<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-QSB of Gish Biomedical, Inc. for the quarter ended September 30, 1999
and is qualified in its entirety to such financial statements.
</LEGEND>
<CIK> 0000700945
<NAME> GISH BIOMEDICAL, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,761
<SECURITIES> 1,510
<RECEIVABLES> 3,155
<ALLOWANCES> 0
<INVENTORY> 7,273
<CURRENT-ASSETS> 13,721
<PP&E> 9,586
<DEPRECIATION> 7,047
<TOTAL-ASSETS> 16,410
<CURRENT-LIABILITIES> 2,011
<BONDS> 0
0
0
<COMMON> 10,151
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,410
<SALES> 4,416
<TOTAL-REVENUES> 4,416
<CGS> 3,441
<TOTAL-COSTS> 3,441
<OTHER-EXPENSES> 2,675
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,635)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,635)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,635)
<EPS-BASIC> (.47)
<EPS-DILUTED> (.47)
</TABLE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No.: 0-10728
GISH BIOMEDICAL, INC.
---------------------------------------------------------
(Exact name of small business issuer as specified in its charter
California 95-3046028
---------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
2681 Kelvin Avenue, Irvine, California 92614
--------------------------------------------------
(Address of principal executive offices)
(949) 756-5485
------------------------------------
(Issuer's telephone number)
N/A
--------------------------------------------------
(Former name, former address and formal fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity: As of November 9, 1999, the issuer had 3,473,733 shares of its
common stock, no par value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes X No
--- ---
<PAGE>
PART I - FINANCIAL INFORMATION
- ------ ---------------------
ITEM 1. - Financial Statements
- ------ ---------------------
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(unaudited)
ASSETS (In thousands)
Current assets:
Cash and cash equivalents $ 1,761
Short-term investments 1,510
Accounts receivable, net 3,155
Inventories 7,273
Prepaid expenses 22
--------
Total current assets 13,721
Property and equipment, at cost 9,586
Less accumulated depreciation (7,047)
--------
Net property and equipment 2,539
Other assets 150
--------
Total assets $ 16,410
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,190
Accrued compensation and related items 644
Other accrued liabilities 177
--------
Total current liabilities 2,011
Deferred rent 291
--------
Total liabilities 2,302
--------
Stockholders' equity:
Preferred stock, 2,250,000 shares authorized;
no shares outstanding
Common stock, no par value, 7,500,000
shares authorized, 3,473,360
shares issued and outstanding 10,151
Retained earnings 3,957
--------
Total stockholders' equity 14,108
--------
Total liabilities and stockholders' equity $ 16,410
========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended September 30, 1999 and 1998
(unaudited)
(In thousands, except share and
per share data) 1999 1998
---- ----
Net sales $ 4,416 $ 4,752
Cost of sales 3,441 3,420
---------- ----------
Gross profit 975 1,332
---------- ----------
Research and development 452 229
Selling and marketing 1,109 1,020
General and administrative 1,114 425
---------- ----------
Total operating expenses 2,675 1,674
---------- ----------
Operating loss (1,700) (342)
Interest income 65 72
---------- ----------
Loss before provision for taxes (1,635) (270)
Provision for taxes - -
---------- ----------
Net loss $ (1,635) $ (270)
========== ==========
Basic and diluted net loss per share $ (.47) $ (.08)
========== ==========
Basic and diluted weighted
average common shares 3,472,084 3,447,145
========== ==========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
GISH BIOMEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended September 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
(In thousands)
Cash flows from operating activities:
Net loss $ (1,635) $ (270)
Adjustments:
Depreciation 229 230
Loss on disposal of assets 280 -
Amortization 1 6
Deferred rent (12) (5)
Changes in operating assets and liabilities 318 349
--------- ---------
Net cash provided (used) by
operating activities (819) 310
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (194) (56)
Purchase of short-term investments (20) -
Increase in other assets (1) (23)
--------- ---------
Net cash used in investing activities (215) (79)
--------- ---------
Cash flows from financing activities:
Proceeds from stock options exercised 3 16
--------- ---------
Net cash provided by financing activities 3 16
--------- ---------
Net increase (decrease) in cash and cash equivalents (1,031) 247
Cash and cash equivalents at beginning of period 2,792 3,497
--------- ---------
Cash and cash equivalents at end of period $ 1,761 $ 3,744
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
September 30, 1999 (unaudited)
1. General
-------
The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, and include all
adjustments which, in the opinion of management, are necessary for a
fair presentation of the results of operations and cash flows for the
three month periods ended September 30, 1999 and 1998, and financial
position at September 30, 1999, pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). Certain information
and footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. Although the Company believes that the disclosures in such
condensed consolidated financial statements are adequate to make the
information presented not misleading, these condensed consolidated
financial statements should be read in conjunction with the Company's
consolidated financial statements and the notes thereto included in the
Company's Annual Report filed with the SEC on Form 10-K for the year
ended June 30, 1999. Commencing with this fiscal year, the Company has
elected to make its filings with the SEC pursuant to the small business
reporting alternative provided by the SEC under Regulation S-B.
