<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: March 31,1996 Commission File Number: 0-26656
CARDIOTRONICS SYSTEMS, INC.
------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
Colorado 33-0327520
- --------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer ID Number)
of incorporation or organization)
5966 La Place Court, Carlsbad, California 92008
- ----------------------------------------- ------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 431-9446
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 2, 1996
- ----- --------------------------
Common Stock ($.012 Par Value) 475,811 shares
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CARDIOTRONICS SYSTEMS, INC. AND SUBSIDIARY
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INDEX
PART 1. FINANCIAL INFORMATION
Item 1 - Financial Statements:
Condensed consolidated balance sheets at
March 31, 1996 and December 31, 1995 3
Condensed consolidated statements of operations for the
three months ended March 31, 1996 and 1995 4
Condensed consolidated statements of cash flows for the
three months ended March 31, 1996 and 1995 5
Notes to condensed consolidated financial statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 11
Item 2 - Changes in Securities Not applicable
Item 3 - Defaults Upon Senior Securities Not applicable
Item 4 - Submission of Matters to a Vote of Security - Holders Not applicable
Item 5 - Other Information Not applicable
Item 6 - Exhibits and Reports on Form 8-K 11
2
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Form 10-QSB
Part I - Item 1
Financial Information
CARDIOTRONICS SYSTEMS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
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ASSETS
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- ------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 642,037 $ 619,020
Accounts receivable, net 1,253,393 931,585
Inventories, net 706,023 644,151
Other current assets 89,343 123,665
------------ -----------
Total current assets 2,690,796 2,318,421
Equipment and furnishings, net 593,459 550,997
Goodwill, net 3,927,272 4,000,000
Patents and trademarks, net 4,288,098 4,373,642
Other assets 246,305 259,986
------------ ------------
Total assets $ 11,745,930 $ 11,503,046
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,052,566 $ 852,011
Accrued liabilities 484,089 698,750
Notes payable to shareholder 2,500,000 2,000,000
Note payable to bank 5,800,000 5,800,000
------------ ------------
Total current liabilities 9,836,655 9,350,761
Commitments and Contingencies
Stockholders' equity:
Convertible preferred stock, $.03 par
value; 40,000,000 shares authorized:
Series C,D and E preferred stock,
11,568,122 (1996) and (1995)
shares issued and outstanding 347,043 347,043
Common stock, $.012 par value; 100,000,000
shares authorized; 475,811 (1996)
and 471,802 (1995) issued and
outstanding 5,710 5,662
Additional paid in capital 16,516,037 16,500,085
Accumulated deficit (14,959,515) (14,700,505)
------------ ------------
Total stockholders' equity 1,909,275 2,152,285
------------ ------------
Total liabilities and
stockholders' equity $ 11,745,930 $ 11,503,046
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
3
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CARDIOTRONICS SYSTEMS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Net sales $2,299,142 $ 1,889,932
Cost of sales 1,133,792 853,569
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Gross margin 1,165,350 1,036,363
Selling and marketing expenses 519,751 650,647
General and administrative expenses 487,535 604,531
Research and development expenses 115,131 93,301
Patent litigation expenses 23,969 356,979
Amortization of intangible assets 172,008 234,872
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Total operating expenses 1,318,394 1,940,330
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Loss from operations (153,044) (903,967)
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Other income (expense)
Interest income 7,329 11,336
Interest expense (138,719) (109,027)
Other, net 25,424 -
---------- -----------
(105,966) (97,691)
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Net loss $ (259,010) $(1,001,658)
---------- -----------
---------- -----------
Net loss per common share $ (0.55) $ (2.12)
---------- -----------
---------- -----------
Weighted average number of
common shares outstanding(a) 474,448 471,802
---------- -----------
---------- -----------
(a) Excludes preferred stock convertible into
2,892,031 shares of common stock in
1996 and 1995
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
4
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CARDIOTRONICS SYSTEMS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
3/31/96 3/31/95
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(259,010) $(1,001,658)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 210,781 261,065
Amortization of premium on securities 6,470
Changes in operating assets and liabilities:
Accounts receivable, net (321,808) (152,328)
Inventories, net (61,872) (198,734)
Other assets 36,970 (2,275)
Accounts payable 200,555 630,567
Accrued liabilities (214,661) (334,366)
Deferred liabilities (25,628)
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Net cash used in operating activities (409,045) (816,887)
--------- -----------
Cash flows from investing activities:
Proceeds from sale of short term investments 300,000
Capitalized patent costs (2,704)
Purchases of equipment and furnishings (81,234) (78,728)
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Net cash (used in) provided by investing activities (83,938) 221,272
--------- -----------
Cash flows from financing activities:
Proceeds from notes payable and short-term borrowings 500,000
Proceeds from issuance of common stock 16,000
Proceeds from notes payable and short-term borrowings 621,778
--------- -----------
Net cash provided by financing activities 516,000 621,778
--------- -----------
Net increase (decrease) in cash and cash equivalents 23,017 26,163
Cash and cash equivalents at beginning of year 619,020 128,655
--------- -----------
Cash and cash equivalents at end of period $ 642,037 $ 154,818
--------- -----------
--------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
5
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CARDIOTRONICS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
NOTE 1 - BUSINESS AND STATEMENT OF ACCOUNTING POLICY
BUSINESS:
Cardiotronics Systems, Inc. ("Cardiotronics") and its wholly-owned subsidiary,
R2 Medical Systems, Inc. ("R2") develops, manufactures and markets disposable
medical devices for the acute treatment of heart rate disorders (Cardiotronics
and R2 are collectively referred to herein as the "Company").
