock Options to purchase that number of shares of Common Stock which results in such Options having a value, as of their grant date, of approximately $33,333.33 (the "Award Value"), and (ii) that number of Restricted Shares which, when divided by the fair market value of a share of Common Stock on the date of grant, of such Shares, have a fair market value on such date of approximately $33,333.33. For purposes of clause (i) above, the value of Non-Statutory Stock Options shall be determined in accordance with paragraph (c) of this Section 9 and, for purposes of clause (ii) above, fair market value shall be determined in accordance with paragraph (a) of Section 6 hereof. If an Outside Director is elected other than at an annual meeting of the Company's stockholder (an "Annual Meeting"), the Award Value shall be reduced to the result of the multiplication of the Award Value by a fraction, (i) the -10- 11 numerator of which shall be the difference between 365 and the number of days elapsed since the Annual Meeting immediately preceding such Outside Director's election and (ii) the denominator of which shall be 365. If, as a result of the computations set forth in the first paragraph of this Section 9(a), the number of shares of Common Stock underlying Options or constituting Restricted Shares to be awarded to an Outside Director is less than a whole number, such number shall be rounded down to the nearest whole number, and the fair market value (determined in the same manner as for purposes of computing the applicable Award Value) of any fractional shares shall be paid to the Outside Director in cash. (b) Terms and Conditions of Awards to Outside Directors. Awards granted to Outside Directors pursuant to this Section 9 shall (i) in the case of Options, not be exercisable prior to (and will be fully exercisable from and after), and (ii) in the case of Restricted Shares, be subject to complete forfeiture prior to, the later of the 30th day following the grant date or the day immediately preceding the end of the Company's fiscal quarter in which they are granted. In each such case, the Outside Director must have been in continuous service as such since the date of grant of such Options or Restricted Shares in order for such Options to become exercisable and/or for such Restricted Shares to no longer be subject to forfeiture. Options granted to Outside Directors are exercisable at an exercise price per share of Common Stock underlying such Options equal to the fair market value thereof on the date of grant, as determined in accordance with paragraph (a) of Section 6 hereof, and shall expire five years after the date of grant except to the extent extended as provided in paragraph (c) of Section 6 hereof. Shares purchased upon the exercise of any Option granted under this Section 9 may not be sold prior to the expiration of six (6) months after the date of grant of such Option. -11- 12 (c) Valuation Method for Awards of Non-Statutory Stock Options to Outside Directors. The Black-Scholes valuation method shall be used to determine the value of Options granted to Outside Directors pursuant to this Section 9, for which purpose the following are assumed: (i) a volatility measure based on the twelve months ending immediately prior to the date of grant; (ii) the applicable Federal interest rate for the month of grant (as published by the U.S. Department of the Treasury); (iii) the maximum term of the Options (but without giving effect to any extension that may result from the application of the provisions of paragraph (c) of Section 6 hereof); (iv) the exercise prices of such Options; and (v) the fair market value of the Common Stock on the day before the grant date (as determined in accordance with paragraph (a) of Section 6 hereof). (d) Plan Applicable. Except as modified by the preceding provisions of this Section 9, Awards granted to Outside Directors shall remain subject to all provisions of this Plan applicable to Awards generally. (e) Other Outside Director Compensation. Nothing in this Section 9 shall preclude the payment by the Company or any Parent Corporation or Subsidiary to Outside Directors of any other form of compensation, including the granting of Options or Restricted Shares pursuant to other provisions of this Plan. 10. General Award Restrictions. (a) Investment Representations. The Company may require any person to whom an Award is made, as a condition of such Award, to give written assurances in substance and form satisfactory to the Company to the effect that such person is acquiring the Common Stock subject to the Award for such person's own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems -12- 13 necessary or appropriate in order to comply with applicable Federal and State securities laws. (b) Special Conditions to Issuance of Shares. Each Award shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares of Common Stock subject to such Award upon any securities exchange or under any State or Federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of such shares thereunder, such shares may not be issued unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Board of Directors. