SECURITIES AND EXCHANGE COMMISSION

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

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 incorporation or organization)		(I.R.S. Employer 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)

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 ý

No o

The number of shares outstanding of each of the Issuer’s classes of Common Stock as of the latest practicable date.

Class		August 12, 2002

Common Stock, $0.15 par value		20,117,110

i-STAT CORPORATION

TABLE OF CONTENTS

PART I		FINANCIAL INFORMATION

		Item 1 - Financial Statements

		Consolidated Condensed Statements of Operations for the three months and six months ended June 30, 2002 and 2001

		Consolidated Condensed Balance Sheets as of June 30, 2002 and December 31, 2001

		Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2002 and 2001

		Notes to Consolidated Condensed Financial Statements

		Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

PART II		OTHER INFORMATION

		Item 1 - Legal Proceedings

		Item 4 - Submission of Matters to a Vote of Security Holders

		Item 6 - Exhibits and Reports on Form 8-K

SIGNATURES

i-STAT CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(In thousands of dollars, except share and per share data)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001

Net revenues:
Related party product sales	$	12,376		$	11,936		$	23,932		$	22,244
Third party product sales	2,229			1,929			4,898			3,774
Other related party revenues	175			175			350			350
Other third party revenues	—			327			—			327
Total net revenues	14,780			14,367			29,180			26,695

Cost of products sold	12,198			12,045			24,946			22,571
Research and development	1,937			1,985			3,874			3,929
General and administrative	2,013			1,929			3,399			3,504
Sales and marketing	2,529			2,327			4,799			4,739
Litigation settlement	—			10,491			—			10,491
Total operating expenses	18,677			28,777			37,018			45,234

Operating loss	(3,897		)	(14,410		)	(7,838		)	(18,539		)

Other income, net	322			188			511			491

Net loss	(3,575		)	(14,222		)	(7,327		)	(18,048		)

Dividends on Preferred Stock	(274		)	—			(823		)	—
Accretion of Preferred Stock	(111		)	—			(223		)	—

Net loss available to Common Stockholders	$	(3,960	)	$	(14,222	)	$	(8,373	)	$	(18,048	)

Basic and diluted net loss per share available to Common Stockholders	$	(0.20	)	$	(0.78	)	$	(0.42	)	$	(0.99	)

Shares used in computing basic and diluted net loss per share available to Common Stockholders	20,084,703			18,305,715			20,033,059			18,268,956

The accompanying notes are an integral part of these consolidated condensed financial statements.

i-STAT CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands of dollars, except share and per share data)

(unaudited)

	June 30, 2002			December 31, 2001

ASSETS
Current assets:
Cash and cash equivalents	$	28,512		$	43,112
Accounts receivable, net	761			546
Accounts receivable from related party, net	6,905			—
Inventories	11,781			13,393
Prepaid expenses and other current assets	995			1,924
Total current assets	48,954			58,975

Plant and equipment, net of accumulated depreciation of $34,700 in 2002 and $31,151 in 2001	14,867			14,964
Other assets	2,034			1,950
Total assets	$	65,855		$	75,889

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,578		$	2,662
Accounts payable to related party, net	—			2,673
Accrued expenses	4,407			4,896
Deferred revenue- related party, current	47			662
Total current liabilities	7,032			10,893

Deferred liability - related party, non-current	5,027			5,058
Total liabilities	12,059			15,951

Series D Redeemable Convertible Preferred Stock, liquidation value $31,350	26,732			25,334

Stockholders’ equity:
Preferred Stock, $0.10 par value, 7,000,000 shares authorized:
Series A Junior Participating Preferred Stock, $0.10 par value, 1,500,000 shares authorized; none issued	—			—
Series C Convertible Preferred Stock, $0.10 par value, 25,000 shares authorized; none issued	—			—
Common Stock, $0.15 par value, 50,000,000 shares authorized: 20,157,927 and 20,107,483 shares issued, and 20,117,110 and 20,066,666 shares outstanding in 2002 and 2001, respectively	3,024			3,016
Treasury Stock, at cost, 40,817 shares	(750		)	(750		)
Additional paid-in capital	254,259			255,442
Unearned compensation	—			(55		)
Loan to officer, net	(255		)	(417		)
Accumulated deficit	(227,512		)	(220,185		)
Accumulated other comprehensive loss	(1,702		)	(2,447		)
Total stockholders’ equity	27,064			34,604
Total liabilities and stockholders’ equity	$	65,855		$	75,889

The accompanying notes are an integral part of these consolidated condensed financial statements.

i-STAT CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In thousands of dollars)

(unaudited)

	Six Months Ended June 30,
	2002			2001

Cash flows from operating activities:
Net loss	$	(7,327	)	$	(18,048	)
Adjustments to reconcile net loss to net cash used in operating activities	2,282			(1,598		)
Changes in assets and liabilities	(7,654		)	13,843
Net cash used in operating activities	(12,699		)	(5,803		)

Cash flows from investing activities:
Purchase of equipment	(1,625		)	(3,307		)
Other	(180		)	(105		)
Net cash used in investing activities	(1,805		)	(3,412		)

Cash flows from financing activities:
Proceeds from stock options exercised	87			2,029
Expenses related to private placement of Series D Redeemable Convertible Preferred Stock and Warrants	(50		)	—
Net cash provided by financing activities	37			2,029

Effect of currency exchange rate changes on cash	(133		)	7

Net decrease in cash and cash equivalents	(14,600		)	(7,179		)
Cash and cash equivalents at beginning of period	43,112			19,536
Cash and cash equivalents at end of period	$	28,512		$	12,357

The accompanying notes are an integral part of these consolidated condensed financial statements.

i-STAT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

1. General

Basis of Presentation

The information presented as of June 30, 2002 and 2001, and for the periods then ended, is unaudited, but includes all adjustments (consisting of normal recurring accruals except for the inventory adjustment discussed in Note 2 and the litigation settlement discussed in Note 3) which the management of i-STAT Corporation (the “Company”) believes to be necessary for the fair presentation of results for the periods presented. The results for the interim periods are not necessarily indicative of results to be expected for the year. The December 31, 2001 consolidated condensed balance sheet data was derived from the audited financial statements, but does not include all disclosures required by generally accepted accounting principles. These condensed financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2001, including the Notes thereto, which were included as part of the Company’s Annual Report on Form 10-K, File No. 0-19841.

Basic and Diluted Loss per Share

Basic loss per share is calculated by dividing income available to common stockholders by the weighted average number of Common Shares outstanding for the period. Diluted earnings per share would reflect 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 potentially dilutive Common Shares in the diluted per-share computation for all periods presented, as the result is antidilutive due to the Company’s net loss.

Options to purchase 3,360,354 shares of common stock with exercise prices of $4.41 - $32.58 per share, which expire on various dates from December 2002 to June 2012, were outstanding at June 30, 2002. In addition, warrants to purchase 1,875,357.5 shares of Common Stock at $8.00 per share were outstanding at June 30, 2002. The options and warrants were not included in the computation of diluted loss per share because the effect would be antidilutive due to the Company’s net loss.

Comprehensive Income

Statement of Financial Accounting Standards (‘SFAS”) No. 130, “Reporting Comprehensive Income,” requires certain items to be included in other comprehensive income. The only component of accumulated other comprehensive income (loss) for the Company is foreign currency translation adjustments resulting from the translation of the financial statements of the Company’s Canadian subsidiary.

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001
	(In thousands of dollars)
Net loss	$	(3,575	)	$	(14,222	)	$	(7,327	)	$	(18,048	)
Other comprehensive income (loss):
Foreign currency translation	729			661			745			(232		)
Comprehensive loss	$	(2,846	)	$	(13,561	)	$	(6,582	)	$	(18,280	)

Foreign Currency Translation/Transactions

In general, balance sheet amounts from the Company’s Canadian Subsidiary have been translated using exchange rates in effect at the balance sheet dates and the resulting translation adjustments have been included in the accumulated other comprehensive loss as a separate component of Consolidated Stockholder’s Equity. The Statement of Operations from the Company’s Canadian subsidiary has been translated using the average monthly exchange rates in effect during each period presented. Effective May 31, 2002, as a result of repayment of a portion of intercompany debt owed by the Company's Canadian subsidiary and that subsidiary's deemed ability to repay the remaining intercompany debt, the Company is required to treat such intercompany debt as short-term in accordance with SFAS No. 52 "Foreign Currency Translation." SFAS No. 52 requires the Company to record the impact of foreign currency gains and losses on short-term intercompany debt in the Company's results of operations. Foreign currency gains of $0.1 million were recorded for both the three months and six months ending June 30, 2002. These gains were primarily the result of the impact of the exchange rate between U.S. dollars and Canadian dollars on the intercompany debt owed by i-STAT Corporation’s Canadian subsidiary to i-STAT Corporation. The amount of these gains and losses could be material in the event of significant changes in the exchange rate between U.S. dollars and Canadian dollars.

