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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 2000
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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.
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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
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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".
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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.
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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
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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
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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.
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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.
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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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
1999 High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
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
- --------------------------------------------------------------------------------
<S> <C> <C>
First Quarter.................................... $ 21.00 $ 12.80
Second Quarter................................... $ 14.75 $ 6.63
Third Quarter.................................... $ 14.00 $ 6.38
Fourth Quarter................................... $ 9.75 $ 5.38
</TABLE>
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.
<PAGE> 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.
<TABLE>
<CAPTION>
In thousands of dollars, except share and per share data Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 27
i-STAT Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
In thousands of dollars, except share and per share data For the Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
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
============================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE> 28
i-STAT Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
In thousands of dollars, except share and per share data December 31,
- ----------------------------------------------------------------------------------------------------------
1999 1998
<S> <C> <C>
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
======================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE> 29
i-STAT Corporation
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
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
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
==========================================================================================
<CAPTION>
Total
In thousands of dollars, Stock-
except share and per Accumulated holders'
share data Deficit Equity
- -----------------------------------------------------------------
<S> <C> <C>
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
==========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE> 30
i-STAT Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
In thousands of dollars, except share and per share data For the Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
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
=================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
(In thousands of dollars) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
====================================
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
In thousands of dollars December 31,
- --------------------------------------------------------------------------------
1999 1998
<S> <C> <C>
Raw materials.................................... $ 3,402 $ 2,537
Work in process.................................. 2,764 3,206
Finished goods................................... 2,720 2,553
----------------------------
$ 8,886 $ 8,296
============================
</TABLE>
3. Plant and Equipment
Plant and equipment, net, consists of the following:
<TABLE>
<CAPTION>
In thousands of dollars December 31,
- --------------------------------------------------------------------------------
1999 1998
<S> <C> <C>
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
============================
</TABLE>
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
<PAGE> 34
i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
4. Intangible Assets
Intangible assets, net, consist of the following:
<TABLE>
<CAPTION>
In thousands of dollars December 31,
- --------------------------------------------------------------------------------
1999 1998
<S> <C> <C>
Patents, licenses and trademarks..................... $ 2,187 $ 1,892
Less accumulated amortization........................ (686) (548)
-------------------------
$ 1,501 $ 1,344
=========================
</TABLE>
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:
<TABLE>
<CAPTION>
In thousands of dollars December 31,
- --------------------------------------------------------------------------------
1999 1998
<S> <C> <C>
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
=========================
</TABLE>
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:
<TABLE>
<CAPTION>
Year Ending December 31: In thousands of dollars Operating Leases
- --------------------------------------------------------------------------------
<S> <C>
2000................................................... $ 1,303
2001................................................... 1,276
2002................................................... 1,241
2003................................................... 1,067
2004................................................... 96
Thereafter............................................. --
--------------------
Total minimum lease payments........................... $ 4,983
====================
</TABLE>
32
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
Weighted Weighted
Options Average Average
Granted Exercise Fair Value
Options and Price per per Option
Exercisable Outstanding Share Granted
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
==========================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
In thousands of dollars, except per share data 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
34
<PAGE> 37
i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table summarizes information about stock options outstanding at
December 31, 1999.
<TABLE>
<CAPTION>
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
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
$ 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
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
Abbott Laboratories In thousands of dollars 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues................................................ $ 35,499 $ 4,515 $ --
Receivable at year end.................................. $ 4,069 $ 2,439 $ --
Deferred revenue at year end............................ $ 6,474 $ 5,407 $ --
<CAPTION>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
1999 1998
Deferred Tax Deferred Tax
In thousands of dollars Assets (Liabilities) Assets (Liabilities)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 ....................... $ -- $ --
================== =================
</TABLE>
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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
In thousands of dollars Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
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
====================================================================
</TABLE>
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
<PAGE> 43
i-STAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
19. Quarterly Financial Information (unaudited)
<TABLE>
<CAPTION>
1999
First Second Third Fourth
In thousands of dollars, except share and per share data Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
<CAPTION>
1998
First Second Third Fourth
In thousands of dollars, except share and per share data Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 45
i-STAT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning Costs and Other end of
of Period Expenses Accounts Deductions Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
==========================================================================
</TABLE>
* Trade accounts receivable written off against the reserve for doubtful
accounts.
43
<PAGE> 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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/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
</TABLE>
44
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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: [email protected].
(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
<PAGE> 8
Date of Grant: i-STAT CORPORATION
____________ By:______________________________
Name:
Title:
104 Windsor Center Drive
East Windsor, New Jersey 08520
8
<PAGE> 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:
<PAGE> 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
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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: [email protected].
(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
<PAGE> 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: [email protected]
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
<PAGE> 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
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 25,575
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0
214
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<TOTAL-LIABILITY-AND-EQUITY> 58,124
<SALES> 45,225
<TOTAL-REVENUES> 45,225
<CGS> 36,401
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