Statement of Cash Flows
-----------------------
Changes in operating assets and liabilities as shown in the condensed
consolidated statements of cash flows comprise:
Three months ended September 30, 1999 1998
-------------------------------- ---- ----
Decrease(increase) in:
Accounts receivable $ 248 $ 460
Note receivable 54 -
Inventories (93) 201
Prepaid expenses 96 35
Increase (decrease) in:
Accounts payable (176) (307)
Accrued compensation and related items 49 (41)
Other accrued liabilities 140 1
------ ------
Change in operating assets and liabilities $318 $349
====== ======
The Company paid eight hundred dollars in state income taxes during
the three month period ended September 30, 1999. The Company did not
pay any interest or federal income taxes during the same period. The
Company did not pay any interest or federal or state income taxes
during the three month period ended September 30, 1998.
<PAGE>
GISH BIOMEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share data)
September 30, 1999
(unaudited)
2. Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out) or
net realizable value and are summarized as follows (in $000's):
September 30, 1999
------------------
Raw materials $ 4,117
Work in progress 1,069
Finished goods 2,087
----------
$ 7,273
==========
3. Earnings per share
------------------
The Company calculates earnings (loss) per share pursuant to SFAS 128
"Earnings Per Share". Due to the incurrence of losses in each reporting
period, there is no difference between basic and diluted per share
amounts.
4. Acquisition
-----------
On April 17, 1996, the Company assumed ownership of the net assets and
technology of Creative Medical Development ("CMD") in exchange for a
payment of $600 in cash and $2,000 of Gish Biomedical, Inc. common
stock. During the fourth quarter of fiscal 1997, the Company recorded
an impairment of goodwill of $1,800 to writeoff the goodwill
associated with this product line.
During the fiscal year ended June 30, 1998 the Company decided to
redesign the pump not utilizing the technology acquired from CMD.
Consequently, in the fourth quarter of fiscal 1998, the Company wrote
off all remaining assets, principally inventory, property and equipment
associated with the CMD infusion pump, and recognized charges
aggregating $827.
5. Nonrecurring Charges
--------------------
In September, 1999 the Company discontinued development of the new
infusion pump for strategic and economic reasons and recognized $429
in charges related to the discontinuance. The total charge consisted
of $140 charged to cost of sales for inventory obsolescence, $7
charged to selling and marketing expense for the write-down of field
inventories, and $282 charged to general and administrative expense
consisting primarily of software development costs.
Additionally, in the quarter ended September 30, 1999, the Company
recognized obsolete inventory write-offs of $83 for custom tubing
packs, consignment inventory shrinkage of $133, severance and other
costs associated with the resignation of the Company's chief executive
of $294 and severance of $95 resulting from a reduction in force.
Excluding nonrecurring charges, the Company's gross profit margin for
the quarter ended September 30, 1999 was 27.1% compared to 28.0% in
the comparable period of the prior fiscal year.
<PAGE>
ITEM 2. - Management's Discussion and Analysis of Financial
- ------ Condition and Results of Operations
-------------------------------------------------
Results of Operations:
- ----------------------
The Company had a net loss of $1,635,000 or $.47 basic and diluted net loss per
share, for the three months ended September 30, 1999 compared to a net loss of
$270,000 or $.08 basic and diluted net loss per share, for the comparable
quarter in the prior fiscal year. The increased loss relative to the prior year
quarter resulted primarily from nonrecurring charges, including $429,000 in
charges related to the discontinuance of the Company's infusion pump business,
$294,000 in severance and costs related to the resignation of the Company's
chief executive, obsolete inventory write-offs of $83,000 for custom tubing
packs, $133,000 write-down of field inventories, and $95,000 in severance from
the Company's reduction in force in September, 1999.