Recently Issued Accounting Pronouncements:

On August 15, 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. In addition, the associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and subsequently allocated to expense over the asset’s useful life. The Company does not expect that the adoption of this statement will have a material impact on its financial position or results of operations.

In May 2002, FASB issued SFAS No. 145, “Rescission of SFAS No. 4, 44 and 64, Amendment of SFAS 13, and Technical Corrections as of April 2002.” SFAS No. 145 is effective for fiscal years after May 15, 2002 and is effective for SFAS No. 13 transactions occurring after May 15, 2002. This statement rescinds SFAS No. 4 and, thus the exception to applying Accounting Principles Board Opinion No. 30 (“APB No. 30”) to all gains and losses related to extinguishments of debt. As a result, gains and losses from extinguishments of debt are classified as extraordinary items only if they met the criteria in APB No. 30. SFAS No. 64 previously amended SFAS No. 4 and is no longer necessary. This statement also amends SFAS No. 13 to require sale-leaseback accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This statement rescinds SFAS No. 44 and makes various technical corrections to other existing pronouncements. The Company does not expect the adoption of this statement will have a material impact on its financial position or results of operations.

On July 29, 2002, FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3. “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in Restructuring).” This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as defined in Issue 94-3 was recognized at the date of an entity’s commitment to an exit plan. Therefore, this statement eliminates the definition and requirements for recognition of exit costs in Issue 94-3. This statement also establishes that fair value is the objective for initial measurement of the liability. The Company does not expect that the adoption of this statement will have a material impact on its financial position or results of operation.

2. Inventories

Inventories consist of the following:

	June 30, 2002		December 31, 2001
	(In thousands of dollars)

Raw materials	$	4,515	$	4,462
Work-in-process	3,812		3,058
Finished goods	3,454		5,873
	$	11,781	$	13,393

In the first quarter of 2002, the Company recorded a charge of $1.6 million related to the write-off of certain cartridges in inventory and the replacement of certain cartridges in the field that exhibited a higher than usual quality check rejection rate (the entire $1.6 million relates to inventory produced during the first quarter of 2002). This charge was in addition to a charge of $1.7 million that was recorded in the fourth quarter of 2001 related to the same quality check rejection rate issue. At December 31, 2001, as a result of the charges, finished goods inventory are presented net of an aggregate reserve of $1.0 million. In addition, a reserve of $0.2 million and $0.6 million related to the replacement of certain cartridges in the field is recorded in accrued expenses at June 30, 2002 and December 31, 2001, respectively.

3. Commitments and Contingencies

The Company was 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, alleged infringement by the Company of Nova Biomedical Corporation’s (“Nova”) U.S. Patent No. 4,686,479 (the “Patent”). 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. The Federal Circuit affirmed two of the grounds of the dismissal (proper interpretation of the Patent and that the Company does not literally infringe), but remanded the case to the District Court with instructions to reconsider whether the Company’s device performs a certain measurement in a substantially equivalent way to a method covered by the Patent, and therefore infringes under the “doctrine of equivalents.” On July 26, 2001 the Company entered into a license agreement and a settlement agreement with Nova under which the Company agreed to pay Nova $10.5 million, which was recorded as a charge in the second quarter of 2001. Pursuant to the agreements, $6.5 million was paid on July 26, 2001, a retroactive royalty of $0.5 million was paid on August 14, 2001 for the period of January 1, 2001 through June 30, 2001, and $3.5 million plus interest was due to be paid over one year in equal quarterly installments, pursuant to a secured promissory note. The promissory note was prepaid on August 3, 2001. The license agreement provides for the payment to Nova of a royalty equal to 4% of the invoice price of products sold in the United States after January 1, 2001, which products determine hematocrit levels according to any method used by the Company prior to December 31, 2000, as well as any method covered by the Patent. The royalties are payable through the life of the Patent (July 22, 2005). The Company has commercialized products that determine hematocrit levels using a method that was not used by the Company prior to December 31, 2000 and which the Company believes is not covered by the Patent. Consequently, the Company does not believe that it owes any additional royalties to Nova. On February 28, 2002, Nova filed a demand for arbitration claiming that the method by which the Company’s products determine hematocrit is covered under the Patent and the license agreement. Nova is seeking royalties from July 1, 2001. If the Company is unsuccessful in defending its position in the arbitration and does not develop new methods that do not utilize the covered technology, it may be forced to continue to pay royalties to Nova through the life of the Patent and approximately $1.1 million in respect of products sold from July 1, 2001 through June 30, 2002. The Company plans to defend this matter vigorously.

The Company and Abbott Laboratories (“Abbott”) are in disagreement over the amount of money Abbott is entitled to for the sharing of certain cartridge production cost savings resulting from an increase in sales volume. This disputed item relates to different interpretations of certain terms of the Company’s exclusive marketing and distribution agreement with Abbott dated August 3, 1998 (the “Distribution Agreement”). If this disagreement is not resolved

amicably, it must be resolved through binding arbitration as prescribed under the Distribution Agreement. Management of the Company believes that Abbott’s position on this issue in dispute is without merit and that, in the event that this issue is resolved through arbitration, the Company will not incur any additional liability to Abbott. The amount in dispute is approximately $1.1 million at June 30, 2002, and if this matter is resolved in favor of Abbott, which management of the Company believes unlikely, the Company’s cost of goods sold would increase by up to the amount in dispute. Such adjustment would be made when, and if, it is determined that an unfavorable outcome to the Company is probable.

4. Related Party Transactions

On July 25, 2002, the Company announced its intention to terminate its Distribution Agreement with Abbott, effective December 31, 2003. As a result, the Company is obligated to make the following payments to Abbott on the dates noted: (a) on December 31, 2003 a $5.0 million one-time termination fee to compensate Abbott for a portion of its costs in undertaking the distribution relationship, (b) on December 31, 2003 $5.0 million representing the unrecogized portion of a $25.0 million prepayment made by Abbott against incremental product sales, (c) early in 2004, approximately $5.0 million to repurchase inventory and equipment from Abbott, as required in the Distribution Agreeement, and (d) on December 31, 2004 and on each December 31 thereafter through 2008, for a total of five unequal residual payments based upon Abbott’s net sales of the Company’s products during the final twelve months of the Distribution Agreement term, approximately $55 million. These payments will have a material impact on the Company’s cash flows and results of operations. The Company anticipates that the profit margins presently being earned by Abbott as a result of the sale of the Company’s products will be earned by the Company commencing January 1, 2004, and will provide the Company with the sufficient cash to fund these payments. The Company has begun to take actions to assume primary responsibility for the marketing and sale of its products, effective January 1, 2004. During the quarter ended June 30, 2002, these actions included hiring six additional sales personnel. The Company anticipates further additions of personnel in the coming quarters. The Company may incur additional costs or recognize lower revenues than anticipated as a result of resuming direct distribution of its products.

Net product sales to Abbott were $12.4 million and $11.9 million for the three months ended June 30, 2002 and 2001, respectively and $23.9 million and $22.2 million for the six months ended June 30, 2002 and 2001, respectively. Other related party revenues from Abbott were $0.2 million in each of the three-month periods ended June 30, 2002 and 2001 and $0.4 million in each of the six month periods ended June 30, 2002 and 2001. The other related party revenues from Abbott consist of amounts reimbursed by Abbott for services performed by the Company’s implementation coordinators.

i-STAT CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

i-STAT Corporation (“i-STAT” or the “Company”), which was incorporated in Delaware in 1983, together with its wholly-owned subsidiary, i-STAT Canada Limited, 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, 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^® ACT (activated clotting time), arterial blood gases (pH, PCO₂ and PO₂), and bicarbonate, and derives 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. During the second quarter of 2002, the Company received approval from the Food and Drug Administration to market a test which measures Prothrombin Time (“PT”). The Company expects to begin shipment of the PT test for initial evaluation in the third quarter of 2002 with the first revenue shipments of the product expected to occur in the first quarter of 2003. The Company is currently developing two additional tests for the measurement of coagulation: kaolin ACT and partial thromboplastin time (“aPTT”). Subject to regulatory approvals, the Company expects to begin commercial introduction of the kaolin ACT test in early 2003. The Company also is conducting research and development on cardiac marker tests, the first of which utilizes the Troponin I immunoassay. The Troponin I test is scheduled to commence clinical trials late in 2002 and, subject to regulatory approvals, to be commercially introduced in 2003. In the fourth quarter of 2000, the Company introduced the i-STAT 1 Analyzer. The i–STAT 1 Analyzer permits a customer to run all i-STAT cartridges as well as Abbott MediSense^® glucose strips on one integrated hand-held device. The i-STAT 1 Analyzer also incorporates a number of enhancements, including a bar code reader, an improved user interface, and an enhanced data management system which, in conjunction with a central data management system developed by the Company, enhances the customer’s ability to centrally manage a widely distributed point-of-care testing program.