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification. 11. Recapitalization. In the event that the outstanding shares of Common Stock of the Company are changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any recapitalization, reclassification, stock split, stock dividend, combination or subdivision, appropriate adjustment shall be made in the number and kind of shares available under this Plan and under any Options granted under this Plan. Such adjustment to outstanding Options shall be made without change in the total exercise price applicable to the unexercised portion of such Options, but a corresponding adjustment in the applicable Option exercise price per share shall be made. No such adjustment shall be made which would, within the meaning of any applicable provisions of the Code, constitute a modification, extension or renewal of any Option or a grant of additional benefits to the holder of an Option. -13- 14 12. Reorganization or Change in Control of the Company. (a) Reorganization. In case (i) the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, (ii) all or substantially all of the assets or more than 50% of the outstanding voting stock of the Company is acquired by any other corporation or (iii) of a reorganization or liquidation of the Company, the Board of Directors of the Company, or the board of directors of any corporation assuming the obligations of the Company, shall, as to outstanding Options, either (x) make appropriate provision for the protection of any such outstanding Options by the substitution on an equitable basis of appropriate stock of the Company, or of the merged, consolidated or otherwise reorganized corporation which will be issuable in respect of the shares of Common Stock of the Company, provided that no additional benefits shall be conferred upon holders of Options as a result of such substitution, and the excess of the aggregate fair market value of the shares subject to any Option immediately after such substitution over the purchase price thereof is not more than the excess of the aggregate fair market value of the shares subject to such Option immediately before such substitution over the purchase price thereof, or (y) upon written notice to the holders of Options, provide that all unexercised Options must be exercised within a specified number of days of the date of such notice or they will be terminated. In any such case, the Board of Directors may, in its discretion, accelerate the exercise dates of outstanding Options; provided, however, that paragraph (b) below shall govern acceleration of exercisability of Options with respect to the events described in clauses (i), (ii) and (iii) of such paragraph. (b) Change in Control. In case (i) of any consolidation or merger involving the Company if the shareholders of the Company immediately before such merger or consolidation do not own, directly or indirectly, immediately following such merger or consolidation, more than fifty percent (50%) of the combined voting power of the -14- 15 outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the shares of Common Stock immediately before such merger or consolidation; (ii) of any sale, lease, license, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the business and/or assets of the Company or assets representing over 50% of the operating revenue of the Company; or (iii) any person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) who was not, on April 21, 1995, a "controlling person" (as defined in Rule 405 under the Securities Act of 1933, as amended) (a "Controlling Person") of the Company shall become (x) the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of over 50% of the combined voting power of the Company's then outstanding voting securities entitled to vote generally or (y) a Controlling Person of the Company, all outstanding Awards, regardless of the date of such Awards, shall (A) in the case of Options, immediately become exercisable with respect to 100% of the shares of Common Stock subject to such Options and (B) in the case of Restricted Shares, immediately become fully vested and no longer subject to any forfeiture unless otherwise provided in the applicable Award Agreement. 13. No Special Employment Rights. Nothing contained in this Plan or in any Award Agreement shall confer upon any Award recipient any right with respect to the continuation of such person's employment by the Company (or any Parent Corporation or Subsidiary) or interfere in any way with the right of the Company (or any Parent Corporation or Subsidiary), subject to the terms of any separate agreement to the contrary, at any time to terminate such employment or to increase or decrease the compensation of the Award recipient from the rate in existence at the time of the Award. Whether an authorized leave of absence, or absence in military or government service, shall constitute termination or cessation of -15- 16 employment for purposes of this Plan or any Award shall be determined by the Board of Directors. 