Net sales decreased to $4,416,000 for the quarter ended September 30, 1999 from
$4,752,000 in the quarter ended September 30, 1998. The sales decrease had an
unfavorable impact on gross profit and earnings of approximately $91,000. The
decrease in sales resulted from reduced sales of the Company's cardiotomy
reservoir and custom tubing pack products, partially offset by increased sales
of oxygenator products.
Cost of sales increased to $3,441,000 for the first quarter of fiscal 1999 from
$3,420,000 for the prior year first quarter. The increase resulted primarily
from $223,000 of infusion pump and custom tubing pack inventory write-down due
to inventory obsolescense.
Research and development expenses increased from $229,000 for the three months
ended September 30, 1998 to $452,000 for the three months ended September 30,
1999. The expense increase resulted primarily from additional staff and
increased prototype expenses.
Selling and marketing expenses increased to $1,109,000 for the quarter ended
September 30, 1999 from $1,020,000 for the comparable quarter in the prior year.
The increase included a write-down of field inventories of $133,000.
General and administrative expenses increased to $1,114,000 for the three months
ended September 30, 1999 from $425,000 for the three months ended September 30,
1998. The increase over the prior year quarter included $294,000 in severance
and other costs related to the resignation of the Company's chief executive,
Jack W. Brown. The general and administrative expense increase over the prior
year quarter also included $56,000 in severance from the Company's reduction in
force in September and a charge of $282,000 relating to the Company's ambulatory
infusion pump product previously under development. The charge included the
write-off of capitalized software development costs for the new pump. Product
development activities for the pump ceased in September, 1999.
Year 2000:
- ----------
The Year 2000 Problem in computers arises from the common computer industry
practice of using two digits to represent a date in computer software code and
databases to enhance both processing time and save storage space. Therefore,
when dates in the Year 2000 and beyond are indicated and computer programs read
date "00", the computer may default to the year "1900" rather than the correct
"2000". This could result in incorrect calculations, faulty data and computer
shutdowns, potentially impairing the conduct of business.
The Company has reviewed its significant or critical computerized financial,
operations and facility management computer systems. These systems utilize
licensed third party software most of which was converted in 1997 so as to be
Year 2000 compliant at no additional cost to the Company. The Company's third
<PAGE>
party vendors for the remaining systems provided upgrades enabling Year 2000
compliance, which were installed during fiscal 1998 and fiscal 1999.
The Company has also reviewed and analyzed all of its products which contain a
software component and has determined that none of these electronic products are
vulnerable to Year 2000 issues.
The Company instituted a Year 2000 compliance program for its significant
vendors and customers during fiscal 1999 to evaluate the risks and potential
impact on the Company of any non-compliance. Year 2000 compliance issues are
addressed during the Company's routinely scheduled vendor audits and should not
represent a material expense. In the event that any significant vendor is unable
to provide reasonable assurances to the Company of its Year 2000 compliance the
Company intends to evaluate and qualify alternate sources of supply on a
case-by-case basis.
Liquidity and Capital Resources:
- --------------------------------
Gish Biomedical, Inc. had cash and cash equivalents of $1,761,000 and short-term
investments of $1,510,000 at September 30, 1999. Short-term investments
consisted of government-backed securities and short-term certificates of
deposit.
For the three months ended September 30, 1999 net cash used by operating
activities was $819,000 compared to net cash provided by operating activities of
$310,000 for the comparable quarter in 1998. Cash flows from operations for the
three months ended September 30, 1999 decreased from the comparable period in
the prior year principally from the increased net loss. The cash flow effect of
the increased loss in the quarter ended September 30, 1999 was partially offset
by the $280,000 loss on disposal of fixed assets which was included in the loss
from operations but did not consume cash. The $280 loss on disposal of fixed
assets for the three months ended September 30, 1999 consisted primarily of
software development costs associated with the Company's discontinued ambulatory
infusion pump and MyoManager product lines.
Net cash used in investing activities for the three months ended September 30,
1999 was $215,000 compared to $79,000 for the three months ended September 30,
1998. The increase over the prior year quarter resulted primarily from increased
purchases of manufacturing tooling and equipment.