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 and in Mexico, South America, China, Australia, and certain other Asian and Pacific Rim countries, through selected distribution channels. On August 3, 1998, the Company entered into a long-term sales, marketing and research alliance with Abbott Laboratories (“Abbott”), which, among other things, since November 1, 1998, 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 “Alliance with Abbott Laboratories” under Item 7 of the Company’s Annual Report on Form 10–K for the year ended December 31, 2001 for a description of the Company’s agreements with Abbott.

On July 25, 2002, the Company announced its intention to terminate its exclusive marketing and distribution agreement dated August 3, 1998 (the “Distribution Agreement”) with Abbott, effective December 31, 2003. As a result, the Company is obligated to make the following payments on the dates noted: (a) on December 31, 2003 a $5.0 million one-time termination fee to compensate Abbott for a portion of its costs in undertaking the distribution relationship, (b) on December 31, 2003 $5.0 million representing the unrecognized portion of a $25.0 million prepayment made by Abbott against incremental product sales, (c) early in 2004, approximately $5.0 million to repurchase inventory and equipment from Abbott, as required in the Distribution Agreement, and (d) on December 31, 2004 and on each December 31 thereafter through 2008, for a total of five unequal payments, residual payments based upon Abbott’s net sales of the Company’s products during the final twelve months of the Distribution Agreement term, approximately $55 million. These payments will have a material impact on the Company’s cash flows and results of operations. These payments will have a material impact on the Company’s cash flows and results of operations. The Company anticipates that the profit margins presently being earned by Abbott as a result of the sale of the

Company’s products, will be earned by the Company commencing January 1, 2004, and will provide the Company with the sufficient cash to fund these payments. The Company has begun to take actions to assume primary responsibility for the marketing and sale of its products, effective January 1, 2004. During the quarter ended June 30, 2002 these actions included hiring six additional sales personnel. The Company anticipates further additions of personnel in coming quarters. The Company may incur additional costs or recognize lower revenues than anticipated as a result of resuming direct distribution of its products.

Results of Operations

Three Months Ended June 30, 2002

The Company generated total net revenues of $14.8 million and $14.4 million for the three months ended June 30, 2002 and 2001, respectively, including international net revenues (as a percentage of total net revenues) of $3.9 million (26.1%) and $3.5 million (24.1%), respectively. Total net revenues from Abbott represented 84.9% and 84.3% of the Company’s worldwide total net revenues for the three months ended June 30, 2002 and 2001, respectively.

The $0.4 million, or 2.9%, increase in total net revenues was primarily due to increased shipment volumes of the Company’s cartridges. Total worldwide cartridge shipments increased by 13.6% to 3,407,850 units in the three months ended June 30, 2002, from 2,999,350 units in the three months ended June 30, 2001. The increase in cartridge sales volume reflects higher cartridge consumption by existing hospital users and the addition of new hospital accounts in the international market. The increase in worldwide cartridge volume was partially offset by a decrease in worldwide average selling prices per cartridge, which decreased from $3.35 in the second quarter of 2001 to $3.30 in the second quarter of 2002. The decrease in worldwide average selling prices is primarily attributable to lower end-user selling prices in Japan. Worldwide hand-held analyzer shipments decreased 11.4% to 846 units in the three months ended June 30, 2002, from 955 units in the three months ended June 30, 2001. Other related party revenues were $0.2 million in each of the three-month periods ended June 30, 2002 and June 30, 2001.

Manufacturing costs (as a percentage of product sales) associated with product sales for the three months ended June 30, 2002 and 2001 were $12.2 million (83.5%) and $12.0 million (86.9%), respectively. Cost of products sold as a percentage of product sales generally decreases with increased production volumes of the Company’s cartridges and with improvements in manufacturing productivity yields.

The Company incurred research and development costs (as a percentage of total net revenues) of $1.9 million (13.1%) and $2.0 million (13.8%) for the three months ended June 30, 2002 and 2001, respectively. Research and development expenses consist of costs associated with the personnel, material, equipment and facilities necessary for conducting new product development. Research and development expenditures may increase over the next several 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.

The Company incurred general and administrative expenses (as a percentage of total net revenues) of $2.0 million (13.6%) and $1.9 million (13.4%) for the three months ended June 30, 2002 and 2001, respectively. General and administrative expenses consist primarily of salaries and benefits of personnel, office costs, legal and other professional fees and other costs necessary to support the Company’s infrastructure.

The Company incurred sales and marketing expenses (as a percentage of total net revenues) of $2.5 million (17.1%) and $2.3 million (16.2%) for the three months ended June 30, 2002 and 2001, respectively. Sales and marketing expenses consist primarily of salaries, commissions, benefits, travel, business development and similar expenditures for sales representatives, implementation coordinators and international marketing support, as well as order entry, product distribution, technical services, clinical affairs, product literature, market research, and other sales infrastructure costs. A portion of the costs of the implementation coordinators is reimbursed by Abbott, and as a result, $0.2 million of reimbursement is included in total net revenues in each of the three-month periods ended June 30, 2002 and 2001. The increase in sales and marketing expenses is primarily attributable to the increase in sales personnel as the Company prepares to assume primary responsibility for the

marketing and sale of its products. The Company anticipates further personnel additions and increased sales and marketing costs in the coming quarters.

Other income, net, of $0.3 million and $0.2 million for the three months ended June 30, 2002 and 2001, respectively, primarily reflects interest income earned on cash and cash equivalents and the net impact of foreign currency gains and losses. Effective May 31, 2002, as a result of repayment of a portion of intercompany debt owed by the Company's Canadian subsidiary and that subsidiary's deemed ability to repay the remaining intercompany debt, the Company is required to treat such intercompany debt as short-term in accordance with SFAS No. 52 "Foreign Currency Translation." SFAS No. 52 requires the Company to record the impact of foreign currency gains and losses on short-term intercompany debt in the Company's results of operations. Foreign currency gains of $0.1 million were recorded for the three months ended June 30, 2002. These gains were the result of the impact of the exchange rate between U.S. dollars and Canadian dollars on the intercompany debt owed by i-STAT Corporation’s Canadian subsidiary to i-STAT Corporation. The amount of the gains and losses could be material in the event of significant changes in the exchange rate between U.S. dollars and Canadian dollars.

During the three months ended June 30, 2001, the Company recognized settlement costs of $10.5 million related to the settlement of the patent infringement lawsuit with Nova Biomedical Corporation, of which $10.0 million was a settlement payment to Nova and $0.5 million was for retroactive royalties due to Nova based on sales of certain products.

In the second quarter of 2002, the Company recorded accretion of Preferred Stock of $0.1 million and dividends on Preferred Stock of $0.3 million. The accretion of Preferred Stock relates to the issuance by the Company of Series D Redeemable Convertible Preferred Stock (the “Series D Stock”) in December of 2001. The accretion recorded by the Company reflects amortization of the difference between the net fair value at issuance and the redemption (or stated) value of such stock. The Series D Stock is being accreted over a period of ten years.

The Series D Stock carries a dividend of 8%, which is either accrued or paid in cash quarterly, at the option of the Company. The second quarter 2002 dividend on the Series D Stock was recorded at its fair value of $0.3 million. The dividend was not paid in cash and its stated value of $0.6 million was accrued and added to the carrying value and liquidation preference of the Series D Stock. The difference between the stated value and the fair value of the dividend was recorded as a charge to additional paid-in-capital.