14. Other Employee Benefits. The amount of any compensation deemed to be received by an employee as a result of any Award (including the exercise of an Option, or the sale of shares of Common Stock received upon such exercise or of Restricted Shares) will not constitute "earnings" with respect to which any other employee benefits of such employee are determined, including without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan. 15. Definitions. (a) Subsidiary. The term "Subsidiary" as used in this Plan shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. For purposes only of Awards of Non-Statutory Options or Restricted Shares, the term "Subsidiary" shall also mean any partnership or limited partnership of which the Company or any Subsidiary controls 50% or more of the voting power, or any corporation in an unbroken chain of Subsidiaries if each of the Subsidiaries other than the last Subsidiary in the unbroken chain either owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations or controls 50% or more of the voting power of any such partnership or limited partnership in such chain. (b) Parent Corporation. The term "Parent Corporation" as used in this Plan shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of the corporations other than the Company owns stock possessing -16- 17 50% or more of the combined voting power of all classes of stock in one of the other corporations in such chain. (c) Employment. The term "employment", as used in this Plan and in any Award Agreement, shall, unless the context otherwise requires, be defined in accordance with the provisions of Section 1.421-7(h) of the Federal Income Tax Regulations (or any successor regulations). 16. Amendment of this Plan. The Board of Directors may at any time and from time to time modify, amend or terminate this Plan in any respect, except to the extent stockholder approval is required by law. The termination or any modification or amendment of this Plan shall not, without the consent of an Award recipient, affect such Award recipient's rights under any Award Agreement unless such Agreement so specifies. With the consent of the Award recipient affected, the Board of Directors may amend outstanding Award Agreements in a manner not inconsistent with this Plan. The Board of Directors shall have the right to amend or modify the terms and provisions of this Plan and of any outstanding Incentive Stock Options granted under this Plan to the extent necessary to qualify any or all such Options for such favorable Federal income tax treatment (including deferral of taxation upon exercise) as may be afforded incentive stock options under Section 422 of the Code. 17. Withholding. The Company's obligation to deliver Restricted Shares awarded, or shares deliverable upon the exercise of any Option granted, under this Plan shall be subject to the Award recipient's satisfaction of all applicable Federal, State and local income and employment tax withholding requirements. -17- 18 18. Duration of this Plan. Unless earlier terminated by the Board of Directors, this Plan shall terminate upon the earlier of (i) the close of business on March 31, 2008 or (ii) the date on which all shares available for issuance under this Plan shall have been issued pursuant to the exercise of Options granted under this Plan and/or are no longer subject to forfeiture pursuant to the terms of any applicable Award Agreement. If the date of termination is determined under (i) above, then Awards outstanding on such date shall continue to have force and effect in accordance with the provisions of the Award Agreements evidencing such Awards. Adopted on April 1, 1998 by the Board of Directors; amended on May 29, 1998 by the Board of Directors; approved by the stockholders on May 29, 1998; amended as of February 5, 1999 by the Board of Directors; and amended as of June 10, 1999 by the Board of Directors. -18- EX-10.53 4 CONSULTING AGREEMENT 1 CONSULTING AGREEMENT BETWEEN I-STAT CORPORATION (THE "COMPANY") AND IMANTS R. LAUKS ("LAUKS") DATED SEPTEMBER 1, 1999 1. POSITION: Senior Consultant. 