For the quarter ended September 30, 1999 net cash provided by financing
activities was $3,000 compared to net cash provided by financing activities of
$16,000 for the quarter ended September 30, 1998. The decrease in net cash
provided by financing activities from the comparable quarter in the prior year
resulted from reduced proceeds from stock options exercised.
The Company believes that cash generated from operations together with available
cash will be adequate to meet the Company's planned expenditures and liquidity
needs for fiscal 2000.
<PAGE>
This Quarterly Report on Form 10-QSB contains certain forward-looking statements
that are based on current expectations. In light of the important factors that
can materially affect results, including those set forth below and elsewhere in
this Quarterly Report on Form 10-QSB, the inclusion of forward-looking
information herein should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
The Company may encounter competitive, technological, financial and business
challenges making it more difficult than expected to continue to develop and
market its products; the market may not accept the Company's existing and future
products; the Company may be unable to retain key management personnel; and
there may be other material adverse changes in the Company's operations or
business. Certain important factors affecting the forward-looking statements
made herein include, but are not limited to (i) continued downward pricing
pressures in the Company's targeted markets, (ii) the continued acquisition of
the Company's customers by certain of its competitors and (iii) the decision by
the Company to replace its distributor network with a direct sales force in
certain geographic territories. Assumptions relating to budgeting, marketing,
product development and other management decisions are subjective in many
respects and thus susceptible to interpretations and periodic revisions based on
actual experience and business developments, the impact of which may cause the
Company to alter its marketing, capital expenditure or other budgets, which may
in turn affect the Company's financial position and results of operations. The
reader is therefore cautioned not to place undue reliance on forwarding-looking
statements contained herein, which speak as of the date of this Report.
<PAGE>
PART II - OTHER INFORMATION
- ------- -----------------
ITEM 6. - Exhibits and Reports on Form 8-K
- ------- ---------------------------------
a. Exhibits
10 Employment Agreement
27 Financial Data Schedule for the three months ended
September 30, 1999
b. Reports on Form 8-K
Items Reported Date Filed
-------------- ----------
Other Events - Resignation of Chief
Executive September 20, 1999
Other Events - Staff Reduction September 24, 1999
<PAGE>
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.
GISH BIOMEDICAL, INC.
Date: November 15, 1999 /s/ James R. Talevich
------------------------------
James R. Talevich
Vice President/CFO
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of this 15th day of September 1999, by and between GISH BIOMEDICAL, INC., a
California corporation (the "Company"), and Jack W. Brown, an individual (the
"Executive").
R E C I T A L S
- - - - - - - -
WHEREAS, as of the date hereof Executive has resigned his positions as
Chairman of the Company's Board of Directors and President of the Company; and
WHEREAS, in order to continue to avail itself of the skills and
expertise of Executive, the Company desires to employ Executive, and Executive
desires to enter into the employ of the Company for the period and pursuant to
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the Company and Executive, intending
to be legally bound, hereby agree as follows:
A G R E E M E N T
- - - - - - - - -
1. Employment. The Company hereby employs Executive as Managing
Director of Product Development of the Company, reporting to the Company's
executive committee or its designees (the "Committee"). Executive accepts such
employment and agrees to devote his best efforts and skills to the performance
of his employment responsibilities and functions, and to do so for the exclusive
benefit of the Company.
2. Term. The term of Executive's employment hereunder shall be for a
period of two (2) years, commencing the date hereof, unless earlier terminated
as hereafter specified (such period, the "Term").
3. Position and Duties.
3.1. Service with the Company. During the Term, Executive
agrees to perform such duties and on such basis as shall be assigned to him from
time to time by the Committee; such duties, however, to be commensurate with
Executive's position as a Managing Director of Product Development of the
Company.
3.2. No Conflicting Duties. During the Term, Executive shall
not serve as an officer, director, employee, consultant or advisor to any other
business, unless such other service is approved in advance and in writing by the
Board of Directors of the Company (the "Board"), except that Executive may
continue to serve as an outside director of ICU Medical, Inc. Executive hereby
confirms that he is under no contractual commitments inconsistent with his
obligations as set forth in this Agreement, and agrees that during the Term he
will not render or perform services, or enter into any contract to do so, for
any other corporation, firm, entity or person which are inconsistent with the
provisions of this Agreement.