Net loss available to Common Stockholders for the three months ended June 30, 2002 was $4.0 million, or 20 cents per basic and diluted share, compared with a net loss of $14.2 million, or 78 cents per basic and diluted share, for the second quarter of 2001. The decrease in the net loss is primarily related to the settlement costs recognized in the second quarter of 2001 by the Company as part of the Nova Biomedical Corporation patent infringement resolution. The weighted average number of shares used in computing basic and diluted net loss per share was 20.085 million and 18.306 million in the 2002 and 2001 periods, respectively. The increase in the weighted average number of shares primarily reflects the issuance of 1,480,000 shares of Common Stock in August 2001 and the exercise of employee stock options.

Six Months Ended June 30, 2002

The Company generated total net revenues of $29.2 million and $26.7 million for the six months ended June 30, 2002 and 2001, respectively. Total net revenues included international revenues (as a percentage of total revenues) of $7.9 million (26.9%) and $6.6 million (24.9%), respectively. Total net revenues from Abbott represented 83.2% and 84.6% of the Company’s worldwide total net revenues for the six months ended June 30, 2002 and 2001, respectively.

The $2.5 million (9.3%) increase in total net revenues was primarily due to increased international sales volume of the Company’s cartridges, reflecting higher cartridge consumption by existing hospital customers and the addition of new hospital customers, along with increased sales of the i-STAT 1 analyzer. Worldwide cartridge sales increased 5.9% to 6,097,675 units in the six months ended June 30, 2002, from 5,758,350 units in the six months ended June 30, 2001. Worldwide average selling prices per cartridge were $3.37 in both periods ended June 30, 2002 and June 30, 2001. Analyzer sales volume increased 17.6% to 2,021 units in the six months ended June 30, 2002, from 1,719 units in the six months ended June 30, 2001. Other related party revenues were $0.4 million in each of the six-month periods ended June 30, 2002 and June 30, 2001.

Manufacturing costs (as a percentage of product sales) associated with product sales for the six months ended June 30, 2002 and 2001 were $24.9 million (86.5%) and $22.6 million (86.8%), respectively. Cost of products sold, as a percentage of product sales, generally decreases with increased production volume of the Company’s cartridges and improvements in manufacturing productivity and yields. Cost of products sold, as a percentage of product sales, improved for the six months

ended June 30, 2002 as compared to 2001 due to increased production volume, which caused fixed manufacturing costs to be spread over a larger number of product units, and the fact that the first half of 2001 was negatively impacted by reduced levels of production and higher than normal scrap levels. However, cost of products sold as a percentage of product sales was negatively impacted by a charge of $1.6 million recorded in the first quarter of 2002 for the write-off of certain cartridges in inventory and the replacement of certain cartridges in the field that exhibited a higher than usual quality check rejection rate.

The Company incurred research and development costs (as a percentage of total net revenues) of $3.9 million (13.3%) and $3.9 million (14.7%) for the six months ended June 30, 2002 and 2001, respectively. Research and development expenses consist of costs associated with the personnel, material, equipment and facilities necessary for conducting new product development. Research and development expenditures may increase over the next several 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.

The Company incurred general and administrative expenses (as a percentage of total net revenues) of $3.4 million (11.6%) and $3.5 million (13.1%) for the six months ended June 30, 2002 and 2001, respectively. General and administrative expenses consist primarily of salaries and benefits of personnel, office costs, legal and other professional fees and other costs necessary to support the Company’s infrastructure.

The Company incurred sales and marketing expenses (as a percentage of total net revenues) of $4.8 million (16.4%) and $4.7 million (17.6%) for the six months ended June 30, 2002 and 2001, respectively. Sales and marketing expenses consist primarily of salaries, benefits, travel, and other expenditures for sales representatives, product implementation coordinators, international marketing support, order entry, distribution, technical services, product literature, market research, clinical studies and other sales infrastructure costs. A portion of the costs of product implementation coordinators is reimbursed by Abbott, and as result, total net revenues and gross profit include $0.4 million of such reimbursement in each of the six-month periods ended June 30, 2002 and 2001. The increase in sales and marketing expenses is primarily attributable to the increase in sales personnel as the Company prepares to assume primary responsibility for the marketing and sale of its products. The Company anticipates further personnel additions and increased sales and marketing costs in the coming quarters.

Other income, net, of $0.5 million for the six months ended June 30, 2002 and 2001, primarily reflects interest income earned on cash and cash equivalents and the net impact of foreign currency gains and losses. Effective May 31, 2002, as a result of repayment of a portion of intercompany debt owed by the Company's Canadian subsidiary and that subsidiary's deemed ability to repay the remaining intercompany debt, the Company is required to treat such intercompany debt as short-term in accordance with SFAS No. 52 "Foreign Currency Translation." SFAS No. 52 requires the Company to record the impact of foreign currency gains and losses on short-term intercompany debt in the Company's results of operations. Foreign currency gains of $0.1 million were recorded for the six months ended June 30, 2002. These gains were the result of the impact of the exchange rate between U.S. dollars and Canadian dollars on the intercompany debt owed by i-STAT Corporation’s Canadian subsidiary to i-STAT Corporation. The amount of the gains and losses could be material in the event of significant changes in the exchange rate between U.S. dollars and Canadian dollars.

During the six months ended June 30, 2001, the Company recognized settlement costs of $10.5 million related to the settlement of the patent infringement lawsuit with Nova Biomedical Corporation, of which $10.0 million was a settlement payment to Nova and $0.5 million was for retroactive royalties due to Nova based on sales of certain products.

During the six months ended June 30, 2002, the Company recorded accretion of Preferred Stock of $0.2 million and dividends on Preferred Stock of $0.8 million. The accretion of Preferred Stock relates to the issuance by the Company of Series D Redeemable Convertible Preferred Stock (the “Series D Stock”) in December of 2001. The accretion recorded by the Company reflects amortization of the difference between the net fair value at issuance and the redemption (or stated) value of such stock. The Series D Stock is being accreted over a period of ten years.

The Series D Stock carries a dividend of 8%, which is either accrued or paid in cash quarterly, at the option of the Company. The dividend on the Series D Stock was recorded at its fair value of $0.8 million for the six months ended June 30, 2002. The dividend was not paid in cash and its stated value of $1.2 million was accrued and added to the carrying value and liquidation preference of the Series D Stock. The difference between the stated value and the fair value of the dividend was recorded as a charge to additional paid-in-capital.

Net loss available to Common Stockholders for the six months ended June 30, 2002 was $8.4 million, or 42 cents per basic and diluted share, compared with a net loss of $18.0 million, or 99 cents per basic and diluted share for the six months

ended June 30, 2001. The weighted average number of shares used in computing basic and diluted net loss per share was 20.033 million and 18.269 million in the 2002 and 2001 periods, respectively. The increase in the weighted average number of shares primarily reflects the issuance of 1,480,000 shares of Common Stock in August 2001 and the exercise of employee stock options.

Liquidity and Capital Resources

At June 30, 2002, the Company had cash and cash equivalents of $28.5 million, a decrease of $14.6 million from the December 31, 2001 balance of $43.1 million. The decrease primarily reflects $12.7 million of cash used in operating activities as a result of the application of $10.2 million received from Abbott in prior periods to amounts owed by Abbott, combined with $1.6 million of equipment purchases. Working capital decreased by $6.2 million from $48.1 million to $41.9 million during the same period. Changes in working capital during the six months ended June 30, 2002 were primarily comprised of the decrease in cash and cash equivalents of $14.6 million and the decrease in inventory of $1.6 million offset by an increase in accounts receivable of $6.9 million, a decrease in accounts payable to related party of $2.7 million and a decrease in deferred revenue — related party, current of $0.6 million.

The Company expects its cash and cash equivalents to be sufficient to meet its obligations and its liquidity and capital requirements for the foreseeable future, including those payment obligations to Abbott that result from termination of the Distribution Agreement, as described previously. However, numerous factors may change this expectation, including the results of the Company’s sales and marketing activities, particularly upon its resumption of direct marketing and sale of its products and its new product development efforts, manufacturing difficulties, manufacturing efficiencies and plant expansion plans, the results of litigation and other dispute resolution proceedings, competitive conditions, long-term strategic decisions, and other factors listed under “Factors That May Affect Future Results” in the Company’s 2001 Annual Report on Form 10-K on file with the Securities and Exchange Commission. 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.

International sales are invoiced and paid in U.S. dollars. However, the cartridge price received from international partners, including Abbott, may be affected by changes in the value of the U.S. dollar relative to local currencies because the price paid by customers to our partners is set in local currencies. When the value of foreign currencies changes with respect to the U.S. dollar, the price paid by our partners to us changes due to the foreign exchange conversion of local currency prices. Price reductions are limited, however, by guaranteed U.S. dollar minimum prices established for each cartridge.