2. CONSULTING SERVICES: Lauks shall render exclusive consulting services to the Company in connection with the manufacture and marketing of medical diagnostic products, and in connection with the completion of development of coagulation products currently under development and the redesign of the Company's existing products for point-of-care blood analysis based on the Company's core technology. The Consulting Agreement does not extend to work on new products, whether or not based on the Company's core technology and whether or not for point-of-care blood analysis applications. It is the expectation that Lauks shall make himself available to the Company for consulting services for up to 80 full working days during the first 12 months of the Term (as defined below) and up to 44 full working days during the last 6 months of the Term. While the operating assumption will be that Lauks will perform the consulting services on the basis of two days per week, the parties acknowledge the need for mutual flexibility in the work schedule. Accordingly, the parties will cooperate in designing a work schedule that gives due weight to the need for reliability, dependability and continuity in the performance of services as well as the need to respond to operational emergencies, while at the same time recognizing Lauks' desire to pursue other, non-conflicting interests. Notwithstanding anything contained in the Consulting Agreement to the contrary, the Company shall be entitled to request that no services be provided at any given time, without affecting any of the Company's obligations to Lauks. 3. RESIGNATION: Lauks hereby resigns from all of his positions at the Company and i- STAT Canada, Ltd., including his positions as Executive Vice President and Chief Technology Officer of the Company, and as Vice President of Research and Development of i-STAT Canada, Ltd. -1- 2 4. TERM: Eighteen (18) months. 5. COMPENSATION: $412,500 payable over the term of the Consulting Agreement in accordance with the Company's customary payroll practices for its senior management personnel. 6. EXPENSES: During the term of the Consulting Agreement, the Company shall reimburse Lauks for his reasonable out-of-pocket expenses incurred in the performance of his duties under the Consulting Agreement, upon receipt by the Company of reasonably satisfactory documentation of such expenses. 7. BENEFITS: The Company shall continue to provide Lauks with medical and dental benefits in accordance with existing policy so long as Lauks is providing consulting services to the Company in accordance with the terms of the Consulting Agreement. 8. STATUS OF CURRENT STOCK OPTIONS: Upon execution of the Consulting Agreement, of the non-statutory options held by Lauks to purchase up to 306,440 shares of Common Stock, (i) options to purchase up to 58,234 shares will be canceled; (ii) options to purchase up to 25,400 shares (the "Remaining Unvested Options") will continue to vest and remain exercisable in accordance with the terms of their respective agreements (except that vesting and exercisability will be tied to Lauks' continued service as a consultant rather than as an employee); and (iii) options to purchase up to 222,806 shares (which currently are fully vested) will remain exercisable in accordance with the terms of their respective agreements (except that exercisability will be tied to Lauks' continued service as a consultant rather than an employee). In accordance with the terms of the Company's 1985 Stock Option Plan, Lauks' outstanding incentive stock options to purchase up to 30,705 shares of Common Stock shall terminate three months after termination of Lauks' employment with the Company. Lauks shall no longer be required to comply with the reporting, limited "window" sales periods and other obligations applicable to the Company's executive officers and directors under the Company's "Policy Regarding Confidential Information and Insider Trading". However, Lauks will acknowledge that in the performance of his consulting services he may become privy to information which may render him an "insider" for purposes of both such Policy and the trading proscriptions applicable under U.S. securities laws. 9. TAX EQUALIZATION BENEFITS: So long as Lauks continues to provide consulting services under the Consulting Agreement, and Lauks resides in Canada, the Company shall reimburse Lauks for any income taxes paid in Canada by Lauks in respect of (i) any compensation paid to Lauks under the Consulting Agreement, (ii) the exercise of stock options during the term of the Consulting Agreement and (iii) the sale of the shares of Common -2- 3 Stock issued upon such exercise during the term of the Consulting Agreement, but only (A) to the extent such taxes exceed the taxes payable by Lauks under the highest combined United States Federal marginal income tax rate applicable to Lauks were Lauks a United States and Pennsylvania resident during the period in question; and (B) to the extent of $300,000 in the aggregate over the term of the Consulting Agreement. The parties hereby agree that Lauks owes the Company $59,822.62 in respect of past tax equalization advance payments made by the Company on behalf of Lauks through December 31, 1998. Such amount shall be paid upon execution of the Consulting Agreement. In addition, Lauks shall execute the promissory note attached as Exhibit A (the "Promissory Note") in the principal amount of $82,660.25, as such amount may be adjusted pursuant to the terms of the Promissory Note, in respect of tax equalization advance payments made by the Company on behalf of Lauks for calendar year 1999. 