<PAGE>
4. Compensation.
4.1. Base Salary. Subject to the restriction on Executive's
aggregate compensation provided for in Section 4.2 below, as compensation for
all services to be rendered by Executive under this Agreement the Company shall
pay to Executive a base annual salary of One Hundred Thousand Dollars ($100,000)
(the "Base Salary"), which shall be paid on a regular basis in accordance with
the Company's normal payroll procedures and policies.
4.2. Incentive Compensation. Executive shall be eligible to
receive a special bonus of One Hundred Twenty Five Thousand Dollars ($125,000)
(the "Bonus") in the event that, during the Term, the Company shall enter into a
definitive agreement for the Sale of the Company; provided, however, that under
no circumstances shall Executive's total cumulative Base Salary plus Bonus
exceed Two Hundred Twenty Five Thousand Dollars ($225,000). A "Sale of the
Company" means either the purchase by a person or entity not currently a
shareholder of the Company of (a) majority of the voting power of the Company,
or (b) all or substantially all of the assets of the Company, or any other
transaction designated as a "Sale of the Company" by majority vote of the Board.
4.3. Participation in Benefit Plans. During the Term,
Executive shall be entitled to participate in all employee benefit plans or
programs Executive participated in immediately prior to the date hereof, so long
as such plans or programs remain generally available to executives of the
Company, to the extent that his age, health and other qualifications make him
eligible to participate therein. Executive shall also continue to be covered by
the Company's director's and officer's errors and omissions insurance policy.
Executive's participation in any such plan, program or policy shall be subject
to the provisions, rules and regulations thereof that are generally applicable
to all participants therein.
4.4. Stock Options. Executive shall retain the Company stock
options held by him on the date hereof, on the terms and conditions pertaining
thereto on the date hereof, including the original expiration dates of said
options.
4.5. Expenses. In accordance with the Company's policies
established from time to time, and subject to the approval of the Company's
chief financial officer, the Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement.
4.6. Company Car and Outstanding Debt. In addition to the
foregoing, (a) title to Executive's Company car, held by the Company on the date
hereof, shall be transferred to Executive as promptly as practicable after the
execution hereof, and (b) the debt of Executive to the Company outstanding on
the date hereof (approximately $53,000) shall be forgiven upon a Sale of the
Company. Executive shall be responsible for all taxes arising from the transfer
of title and forgiveness of debt described above, and for the expenses of
registering title to and insuring the automobile, but shall not otherwise
compensate the Company for title to the automobile or the forgiveness of
outstanding debt.
<PAGE>
5. Termination.
5.1. Termination by Executive Prior to the Expiration of the
Term. Executive may terminate his employment for any reason or for no reason at
any time upon thirty (30) days prior notice to the Committee; provided, however,
that at the Company's sole election, the effective date of such termination may
be shortened to any date between the fifth (5th) and the thirtieth (30th)
following the date of the Executive's notice of termination hereunder.
5.2. Termination by Company Without Cause. The Company may
terminate Executive's employment without Cause (as defined below) by thirty (30)
days written notice to Executive, in which case Executive shall be entitled to
the compensation set forth in Section 5.6 below.
5.3. Termination by the Company for Cause. Any of the
following acts or omissions shall constitute grounds for the Company to
terminate Executive's employment immediately for "Cause".
(a) The continued, willful failure or refusal by Executive to
perform any material duties required of him by this Agreement or as reasonably
requested by the Committee or the Board if consistent with the terms of this
Agreement.
(b) Any material act or omission by Executive involving
malfeasance or gross negligence in the performance of Executive's duties to, or
a material deviation from any of the policies or directives of, the Company,
other than a deviation taken in good faith by the Executive for the benefit of
the Company.
(c) Conduct on the part of Executive which constitutes a
breach of any statutory or common law duty of loyalty to the Company.
(d) Any illegal act by Executive which materially and
adversely affects the business of the Company or any felony committed by
Executive, as evidenced by conviction thereof.
Termination by the Company for cause shall be accomplished by written
notice to Executive and, if given pursuant to clauses (a) or (b) above, shall be
preceded by a written notice providing a reasonable opportunity for Executive to
correct his conduct. Any such termination shall be without prejudice to any
other remedy to which the Company may be entitled either at law, in equity, or
under this Agreement.