The Company’s cartridge manufacturing is conducted through a wholly-owned subsidiary in Canada. Most manufacturing labor and overhead costs of this subsidiary are incurred in Canadian dollars, while some raw material purchases are made in U.S. dollars. The Canadian operation is primarily funded by payments in U.S. dollars made by the U.S. parent Company for cartridges purchased for resale to its customers. Since most of the cartridge manufacturing expenses are incurred in Canadian dollars, the cost of products sold and therefore, the Company’s consolidated results of operations and cash flows can be impacted by a change in exchange rates between the Canadian dollar and the U.S. dollar.

The impact of inflation on the Company’s business has been minimal and is expected to be minimal for the near-term.

Contingencies

million, which was recorded as a charge in the second quarter of 2001. Pursuant to the agreements, $6.5 million was paid on July 26, 2001, a retroactive royalty of $0.5 million was paid on August 14, 2001 for the period of January 1, 2001 through June 30, 2001, and $3.5 million plus interest was due to be paid over one year in equal quarterly installments, pursuant to a secured promissory note. The promissory note was prepaid on August 3, 2001. The license agreement provides for the payment to Nova of a royalty equal to 4% of the invoice price of products sold in the United States after January 1, 2001, which products determine hematocrit levels according to any method used by the Company prior to December 31, 2000, as well as any method covered by the Patent. The royalties are payable through the life of the Patent (July 22, 2005). The Company has commercialized products that determine hematocrit levels using a method that was not used by the Company prior to December 31, 2000 and which the Company believes is not covered by the Patent. Consequently, the Company does not believe that it owes any additional royalties to Nova. On February 28, 2002, Nova filed a demand for arbitration claiming that the method by which the Company’s products determine hematocrit is covered under the Patent and the license agreement. Nova is seeking royalties from July 1, 2001. If the Company is unsuccessful in defending its position in the arbitration and does not develop new methods that do not utilize the covered technology, it may be forced to continue to pay royalties to Nova through the life of the Patent and approximately $1.1 million in respect of products sold from July 1, 2001 through June 30, 2002. The Company plans to defend this matter vigorously.

The Company and Abbott are in disagreement over the amount of money Abbott is entitled to for the sharing of certain cartridge production cost savings resulting from an increase in sales volume. This disputed item relates to different interpretations of certain terms of the Distribution Agreement. If this disagreement is not resolved amicably, it must be resolved through binding arbitration as prescribed by the Distribution Agreement. Management of the Company believes that Abbott’s position on this issue in dispute is without merit and that, in the event that this issue is resolved through arbitration, the Company will not incur any additional liability to Abbott. The amount in dispute is approximately $1.1 million at June 30, 2002, and if this matter is resolved in favor of Abbott, which management of the Company believes is unlikely, the Company’s cost of goods sold would increase by up to the amount in dispute. Such adjustment would be made when, and if, it is determined that an unfavorable outcome to the Company is probable.

Recent Accounting Pronouncements

In May 2002, FASB issued SFAS No. 145, “Rescission of SFAS No. 4, 44 and 64, Amendment of SFAS 13, and Technical Corrections as of April 2002.” SFAS No. 145 is effective for fiscal years beginning after May 15, 2002 and is effective for SFAS No. 13 transactions occurring after May 15, 2002. This statement rescinds SFAS No. 4 and, thus the exception to applying Accounting Principles Board Opinion No. 30 (“APB No. 30”) to all gains and losses related to extinguishments of debt. As a result, gains and losses from extinguishments of debt are classified as extraordinary items only if they met the criteria in APB No. 30. SFAS No. 64 previously amended SFAS No. 4 and is no longer necessary. This statement also amends SFAS No. 13 to require sale-leaseback accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This statement rescinds SFAS No. 44 and makes various technical corrections to other existing pronouncements. The Company does not expect the adoption of this statement will have a material impact on its financial position or results of operations.

measurement of the liability. The Company does not expect that the adoption of this statement will have a material impact on it financial position or results of operations.

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

CERTAIN STATEMENTS IN THIS “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” MAY 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 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, COMPETITION FROM EXISTING MANUFACTURERS AND MARKETERS OF BLOOD ANALYSIS PRODUCTS WHO HAVE GREATER RESOURCES THAN THE COMPANY, ECONOMIC AND GEOPOLITICAL CONDITIONS AFFECTING THE COMPANY’S TARGET MARKETS, ACTS OF TERRORISM, THE UNCERTAINTY OF NEW PRODUCT DEVELOPMENT INITIATIVES, THE ABILITY TO ATTRACT AND RETAIN KEY SCIENTIFIC, TECHNOLOGICAL AND MANAGEMENT PERSONNEL, DEPENDENCE UPON LIMITED SOURCES FOR PRODUCT MANUFACTURING COMPONENTS, UPON A SINGLE MANUFACTURING FACILITY AND UPON INNOVATIVE AND HIGHLY TECHNICAL MANUFACTURING TECHNIQUES, MARKET RESISTANCE TO NEW PRODUCTS AND POINT-OF-CARE-BLOOD DIAGNOSIS, INCONSISTENCY IN CUSTOMER ORDER PATTERNS, DOMESTIC AND INTERNATIONAL REGULATORY CONSTRAINTS, UNCERTAINTIES OF INTERNATIONAL TRADE, PENDING AND POTENTIAL DISPUTES CONCERNING OWNERSHIP OF INTELLECTUAL PROPERTY, AVAILABILITY OF CAPITAL UPON FAVORABLE TERMS AND DEPENDENCE UPON AND CONTRACTUAL RELATIONSHIPS WITH STRATEGIC PARTNERS, PARTICULARLY ABBOTT LABORATORIES. IN ADDITION, THE COMPANY’S DECISION TO END ITS ALLIANCE WITH ABBOTT LABORATORIES AND RESUME DIRECT DISTRIBUTION OF ITS PRODUCTS INVOLVES ADDITIONAL RISKS AND UNCERTAINTIES THAT ARE DIFFICULT TO QUANTIFY AT THIS TIME. FOR EXAMPLE, THE COMPANY MAY INCUR COSTS OR RECOGNIZE REVENUES IN CONNECTION WITH RESUMING DIRECT DISTRIBUTION THAT ARE GREATER OR LESSER, RESPECTIVELY, THAN ANTICIPATED. SEE ADDITIONAL DISCUSSION UNDER “FACTORS THAT MAY AFFECT FUTURE RESULTS” IN THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001, AND OTHER FACTORS DETAILED FROM TIME TO TIME IN THE COMPANY’S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.

i-STAT CORPORATION

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

The company held its Annual Meeting of Stockholders on May 30, 2002, at which time three matters were submitted to a vote of stockholders. A description of the matters voted upon and a voting tabulation for each matter is as follows:

I. Election of six members to the Board of Directors, each to serve until the next Annual Meeting.

	Number of Votes
Name of Nominee	For	Against/Withheld	Abstentions	Broker Non-Votes
J. Robert Buchanan, M.D.	19,331,607	872,748	N/A	N/A
Sam H. Eletr, Ph.D.	19,747,840	456,515	N/A	N/A
Daniel R. Frank	19,747,840	456,515	N/A	N/A
William P. Moffitt	19,741,930	462,425	N/A	N/A
Lionel N. Sterling	19,741,659	462,696	N/A	N/A
Anne M. VanLent	19,334,207	870,148	N/A	N/A

II. Approval of amendment to the Company’s Equity Incentive Plan.

For		Against/Withheld		Abstentions		Broker Non-Votes
16,245,033		3,905,957		53,365		N/A

III. Ratification of the appointment of PricewaterhouseCoopers LLP, as independent accountants to audit the Company’s books and accounts for the year 2002.

For		Against/Withheld		Abstentions		Broker Non-Votes
19,768,813		425,797		9,745		N/A

EXHIBIT INDEX

ITEM 6. Exhibits and Reports on Form 8-K

	(a)		Exhibits

	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)*

	3.5		Certificate of Designation, Preferences and Rights of Series C Preferred Stock (Form 10-Q for the quarterly period ended September 30, 2001)*

	3.6		Certificate of Amendment to the Restated Certificate of Incorporation (Form 10-Q for the quarterly period ended September 30, 2001)*

	3.7		Certificate of Designation, Preferences and Rights of Series D Preferred Stock (Form 10-K for fiscal year ended December 31, 2001)*

	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)*

	10.56		Employment Agreement between Registrant and Lorin J. Randall, dated May 30, 2002

	*		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

	(b)		Reports on Form 8-K

			On April 1, 2002, the Company filed a current Report on Form 8-K attaching press releases pertaining to adjustments to its previously announced 2001 financial results and the acknowledgement by the Company that Abbott Laboratories had met the minimum three-year growth rate milestone provided for in its Distribution Agreement with the Company.