10. TERMINATION OF CONSULTING AGREEMENT AND PAYMENTS UPON TERMINATION: Either the Company or Lauks may terminate the Consulting Agreement, as provided below upon thirty (30) days written notice to the other, subject to the continuing obligations set forth elsewhere in the Consulting Agreement. 1. Termination By Lauks a. No Reason Payments: None. b. Breach by Company of its material obligations under the Consulting Agreement, provided that the Company shall be entitled to a reasonable opportunity to cure (the term "reasonable" to be judged in relation to the circumstances applicable at the time, but in no event to exceed 10 days) Payments: Payments equal to the amount required to be paid over the balance of the Term, payable at Lauks' option in a lump sum or in accordance with the Company's customary payroll practices for its senior management personnel. The Company also shall be obligated to make tax equalization payments as described above as if the Consulting Agreement had not been terminated. Remaining Unvested Options Acceleration: All Remaining Unvested Options then held by Lauks shall become fully exercisable. -3- 4 In the event of a breach by the Company, in addition to and without prejudice to Lauks' right to terminate this Consulting Agreement, Lauks shall have the right to demand the payments referred to in 1(b) above without terminating the Consulting Agreement, and in such event Lauks' stock options shall continue to vest and remain exercisable for the remainder of the term of the Consulting Agreement. 2. Termination By Company a. For Cause, as defined as: (i) any felony conviction or admission of felonious guilt, (ii) any breach or nonobservance by Lauks of any material covenant in the Consulting Agreement (including the Existing Confidentiality Agreement, defined below), or (iii) any willful or deliberate conduct by Lauks which is materially injurious to the Company. In the case of (ii), Lauks shall be entitled to a reasonable opportunity to cure (the term "reasonable" to be judged in relation to the circumstances applicable at the time, but in no event to exceed 10 days). Payments: Accrued payments to that date. No further compensation payable. Stock Options: Lauks shall have no right to exercise any stock options to purchase Common Stock if he breaches any non-competition covenant contained in the Existing Confidentiality Agreement. 11. CONTINUATION OF EMPLOYEE CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETITION COVENANTS: The existing agreement between Lauks and the Company regarding confidentiality, non-solicitation and non-competition (the "Existing Confidentiality Agreement") shall remain in place as if Lauks remained employed by the Company, except that the covenants regarding non-competition shall run for 18 months after the execution of the Consulting Agreement. 12. RELEASE: Lauks shall release the Company and each of its officers, directors, shareholders, employees and representatives from and against any and all known and unknown claims Lauks may have against the Company or any such officer, director, shareholder, employee or representative. Accordingly, as a term and condition of this Consulting Agreement, Lauks shall execute and not revoke the release attached as Exhibit B -4- 5 hereto. Excluded from this release is any claim that may arise under the Consulting Agreement, the Promissory Note or the Director Indemnification Agreement between the Company and Lauks. The Company hereby represents that it has no present knowledge of any claims it may have against Lauks. 13. APPLICABLE LAW/ ARBITRATION OF DISPUTES: The Consulting Agreement shall be governed by the laws of the State of New Jersey. All controversies and claims arising under the Consulting Agreement that cannot be settled by the parties shall be settled by arbitration in Toronto, Ontario or Princeton, New Jersey (at the option of Lauks) in accordance with the rules of the American Arbitration Association and there shall be no action taken in any other court or in any other jurisdiction. This arbitration provision shall not affect the Company's rights under the Existing Confidentiality Agreement to seek specific enforcement of the provisions thereof as provided therein. 14. RENEWAL OF TERM: The Term of the Consulting Agreement may be extended upon the written agreement of each of Lauks and the Company. 15. LEGAL FEES: The Company shall reimburse Lauks for up to U.S. $10,000 for legal fees incurred in connection with the preparation of the Consulting Agreement. 16. ASSIGNABILITY: Lauks acknowledges that the services to be rendered to the Company are unique and personal. Accordingly, Lauks may not assign his rights or delegate his duties or obligations under the Consulting Agreement. The Company's rights and obligations under the Consulting Agreement shall inure to the benefit of the Company's successors and assigns. 