5.4. Termination for Death or Disability. Executive's
employment pursuant to this Agreement shall be immediately terminated without
notice by the Company upon the Executive's death or totally disability. For
purposes of this Agreement, the term "totally disability" means an inability of
Executive, due to physical or mental illness, injury or impairment, to perform a
substantial portion of his duties for a period of one hundred eighty (180) or
more consecutive days, as determined by a competent physician selected by the
Board and reasonably agreed to by Executive, following such one hundred eighty
(180) day period.
<PAGE>
5.5. Termination for Good Reason. Executive's employment
pursuant to this Agreement may be terminated by Executive for "Good Reason" if
Executive voluntarily terminates his employment as a result of any of the
following.
(a) Without Executive's prior written consent, a reduction in
the Base Salary;
(b) The taking of any action by the Company that would
substantially diminish the aggregate value of the benefits provided the
Executive under the medical, health, accident, disability insurance, life
insurance, thrift and retirement plans in which he is entitled to participate in
pursuant to this Agreement other than any such reduction which is (i) required
by law, (ii) implemented in connection with a general concessionary arrangement
affecting all executives or employees or affecting the group of employees of
which the Executive is a member, or (iii) generally applicable to all
beneficiaries of such plans;
(c) resignation as a result of unlawful discrimination, as
evidenced by a final court order; or
(d) the Company materially breaches any provision of this
Agreement.
5.6. Payments Upon Termination. If during the term of this
Agreement, the Company terminates Executive's employment as provided in Section
5.2 hereof, or the Executive resigns for one of the reasons stated in Section
5.5, Executive shall be entitled to the following compensation: (i) the unpaid
Base Salary due Executive through the expiration of the Term, and (ii) any
vested incentive to which Executive is entitled as of the date of termination
pursuant to Section 4.2. All payments required to be made by the Company to the
Executive pursuant to this Section 5.6 shall be paid on a regular basis in
accordance with the Company's normal payroll procedures and policies. Except as
specifically provided above, all other benefits will terminate on the effective
date of termination of Executive's employment. If the Company terminates the
Executive's employment pursuant to Sections 5.3 or 5.4, or if Executive resigns
pursuant to Section 5.1, then Executive shall be entitled only to the
compensation set forth in clause (ii) above.
6. Treatment of Company Proprietary Information.
6.1. Confidential Information. During the term of this
Agreement, Executive acknowledges and agrees that he will have access to and
become acquainted with confidential, proprietary and business information and
trade secrets about the professional, business, and financial affairs of the
Company and its customers, suppliers, vendors, and employees (the "Confidential
Information"). Executive further recognizes that he is being employed as a key
employee, that the Company is engaged in highly competitive businesses, and that
the success of the Company in the marketplace depends upon its goodwill, its
business reputation and the protection of the Confidential Information.
Executive recognizes that in order to safeguard the legitimate business
interests of the Company, it is necessary for the Company to protect the
Confidential Information, as well as the Company's goodwill and reputation both
during Executive's employment and thereafter. Accordingly, Executive expressly
agrees that during the Term and thereafter Executive will regard and preserve as
confidential all Confidential Information obtained by him in connection with his
employment. Executive agrees that he will not, without prior written authority
from the Company to do so, disclose to others, or take or use for his own
purposes or purposes of others, either during his employment or thereafter, any
such information. Executive further agrees he will not remove without
authorization, retain, transmit by any means, copy or disclose any of the
<PAGE>
Company's or its supplier's or customer's specifications, drawings, blueprints,
reproductions, computer programs, or any other documents or information, or
things, except as required in the line of his employment with the Company.
Executive recognizes that this obligation applies not only to technical
information but any business information which the Company reasonably considers
confidential. The foregoing restrictions shall not apply to (i) information
which is or becomes, other than as a result of a breach of this Agreement,
generally available to the public or (ii) the disclosure of information required
pursuant to a subpoena or other legal process; provided that Executive shall
notify the Company in writing of the receipt of any such subpoena or other legal
process requiring such disclosure immediately after receipt thereof and the
Company shall have a reasonable opportunity to quash such subpoena or other
legal process prior to any disclosure by Executive.
6.2. Retaining and Assigning Inventions and Original Works.
(a) Inventions and Original Works Retained by Executive.