			On May 31, 2002, the Company filed a current Report on Form 8-K attaching a press release pertaining to the appointment of Lorin Jeffry Randall as Senior Vice President of Finance, Chief Financial Officer and Treasurer and the resignation of Roger J. Mason as Vice President of Finance, Chief Financial Officer and Treasurer.

			On July 26, 2002 the Company filed a current Report on Form 8-K attaching press releases pertaining to the notification of its intent to terminate its exclusive marketing and distribution agreement with Abbott Laboratories and disclosing its financial results for the second quarter of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATE: August 14, 2002

		i-STAT CORPORATION
		(Registrant)


	BY:		/s/ William P. Moffitt
			William P. Moffitt
			President and Chief Executive Officer
			(Principal Executive Officer)

	BY:		/s/ Lorin J. Randall
			Lorin J. Randall
			Senior Vice President of Finance,
			Treasurer and Chief Financial Officer
			(Principal Financial Officer and Accounting Officer)

Exhibit 10.56

EMPLOYMENT AGREEMENT

This Employment Agreement (hereinafter this “Agreement”) dated as of May 30, 2002 (the “Effective Date”) by and between i-STAT CORPORATION, a Delaware corporation having a place of business at 104 Windsor Center Drive, East Windsor, New Jersey 08520 (the “Company”), and LORIN J. RANDALL, an individual residing at 120 S. Wawaset Road, West Chester, Pennsylvania 19382 (“Employee”).

WITNESSETH:

WHEREAS, the Company desires to employ Employee and Employee desires to be employed by the Company, all pursuant to the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, it is agreed as follows:

Section 1. Definitions. Unless otherwise defined herein, the following terms shall have the following respective meanings:

“Benefit” means those benefits set forth in Section 3.3 hereof.

“Cause” means (i) any felony conviction or admission of guilt, (ii) any breach or nonobservance by Employee of any material covenant set forth herein, (iii) any willful, intentional or deliberate disobedience or neglect by Employee of the lawful and reasonable orders or directions of the Chief Executive Officer of the Company; provided, that the Chief Executive Officer of the Company has given Employee written notice of such disobedience or neglect and Employee has failed to cure such disobedience or neglect within a period reasonable under the circumstances, or (iv) any willful or deliberate misconduct by employee that is materially injurious to the Company.

“Change of Control” shall mean any of the following:

A. An acquisition (other than directly from the Company) of any voting securities of the Company (the “Voting Securities”) by any “Person” (as the term “person” is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”) immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of thirty percent (30%) or more of the combined voting power of the Company’s then outstanding Voting Securities; provided, however, that in determining whether a Change

of Control has occurred, Voting Securities which are acquired in a “Non-Control Acquisition” (as defined below) shall not constitute an acquisition which would cause a Change of Control. A “Non-Control Acquisition” shall mean an acquisition by (i) an employee benefit plan (or trust forming a part thereof) maintained by (x) the Company or (y) any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Company (a “Subsidiary”), (ii) the Company or any Subsidiary, or (iii) any Person in connection with a Non-Control Transaction (as defined below).

B. The individuals who, as of the date immediately before any “Change of Control” set forth in clauses A or C hereof, are members of the Board (the “Incumbent Board”), cease for any reason to constitute at least a majority of the Board; provided, further, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened “Election Contest” (as described in Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a “Proxy Contest”) including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest.

C. Approval by the stockholders of the Company of:

(i) A merger, consolidation, or reorganization involving the Company, unless:

(1) The stockholders of the Company, immediately before such merger, consolidation or reorganization, own, directly or indirectly, immediately following such merger, consolidation or reorganization, at least a majority of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the “Surviving Corporation”) in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation, or reorganization; and

(2) The individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation, or reorganization constitute at least a majority of the members of the board of directors of the Surviving Corporation or corporation Beneficially Owning, directly or indirectly, a majority of the voting securities of the Surviving Corporation; and

(3) No Person (other than the Company, any Subsidiary, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation, any Subsidiary, or any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of fifteen percent (15%) or more of the then outstanding Voting Securities) owns, directly or indirectly, thirty percent (30%) or more of the combined voting power of the Surviving Corporation’s then outstanding voting securities.

(4) A transaction described in the foregoing clauses (1) through (3) shall herein be referred to as a “Non-Control Transaction”.

(ii) A complete liquidation or dissolution of the Company; or

(iii) A sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary).

D. Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because (i) any Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which by reducing the number of Voting Securities outstanding, increases the proportional number of shares beneficially owned by the Subject Person; provided, that if a Change of Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities beneficially owned by the Subject Person to a percentage sufficient to constitute a Change of Control, then a Change of Control shall be deemed to have occurred; or (ii) the acquisition of Voting Securities by holders of the Company’s Series D Convertible Preferred Stock, par value $.10 per share.

“Common Stock” means the common stock of the Company, par value $.15 per share.

“Diminution in Responsibility” means a material diminution in Employee’s duties or responsibilities or the assignment to Employee of duties which are materially inconsistent with his duties as Senior Vice President and Chief Financial Officer of the Company or which materially impair Employee’s ability to function in his position; provided, however, that no Diminution in Responsibility shall be deemed to have occurred solely as a result of the consummation by the Company of a strategic corporate alliance, partnership or joint venture (in whatever form) pursuant to which any substantial portion of the Company’s marketing and sales activities, or research and development activities, or manufacturing activities come under the control of any entity unaffiliated with the Company on the Effective Date.

“Permanent Disability” means Employee’s inability to substantially perform his duties and responsibilities hereunder by reason of any physical or mental incapacity for a period of 180 consecutive days, or two or more periods of 90 consecutive days each in any 360-day period.

Section 2. Employment; Duties.

2.1 During the Term of Employment (as hereinafter defined), the Company shall employ Employee, and Employee shall serve, as Senior Vice President — Finance, Chief Financial Officer and Treasurer of the Company. Employee’s responsibilities shall include such functions and duties with respect to the Company and its subsidiaries as the Chief Executive Officer or the Board of Directors of the Company (the “Board”) shall determine and that are consistent with the functions and duties of a chief financial officer of a corporation of similar size and nature.

2.2 During the Term of Employment and excluding any periods of vacation and sick leave to which Employee is entitled, (a) Employee shall devote all of his business time to the business and affairs of the Company (except as provided below) and shall use his best efforts to perform faithfully and efficiently the responsibilities assigned to Employee, (b) Employee shall apply his skill and experience to the performance of his duties in such employment, and (c) Employee shall have no other employment. During the Term of Employment, it shall not be a violation of this Agreement for Employee to devote up to two business days per calendar quarter to: (i) serve as a director, officer or trustee of any trade association or of any civic, educational or charitable organization, (ii) with the prior consent of the Board, which shall not be unreasonably withheld, serve as director of any corporation that does not compete, directly or indirectly, with the Company, and (iii) manage his personal investments (provided, that no such investment may exceed five percent (5%) of the equity securities of any entity without the prior written approval of the Board and further provided, that nothing herein shall limit any investment in an entity whose primary purpose is not the day-to-day operation of a particular business) and affairs. Subject to the limitation in the preceding sentence, the Company hereby consents to Employee serving as a member of the board of directors of Point 5 Technologies, Inc., provided, that Point 5 Technologies, Inc. does not engage in any business that is competitive with the Company’s business.

Section 3. Compensation And Benefits.

3.1 Base Salary. During the Term of Employee’s employment hereunder, the Company shall pay Employee a salary at the annual rate of Two Hundred Fifty-Seven Thousand Two Hundred Fifty dollars ($257,250) or such greater amount as the Company’s Board of Directors may from time to time establish pursuant to the terms hereof (the “Base Salary”). Such Base Salary shall be reviewed annually and may be increased, but not decreased, by the Board of Directors of the Company in its sole discretion. The Base Salary shall be payable in accordance with the Company’s customary payroll practices for its senior management personnel.