17. AMENDMENT AND WAIVER: No provision in the Consulting Agreement may be amended unless such amendment is agreed to in writing and signed by the party against whom enforcement is sought . The waiver of any breach of any duty, term or condition of the Consulting Agreement shall not be deemed to constitute a waiver of any preceding or succeeding breach of the same or any other duty, term or condition of the Consulting Agreement. 18. SEVERABILITY: If any provision of the Consulting Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, in any jurisdiction, the provision shall be enforceable to the fullest extent permitted by law in such jurisdiction and shall continue to be enforceable in accordance with its terms in any other jurisdiction and the validity, legality and enforceability of the remaining provisions contained in the Consulting Agreement shall not be affected. -5- 6 19. WITHHOLDING: All amounts required to be paid by the Company herein shall be subject to reduction in order to comply with applicable U.S. Federal, state and local tax withholding requirements. i-STAT CORPORATION By: /s/ William P. Moffitt ---------------------- Name: William P. Moffitt Title: President and CEO /s/ Imants R. Lauks ------------------- Imants R. Lauks -6- EX-10.54 5 FORM OF DIRECTOR RESTRICTED SHARE AWARD AGREEMENT 1 I-STAT CORPORATION RESTRICTED SHARE AWARD AGREEMENT WITH --------------- This Restricted Share Award Agreement (the "Agreement"), dated as of _________ (the "Award Date") is between i-STAT Corporation, a Delaware corporation, having its principal place of business at 104 Windsor Center Drive, East Windsor, New Jersey 08520, (the "Company") and ____________ ("Director"). In consideration for service as a member of the Board of Directors of the Company, the Company desires to award to Director, pursuant to the Company's Equity Incentive Plan (the "Plan"), shares of the Company's Common Stock, ____ par value per share (the "Common Stock"). Accordingly, the Company and Director hereby agree as follows: 1. Award of Shares. Subject to the terms and conditions set forth herein and in the Plan, the Company awards to Director ______________ (____) shares of Common Stock (the "Award Shares"). 2. Forfeiture of Award Shares; Stockholder Rights; Transfer Restrictions. (a) Termination of Service. If Director ceases to serve as such for any reason other than death or disability prior to the later of (x) the date that is thirty (30) days following the Award Date and (y) the date that is the day immediately preceding the end of the Company's fiscal quarter in which the Award Date occurs (the "Forfeiture Period"), then Director shall forfeit all of the Award Shares, whereupon Director shall have no further rights whatsoever with respect to the Award Shares. From and after the end of the Forfeiture Period the Award Shares shall no longer be subject to forfeiture. (b) Death or Disability. If during the Forfeiture Period, Director (x) dies or (y) becomes disabled (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended), while he or she is serving as such, then no Award Shares shall remain subject to forfeiture. (c) Change in Control. In case, during the Forfeiture Period, (i) of any consolidation or merger involving the Company, if the persons or entities who are shareholders of the Company immediately before such merger or consolidation do not own, directly or indirectly, immediately following such merger or consolidation, more than fifty percent (50%) of the combined voting power of the outstanding voting 2 securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the shares of Common Stock immediately before such merger or consolidation; (ii) of any sale, lease, license, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the business and/or assets of the Company or assets representing over 50% of the operating revenue of the Company; or (iii) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) who was not, on April 21, 1995, a controlling person (as defined in Rule 405 under the Securities Act of 1933, as amended) (a "Controlling Person") of the Company shall become (x) the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of over 50% of the Company's outstanding Common Stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally or (y) a Controlling Person of the Company, then upon the occurrence of any such event the Award Shares shall no longer be subject to forfeiture. (d) Stock Dividend; Other Events. If, during the Forfeiture Period, there is (i) any stock dividend, stock split, combination or subdivision or other change in the character or amount of any of the Company's outstanding securities or (ii) any consolidation, merger or sale of all or substantially all of the Company's assets, then, in such event, any and all new, substituted or additional securities to which Director is entitled by reason of his ownership of Award Shares which, immediately prior to such event, were subject to forfeiture, will be immediately subject to the forfeiture provisions of paragraph (a) of this Section, and shall be included in the term "Award Shares" for purposes of this Agreement. (e) Rights As Stockholder. As long as the Award Shares have not been forfeited pursuant to paragraph (a) of this Section, Director shall have with respect to such Award Shares, voting, dividend and all other rights of a holder of Common Stock. (f) Certificates for Award Shares; Transfer Restrictions. Certificates representing Award Shares subject to forfeiture pursuant to paragraph (a) of this Section will be held by the Company until such Award Shares are no longer subject to forfeiture. Award Shares subject to forfeiture may not be sold, transferred, pledged or otherwise disposed of (including, but not limited to, through transfer by gift or donation). 