Executive has attached hereto as Exhibit 1 a list describing all inventions,
original works of authorship, developments, improvements, and trade secrets
which belong to him, which relate to the Company's proposed business and
products, and which are not assigned to the Company; or, if no such list is
attached, Executive thereby represents that there are no such inventions.
(b) Inventions and Original Works Assigned to the Company.
Executive agrees that he will promptly make full written disclosure to the
Company, will hold in trust for the sole right and benefit of the Company, and
will assign to the Company all his right, title and interest in and to any and
all inventions, original works of authorship, developments, improvements or
trade secrets which Executive may solely or jointly conceive or develop or
reduce to practice, or cause to be conceived or developed or reduced to
practice, during the Term. Executive recognizes, however, that Section 2870 of
the California Labor Code (a copy of which is attached hereto as Exhibit 2)
exempts from this provision any invention as to which he can prove the
following:
(i) Executive developed the invention entirely on his own
time;
(ii) Executive did not use any equipment, supplies,
facility or trade secret information of the Company
in the invention's development;
(iii) at the time the invention was conceived or reduced to
practice, it did not relate to the Company's
business, or the Company's actual or demonstrably
anticipated research or development; and
(iv) the invention did not result from any work that
Executive performed for the Company.
Executive acknowledges that all original works of authorship which are made by
him (solely or jointly with others) within the scope of his employment and which
are protectable by copyright are "works made for hire" as that term is defined
in the United States Copyright Act (17 USC, Section 101).
(c) Maintenance of Records. Executive agrees to keep and
maintain adequate and current written records of all inventions and original
works of authorship made by him (solely or jointly with others) during the Term.
<PAGE>
The records will be in the form of notes, sketches, drawings, and any other
format that may be specified by the Company. The records will be available to
and remain the sole property of the Company at all times.
(d) Inventions Assigned to the United States. Executive agrees
to assign to the United States government all his right, title and interest in
and to any and all inventions, original works of authorship, developments,
improvements or trade secrets whenever such full title is required to be in the
United States by a contract between the Company and the United States or any of
its agencies.
(e) Obtaining Letters Patent and Copyright Registrations.
Executive agrees that his obligation to assist the Company to obtain United
States or foreign letters patent and copyright registrations covering inventions
and original works of authorship assigned hereunder to the Company shall
continue beyond the expiration of the Term, but the Company shall compensate
Executive at a reasonable rate for time actually spent by him at the Company's
request on such assistance. If the Company is unable because of Executive's
mental or physical incapacity or for any other reason to secure Executive's
signature to apply for or to pursue any application for any United States or
foreign letters patent or copyright registrations covering inventions or
original works of authorship assigned to the Company as above, then Executive
hereby irrevocably designates and appoints the Company and its duly authorized
officers and agents as Executive's agent and attorney in fact, to act for and in
Executive's behalf and stead to execute and file any such applications and to do
all other lawfully permitted acts to further the prosecution and issuance of
letters patent or copyright registrations thereon with the same legal force and
effect as if executed by Executive. Executive hereby waives and quitclaims to
the Company any and all claims, of any nature whatsoever, which Executive now or
may hereafter have for infringement of any patents or copyright resulting from
such application for letters patent or copyright registrations assigned
hereunder to the Company.
(f) Exception to Assignments. Executive understands that the
provisions of this Agreement requiring assignment to the Company do not apply to
any invention which qualifies fully under the provisions of Section 2870 of the
California Labor Code, a copy of which is attached hereto as Exhibit 2.
Executive will advise the Company promptly in writing of any inventions,
original works of authorship, developments, improvements or trade secrets that
he believes meet the criteria in Subparagraphs 6.2(b)(i), (ii), (iii) and (iv)
above; and he will at that time provide to the Company in writing all evidence
necessary to substantiate that belief. Executive understands that the Company
will keep in confidence and will not disclose to third parties without
Executive's consent any confidential information disclosed in writing to the
Company relating to inventions that qualify fully under the provisions of
Section 2870 of the California Labor Code.
6.3. Representations. Executive agrees to execute any proper
oath or verify any proper document required to carry out the terms of this
Agreement. Executive represents that his performance of all the terms of this
Agreement will not breach any agreement to keep in confidence proprietary
information acquired by him in confidence or in trust. Executive has not entered
into, and agrees not to enter into, any oral or written agreement in conflict
herewith.