3.2 Bonus.

(a) Signing Bonus. On the Effective Date, the Company will award to Employee Ten Thousand (10,000) shares of Common Stock, pursuant to the Company’s Equity Incentive Plan, as amended (the “Incentive Plan”), which shall not be subject to forfeiture by Employee or repurchase by Company under any circumstances.

This award will be evidenced by an agreement in customary form for grants of Common Stock to executive officers under the Incentive Plan, consistent with the terms and conditions of this Agreement.

(b) Performance Bonus. During the term of Employee’s employment hereunder, Employee shall be eligible to participate in the Company’s Annual Incentive Program (the “AIP”). For each fiscal year of the Company ending during the Employment Term (as hereinafter defined), Employee shall receive a bonus equal to not less than (i) 7.5% of the Base Salary in cash, and options under the Incentive Plan (“Performance Bonus Options”) to purchase not less than 5,000 shares of Common Stock of the Company (“Shares”), for achieving the Minimum Level under the AIP; (ii) 15.0% of the Base Salary in cash, and Performance Bonus Options to purchase not less than 10,000 Shares, for achieving the Target Level under the AIP; and (iii) 22.5% of the Base Salary in cash, and Performance Bonus Options to purchase not less than 15,000 Shares, for achieving the Maximum Level under the AIP (collectively, the “Bonus”). Employee recognizes that the Board of Directors of the Company reserves the right to amend or terminate the AIP at any time, in which case the Company shall substitute therefor such other benefits and programs as shall provide Employee with a substantially equivalent opportunity to derive substantially equivalent rewards for performance.

3.3 Benefits.

(a) Benefit Plans. During the Employment Term, Employee may participate, on the same basis and subject to the same qualifications as other senior management personnel of the Company, in any benefit plans and policies in effect with respect to senior management personnel of the Company.

(b) Reimbursement of Expenses. During the Employment Term, Company shall pay or promptly reimburse Employee, upon submission of proper invoices in accordance with the Company’s normal procedures, for all reasonable out-of-pocket business, entertainment and travel expenses incurred by Employee in the performance of his duties hereunder.

(c) Vacation. During the Employment Term, Employee shall be entitled to vacations in accordance with the policies of the Company applicable to senior management personnel from time to time.

(d) Post-Retirement Benefits. Employee shall be entitled to any post-retirement benefits generally made available to the Company’s senior management personnel.

(e) Withholding. The Company shall be entitled to withhold from amounts payable or benefits accorded to Employee under this Agreement all federal, state and local income, employment and other taxes, as and in such amounts as may be required by applicable law.

3.4 Stock Options.

(a) Initial Grant. On or prior to the date hereof, the Company shall grant to Employee an option (the “Initial Stock Option”) to purchase Twenty-Five Thousand (25,000) shares of Common Stock at an exercise price of $5.08 per share pursuant to the terms of the Incentive Plan. The Initial Stock Option shall become exercisable over a five-year term with respect to 20% of such shares on each anniversary of the date of grant.

(b) Strategic Incentive Program Grant. The Company shall grant to Employee an option (the “SIP Option”) to purchase Sixty Thousand (60,000) shares of Common Stock at an exercise price per share to be determined on the date of grant pursuant to the terms of the Incentive Plan. The SIP Option shall become exercisable in full on the seventh anniversary of the date of grant.

(c) Accelerated Vesting of SIP Options. Subject to Employee’s satisfactory achievement of certain performance criteria, as determined by the Chief Executive Officer and approved by the Board of Directors, consistent with Employee’s duties and responsibilities, the SIP Option shall become exercisable with respect to (i) 20,000 shares on June 30, 2003, (ii) 20,000 shares on June 30, 2004, and (iii) all remaining shares on December 31, 2004.

(d) Accelerated Vesting of Options Due to Termination of Employment or Change of Control. Notwithstanding Sections 3.2(b), 3.4(a), 3.4(b) and 3.4(c) hereof, the Performance Bonus Options, Initial Stock Option and the SIP Option shall automatically become fully exercisable upon the earlier to occur of (i) a Change of Control, (ii) the termination by Employee of his employment with the Company for Good Reason (as hereinafter defined), or (iii) the termination of Employee’s employment without Cause pursuant to Section 5(d)(iii) hereof.

(e) Option Agreements. The Performance Bonus Options, the Initial Stock Option and the SIP Option shall be evidenced by agreements in customary form for grants of stock options under the Incentive Plan to executive officers of the Company, consistent with the terms and conditions of this Agreement.

3.5 Relocation.

(a) Reimbursement. The Company shall reimburse Employee up to Sixty-five Thousand dollars ($65,000) for the cost of relocating Employee’s household to the East Windsor, New Jersey area, including but not limited to the cost of transportation of household goods, farm equipment and animals and real estate sales commissions and related expenses (the “Relocation Costs”); provided, that such relocation shall be completed within twenty-four (24) months after the Effective Date.

(b) Withholding. The Company shall, in accordance with its normal policies and procedures for the payment of withholding tax, pay to the Internal Revenue Service and the appropriate state and local revenue authorities (collectively, the “Tax Authorities”), on behalf of Employee, an amount equal to the federal (including, without limitation, Medicare taxes), state and local income taxes (the foregoing taxes are hereinafter collectively referred to as “Income Taxes”) required to be withheld in connection with payment of the Relocation Costs.

(c) Gross-Up. To the extent that, as a result of the payment of all or any portion of the Relocation Costs to Employee by the Company as provided in this Section 3.5, Employee is obligated to pay any income, payroll or other taxes to the Tax Authorities, the Company shall pay to Employee, or on behalf of Employee, as the case may be, the sum of (i) all Income Taxes due by Employee as a result of reimbursement of the Relocation Costs, plus (ii) an amount equal to any and all Income Taxes paid or required to be paid with respect to the receipt of the amount set forth in clause (i) above (including, without limitation, any taxes on such additional amount). It is the intention of the parties hereto that the Company will pay on behalf of Employee any withholding tax due in connection with reimbursement of the Relocation Costs and that the Company will pay to Employee any out-of-pocket tax liability Employee experiences in connection with reimbursement of the Relocation Costs. Any amounts payable by the Company to Employee pursuant to this Section 3.5(c) shall be paid no later than five (5) business days before Employee is obligated to pay any taxes to the Tax Authorities.

(d) Temporary Living. The Company shall provide a furnished apartment for Employee’s use, including utilities, in the East Windsor, New Jersey area until Employee’s relocation is complete, but in no event after May 30, 2004.

3.6 Term. This Agreement shall remain in full force and effect for an initial period of four (4) years from the Effective Date (the “Employment Term”) and the Employment Term shall be automatically extended for additional one-year periods thereafter (each a “Renewal Period”) unless Employee notifies the Board of Directors or the Board of Directors notifies Employee that the notifying party does not desire to extend such Employment Term at least ninety (90) days prior to the end of the expiration of the Employment Term. Employee’s employment hereunder shall be coterminous with the Employment Term, unless sooner terminated as provided in Section 5 hereof.

Section 4. Representations And Warranties By Employee And The Company.

4.1 Employee hereby represents and warrants to the Company as follows:

(a) The performance by Employee of his duties and other obligations hereunder will not conflict with or constitute a default under (whether immediately, upon the giving of notice or lapse of time or both) any prior employment agreement, contract, or other instrument to which is a party or by which he is bound.

(b) Employee has the right, power and legal capacity to enter and deliver this Agreement and to perform his duties and other obligations hereunder. This Agreement constitutes the legal, valid and binding obligation of Employee enforceable against him in accordance with its terms.

4.2 The Company hereby represents and warrants to Employee as follows:

(a) The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware, with all requisite corporate power and authority to own its properties and conduct its business in the manner presently contemplated.

(b) The Company has full power and authority to enter into this Agreement and to incur and perform its obligations hereunder.

(c) The execution, delivery and performance by the Company of this Agreement does not and will not conflict with or result in a breach or violation of or constitute a default under (whether immediately, upon the giving of notice or lapse of time or both) the certificate of incorporation or by-laws of the Company, or any agreement or instrument to which the Company is a party or by which the Company or any of its properties may be bound or affected.

Section 5. Termination. Employee’s employment hereunder will begin on the Effective Date and shall continue until terminated upon the first to occur of the following events:

(a) Death or Permanent Disability of Employee. The Company may, at its option, terminate Employee’s employment for Permanent Disability (as herein defined). In the event of termination for death or disability, Employee or his designated beneficiary shall be entitled to termination benefits pursuant to Section 5(d) hereof.