3. Representations of Director; Restrictions on Transfer of Award Shares. Director represents, warrants and covenants that: (a) the Award Shares are being acquired by Director for his own account, for investment only and not with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act") or any rule or regulation thereunder; (b) Director understands that (i) the Award Shares cannot be sold, transferred or otherwise disposed of unless they are registered under the Securities Act or an 2 3 exemption from registration is then available; and (ii) any sale, transfer or other disposition of the Award Shares must be made in accordance with the Securities Act and any applicable rules and regulations promulgated pursuant thereto; (c) Director acknowledges and agrees that (i) because of his position with the Company, Director may be deemed to be an "affiliate" thereof (as such term is defined in Rule 144 promulgated under the Securities Act); (ii) the resale by an affiliate of the Company of the Award Shares is restricted by law, notwithstanding any registration of the Award Shares on Form S-8 (or similar successor form) promulgated under the Securities Act; and (iii) any resale of the Award Shares by an affiliate of the Company pursuant to said Rule 144 would be subject to the volume limitations contained in paragraph (e) thereof; and (d) Director acknowledges that, for purposes of ensuring compliance with the exemption from the "short swing profits" rules promulgated under the Exchange Act, no Award Share may be sold prior to the expiration of six months from the Award Date. 4. Tax Consequences. Director hereby represents that prior to or on the date hereof, Director has generally been advised of the tax consequences to Director of receiving the Award Shares and has obtained appropriate legal or tax advice with respect thereto. 5. Legends. Stock certificates representing the Award Shares may bear legends reflecting such restrictions as the Company deems appropriate and in its best interests in accordance with the terms and conditions of this Agreement. In such event, the Company may refuse to transfer ownership of the Award Shares on its corporate record books until Director has complied with such restrictions. In connection with the foregoing, so long as Director remains an affiliate of the Company within the meaning of Rule 144 under the Securities Act, all stock certificates representing Award Shares shall have affixed thereto a legend substantially in the following form, in addition to any other legends required by applicable state law: "The shares of stock represented by this certificate are subject to the volume limitations of Rule 144(e) promulgated under the Securities Act of 1933, as amended." 6. Non-transferability of Award Agreement. This Agreement is personal and no rights hereunder may be transferred, assigned, pledged or hypothecated by Director in any way (whether by operation of law or otherwise), nor shall any such rights be subject to execution, attachment or similar process. Upon any attempt by Director to transfer, assign, pledge, hypothecate or otherwise dispose of his rights under this Agreement contrary to the provisions hereof, or upon the levy of any attachment or similar process 3 4 upon such rights, any such rights shall, at the election of the Company, become null and void. 7. Delivery of Award Shares. Subject to the terms set forth in Section 2(f) hereof, the Company will make prompt delivery to Director of the Award Shares, provided that if any law or regulation requires the Company to take any action with respect to such Award Shares before the issuance thereof, then the date of delivery of such Award Shares will be extended for the period necessary to complete such action. No Award Shares will be issued and delivered unless and until, in the opinion of counsel for the Company, any applicable registration requirements of the Securities Act, any applicable listing or quotation requirements of any exchange or quotation system on which stock of the same class is then listed or quoted, and any other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery shall have been fully complied with. 8. Withholding Taxes. The Company's obligation to deliver the Award Shares upon the expiration of the Forfeiture Period or as otherwise provided herein shall be subject to Director's satisfaction of all applicable federal, state and local income and other tax withholding requirements. 9. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, in any jurisdiction, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law in such jurisdiction, and such invalidity or unenforceability shall have no effect in any other jurisdiction. 10. Miscellaneous; Notices. (a) This Agreement and any instrument delivered pursuant to this Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey, without regard to the conflicts of law rules thereof. (b) Any controversy or claim arising out of or relating to this Agreement, or any breach thereof, shall be resolved through final and binding arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment upon any arbitration award rendered may be entered in any court having jurisdiction thereof. The arbitration shall be held in the area where the Company then has its principal place of business. The arbitration award may include an award of attorneys' fees and costs. (c) This Agreement shall extend to, be binding upon and inure to the benefit of Director and his legal representatives, heirs, successors and assigns (subject, however, to the limitations set forth in Sections 2 and 6 with respect to transfer of this Agreement or any rights hereunder or of the Award Shares), and upon the Company and its successors and assigns, regardless of any change in the business structure of the 4 5 Company, be it through spinoff, merger, sale of stock, sale of assets or any other transaction. (d) This Agreement and the Plan contain the entire agreement of the parties with respect to the subject matter hereof. No waiver, modification or change of any provision of this Agreement will be valid unless in writing and signed by both parties. (e) The waiver of any breach of any duty, term or condition of this Agreement shall not be deemed to constitute a waiver of any preceding or succeeding breach of the same or of any other duty, term or condition of this Agreement. (f) All notices pursuant to this Agreement will be in writing and will be sent by personal delivery, telecopier, electronic mail or by prepaid registered or certified mail, return receipt requested, addressed to the parties hereto at the addresses set forth beneath their names on the signature page hereto or to such other addresses as may hereafter be specified by like notice in writing by either of the parties, and will be deemed given (i) upon receipt if by personal delivery, (ii) on the day on which delivered if delivered by telecopier (with confirmation of receipt to be established by acceptable protocol), (iii) on the third day after mailing if sent by registered or certified mail or (iv) when transmitted if delivered by electronic mail (with satisfactory evidence of transmittal to be established by acceptable protocol). Copies of all notices shall be sent to: Paul, Hastings, Janofsky & Walker LLP, 1055 Washington Boulevard, Stamford, Connecticut 06901, Attention: Esteban A. Ferrer, Esq., Telecopier No. 203-359-3031, E-mail Address: eaferrer@phjw.com. (g) The headings of the sections of this Agreement are inserted for convenience of reference only and will not be deemed to constitute a part hereof or to affect the meaning hereof. (h) This Agreement may be executed in counterparts, each of which will be deemed an original but all of which will together constitute one and the same agreement. [signature page follows this page] 5 6 IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the day and year first above written. i-STAT CORPORATION By: ---------------------- Name: Title: Address: 104 Windsor Center Drive East Windsor, NJ 08520 Telecopier No. : 609-443-3621 E-mail address: general@i-STAT.com Director's Acceptance: The undersigned hereby accepts the foregoing Agreement and agrees to the terms and conditions thereof. The undersigned hereby acknowledges receipt of a copy of the Company's Equity Incentive Plan. Director ----------------------- Name: Address: Telecopier No.: E-mail address: 6 EX-23 6 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the registration statements on Form S-8/S-3 (File No. 33-48889), Form S-8 (File Nos. 33-67456, 33-86152, 33-96114, and 33-65357), and Form S-3 (File No. 33-92796) of i-STAT Corporation of our report dated January 31, 2000, except for the last paragraph of Note 11 as to which the date is March 16, 2000, relating to the consolidated financial statements and financial statement schedule, which report is included in this Annual Report on Form 10-K. We also consent to the reference to our firm under the caption "Selected Consolidated Financial Data". PricewaterhouseCoopers LLP Florham Park, New Jersey March 30, 2000 EX-27 7 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 25,575 0 4,726 (128) 8,886 40,244 40,697 (24,761) 58,124 8,286 0 0 214 2,364 42,085 58,124 45,225 45,225 36,401 36,401 0 45 0 (12,802) 0 0 0 0 0 (12,802) (.73) (.73)
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