7. Ownership of Records. Executive agrees that upon resignation or
termination of employment for any reason whatsoever, he will return to the
Company all things belonging to the Company and all copies of documents
referring to the Company, its suppliers or its customers, including but not
limited to documents containing Confidential Information in his possession or
control.
<PAGE>
8. Non-Solicitation. During the Term and for a period of two (2) years
thereafter, Executive shall not (a) induce or solicit any employee, agent,
consultant, or independent contractor of the Company to quit his/her employment
or other business relationship with the Company or to work for any person or
entity other than the Company; or (b) call on, solicit, or take away, or attempt
to call on, solicit or take away, any past or present customer of the Company
with respect to the same or similar business services now or during the Term
provided by the Company.
9. Assignment. This Agreement shall not be assignable, in whole or in
part, by either party without the written consent of the other party, except
that the Company may, without the consent of Executive, assign its rights and
obligations under this Agreement to an affiliate or to any corporation, firm or
other business entity (i) with or into which the Company may merge or
consolidate, or (ii) to which the Company may sell or transfer all or
substantially all of its assets. After any such assignment by the Company, the
Company shall be discharged from all further liability hereunder and such
assignee shall thereafter be deemed to be the Company for the purposes of all
provisions of this Agreement.
10. Injunctive Relief. Executive agrees that it would be difficult to
compensate the Company fully for damages for any violation of the provisions of
this Agreement, including, without limitation, Sections 6-8. Accordingly,
Executive specifically agrees that the Company shall be entitled to temporary
and permanent injunctive relief to enforce the provisions of this Agreement, to
the extent that such relief is provided by law for such violation. This
provision with respect to injunctive relief shall not, however, diminish the
right of the Company to claim and recover damages in addition to injunctive
relief.
11. Miscellaneous.
11.1. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to a
contract executed and performed in such State, without giving effect to the
conflicts of laws principles thereof.
11.2. Entire Agreement. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof and supersedes
all prior agreements and understanding with respect to such subject matter, and
the parties hereto have made no agreements, representations or warranties
relating to the subject matter of this Agreement which are not set forth herein.
Without limiting the generality of the foregoing, Executive and the Company
hereby agree that, upon the execution of this Agreement, that certain Severance
Compensation Agreement, dated as of August 15, 1997, between the Company and
Executive shall be deemed cancelled, null and void, and the subject matter
thereof shall be superceded in its entirety by the provisions of this Agreement.
11.3. Withholding Taxes. The Company may withhold from any
salary and benefits payable under this Agreement all federal, state, city or
other taxes or amounts as shall be required to be withheld pursuant to any law
or governmental regulation or ruling.
11.4. Amendments. No amendment or modification of this
Agreement shall be deemed effective unless made in writing signed by the parties
hereto.
<PAGE>
11.5. No Waiver. No term or condition of this Agreement shall
be deemed to have been waived nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
11.6. Severability. To the extent any provision of this
Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected and shall continue in full force and effect. In furtherance of, and
not in limitation of, the foregoing, should the duration, geographical extent of
or business activities covered by any provision of this Agreement be in excess
of what is valid and enforceable under applicable law, then such provision shall
be construed to cover only that duration, extent, or activities which may
validly and enforceably be covered.
11.7. Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
11.8. Counterparts. This Agreement may be executed by the
parties in separate counterparts hereof and, provided that each party has
executed and delivered a counterpart hereof, this Agreement shall be effective
despite the fact that the parties have not executed the same counterpart hereof.
All such counterparts shall constitute one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year set forth above.
"Company"
GISH BIOMEDICAL, INC.,
a California corporation
By: /s/ James R. Talevich
------------------------
Its: Chief Financial Officer
------------------------
Date: September 15, 1999
------------------------
"Executive"
/s/ Jack W. Brown
----------------------------------
Jack W. Brown
October 14, 1999
----------------------------------
Date
<PAGE>
EXHIBIT 1
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
Identifying Number
Title Date of Brief Description
----- ---- --------------------
<PAGE>
EXHIBIT 2
CALIFORNIA LABOR CODE SECTION 2870
EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
"(a) Any provision in an employment agreement which provides that an
employee shall assign or offer to assign any of his or her rights in any
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
invention that either:
(1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or
demonstrably anticipated research or development of the
employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded form being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable."