(b) Termination by the Company for Cause. In the event of termination by the Company pursuant to this Section 5(b), the Company shall have no further obligations to Employee under this Agreement other than to (i) pay Employee’s then current Base Salary through the effective date of termination, and (ii) subject to the terms hereof, pay or provide any benefits which may be due to Employee.

(c) Termination by Employee for Good Reason. In the event of termination by Employee for Good Reason (as defined below) pursuant to this Section 5(c), (i) all unvested options granted to Employee shall vest immediately as of the date of such termination, (ii) within five (5) days following the date of such termination, the Company shall pay Employee his target annual bonus for the current fiscal year on a pro rata basis corresponding to the date of termination, and (iii) continue to pay Employee

monthly compensation equal to one-twelfth of Employee’s then current Base Salary plus annual target bonus for a period of eighteen (18) months following the date of termination. Employee’s right to terminate his employment pursuant to this Section 5(c) shall not be affected by his incapacity due to Permanent Disability. The following actions or omissions by the Company shall constitute “Good Reason”:

(A) If a Diminution of Responsibility occurs, Employee may, at his sole option by providing written notice to the Company within sixty (60) days following such Diminution of Responsibility, deem such Diminution of Responsibility to be “Good Reason” under this Section 5(c); or

(B) The failure of the Company to obtain an agreement, satisfactory to Employee, from any successor or assignee of all or substantially all of the Company’s business, to assume the Company’s obligations to Employee under this Agreement.

(d) Termination by the Company without Cause.

(i) The Company shall give Employee not less than thirty (30) days prior written notice of the termination of his employment without Cause and the Company shall have the option of terminating Employee’s duties and responsibilities prior to the expiration of the thirty-day notice period subject to payment on or prior to the date of such termination by the Company of Employee’s then current Base Salary for the remainder of the notice period and his target annual bonus for the current fiscal year on a pro rata basis corresponding to the date of termination.

(ii) If such termination shall occur, the Company shall continue to pay Employee monthly compensation equal to one-twelfth of Employee’s then current Base Salary plus annual target bonus for a period of twelve (12) months following the date of termination.

(iii) If such termination shall occur within the eighteen (18) month period following a Change of Control, then in lieu of amounts due under paragraph (ii) above, the Company shall (A) pay Employee his target annual bonus for the current fiscal year on a pro rata basis corresponding to the date of termination, (B) continue to pay Employee monthly compensation equal to one-twelfth of Employee’s then current Base Salary plus annual target bonus for a period of eighteen (18) months following the date of termination and (C) immediately accelerate the exercisability of all unvested stock options granted to Employee to purchase Common Stock as of the date of such termination.

(e) Termination by Employee without Good Reason. In the event Employee wishes to resign without Good Reason, he shall give not less than thirty (30) days prior written notice of such resignation and the Company shall have the option of terminating Employee’s duties and responsibilities at any time prior to Employee’s

proposed termination date, subject to payment by the Company to Employee of the lesser of (i) Employee’s then current Base Salary for a thirty (30) day period, or (ii) such portion of the period remaining under the notice given by Employee.

(f) Termination Due to Non-Renewal of Agreement by the Company. In the event the Company notifies Employee under Section 3.6 that it shall not renew this Agreement for any Renewal Period, Employee shall be entitled to monthly compensation equal to one-twelfth of Employee’s then current Base Salary plus annual target bonus for a period of twelve (12) months following the end of the Employment Term.

Section 6. Change Of Control. Notwithstanding anything contained in this Agreement to the contrary, if Employee’s employment is terminated by the Company, other than for Cause, prior to a Change of Control and such termination (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change of Control and who effectuates a Change of Control (a “Third Party”), or (ii) otherwise occurred as a condition to, or in connection with or anticipation of, a Change of Control which actually occurs, then for all purposes of this Agreement, the date of the Change of Control with respect to Employee shall mean the date immediately prior to the date of such termination of Employee’s employment and shall entitle Employee to the benefits provided under Section 5(c) of this Agreement as though the termination of Employee’s employment was for Good Reason.

Section 7. Federal Excise Tax.

7.1 General Rule. Employee’s payments and benefits under this Agreement and all other arrangements or programs related thereto shall not, in the aggregate, exceed the maximum amount that may be paid to Employee without triggering golden parachute penalties under Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and the provisions related thereto with respect to such payments. If Employee’s benefits must be cut back to avoid triggering such penalties, Employee’s benefits will be cut back in the priority order Employee designates or, if Employee fails to promptly designate an order, in the priority order designated by the Company. If an amount in excess of the limit set forth in this Section is paid to Employee, Employee must repay the excess amount to the Company upon demand, with interest at the rate provided in Code Section 1274(b)(2)(B). Employee and the Company agree to cooperate with each other reasonably in connection with any administrative or judicial proceedings concerning the existence or amount of golden parachute penalties on payments or benefits Employee receives.

7.2 Exception. Section 7.1 shall apply only if it increases the net amount Employee would realize from payments and benefits subject to Section 7.1, after payment of income and excise taxes by Employee on such payments and benefits.

7.3 Determinations. The determination of whether the golden parachute penalties under Code Section 280G and the provisions related thereto shall be made by counsel chosen by Employee and reasonably acceptable to the Company. All other determinations needed to apply this Section 7 shall be made in good faith by the Company’s independent auditors.

Section 8. Extended Medical And Dental Benefits. In the event of the termination of Employee’s employment under Sections 5(a), 5(c) or 5(d) of this Agreement, and at Employee’s election, Employee and Employee’s dependents shall continue to receive the Company’s standard employee medical and dental benefits at the Company’s expense under such plans for (i) twelve (12) months for termination under Sections 5(a), or 5(d)(i) or 5(d)(ii) hereof, or (ii) eighteen (18) months for termination under Section 5(c) or Section 5(d)(iii) hereof. Notwithstanding the foregoing, in the event Employee becomes covered or eligible to be covered as a primary insured (that is, not as a beneficiary under a spouse’s plan) under another employer’s group health plan during the extended benefit periods provided for herein, Employee shall promptly notify the Company and the Company shall have no further obligation to provide group health benefits for Employee and any dependents.

Section 9. Confidentiality Agreement. Employee agrees to execute an Employee Confidentiality and Invention Agreement with the Company, in a form customarily employed by the Company, which provides for standard non-solicitation and non-competition covenants covering a period of twelve (12) months after Employee ceases to be employed by the Company for any reason or no reason.

Section 10. Release Of Claims. The Company may condition payment of the cash termination benefits described in Sections 5(a), 5(c) or 5(d) of this Agreement upon the delivery by Employee of a signed release of claims in a form customarily employed by the Company; provided, however, that Employee shall not be required to release any rights Employee may have to be indemnified by the Company under Section 11.5 of this Agreement or the certificate of incorporation or by-laws of the Company.

Section 11. General.

11.1 Notices. Any notice or other communication under this Agreement shall be in writing and shall be deemed to have been given: (i) upon delivery when delivered personally; (ii) the next business day after being sent by Federal Express or similar overnight delivery prepaid; or (iii) three (3) days after being mailed via registered or certified mail, postage prepaid, return receipt requested, to either party at the address set forth in the preamble of this Agreement, or to such other address as such party shall give by notice hereunder to the other party.

11.2 Severability of Provisions. If any provision of this Agreement shall be declared by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced in whole or in part, such provision shall be interpreted so as to remain

enforceable to the maximum extent permissible consistent with applicable law and the remaining conditions and provisions or portions thereof shall nevertheless remain in full force and effect and enforceable to the extent they are valid, legal and enforceable, and no provision shall be deemed dependent upon any other covenant or provision unless so expressed herein.

11.3 Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns and the Company shall require any successors and assigns to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place.

11.4 Entire Agreement Modification. This Agreement and the exhibits attached hereto contains the entire agreement of the parties relating to the subject matter hereof, and any prior agreements or understandings between the parties hereto which are not set forth herein are hereby superceded. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto.

11.5 Indemnification. The Company and Employee shall execute an indemnification agreement in the form attached hereto as Exhibit A.

11.6 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New Jersey without regard to principles of conflict of laws.

11.7 Headings. The headings of paragraphs are inserted for convenience and shall not affect any interpretation of this Agreement.

11.8 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument.

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have executed this Agreement as of the day and year first above written.

	LORIN J. RANDALL


	/s/ Lorin J. Randall
	Lorin J. Randall


	i-STAT CORPORATION


	/s/ William P. Moffitt
	William P. Moffitt
	President and Chief Executive Officer