STATEMENT OF ACCOUNTING POLICY:
The accompanying financial statements have been prepared by the Company
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
those rules and regulations, although the Company believes that the
disclosures herein are adequate to make the information not misleading. All
material intercompany profits, transactions and balances are eliminated upon
consolidation.
In the opinion of management, the unaudited financial statements contain all
adjustments, consisting only of normal recurring accruals, necessary for a
fair statement of the Company's financial position as of March 31, 1996, and
the results of its operations and its cash flow. These results are not
necessarily indicative of the results to be expected for the full fiscal year.
The financial information presented herein should be read in conjunction with
the financial statements and notes included in the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1995.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
NET LOSS PER COMMON SHARE:
Losses per common share are calculated using the weighted average number of
common shares outstanding during the period. This computation excludes
convertible preferred stock and options outstanding, since their effect would
be anti-dilutive. All per share amounts have been restated to reflect the one
for four reverse split on common stock effective June 21, 1995.
6
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CARDIOTRONICS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
NOTE 1 - BUSINESS AND STATEMENT OF ACCOUNTING POLICY (CONTINUED)
RECLASSIFICATIONS:
Certain reclassifications have been made to the 1995 financial statements to
conform them to the 1996 presentation.
NOTE 2 - NOTES PAYABLE TO SHAREHOLDERS
On March 19, 1996, the Company issued demand notes (the "Notes") and borrowed
$500,000 from two of its major shareholders. The Notes are unsecured,
subordinated to the Company's bank loan and have an interest rate of 7% per
annum. The proceeds were used to fund cash used in operations. As of March
31, 1996, the Company has demand notes outstanding of $2,183,500 from Warburg,
Pincus Investors, L. P. ("Warburg") and $316,500 from the Vertical Fund
Associates, L. P. ("Vertical") which carry an average interest rate of 6.6%.
The Company is not currently making interest payments on the outstanding
balance. Accrued interest payable at March 31, 1996, was approximately $42,500
and $6,200 to Warburg and Vertical, respectively.
7
<PAGE>
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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OVERVIEW
The Company's business is the successor to the operations of Cardiotronics,
Inc., a company incorporated in Colorado in April 1987. As a result of a
stock transfer and exchange in August 1989, Cardiotronics, Inc. became a
majority owned subsidiary of Encore Ventures, Ltd., a public company
incorporated in Colorado in April 1988. In November 1989, Encore Ventures,
Ltd. changed its name to Cardiotronics Systems, Inc. A merger between the
Company and its majority owned subsidiary, Cardiotronics, Inc. was completed
in December 1992. In September 1994, the Company acquired all of the
outstanding common stock of R2 Medical Systems, Inc., a manufacturer of
stimulation electrodes and cabling systems.
For purposes of this discussion and analysis, the three months ended March 31,
1995 and 1996 are referred to as 1995 and 1996, respectively.
FINANCIAL CONDITION
For the three months ended March 31, 1996, net cash used in operations was
$409,045 compared to $816,887 in 1995. The decrease in net cash used in
operations was due primarily to the decrease in the net loss from 1996
compared to 1995 and an increase in accounts payable due to raw material
inventory purchases. This was partially offset by an increase in accounts
receivable due to the large volume of sales during the last month of the
quarter and a decrease in accrued expenses related to the cost containment
programs implemented during the fourth quarter of 1995.
On March 19, 1996,the Company issued a demand note and borrowed $500,000 from
two shareholders at 7% interest per annum. The proceeds were used to fund the
cash used in operations (see Note 2 to the Condensed Consolidated Financial
Statements).
The Company will continue to use net cash in operating activities as long as
net losses continue to be significant, resulting in a need for external
sources of financing. The Company's bank line of credit expires on May 28,
1996. Management is currently seeking to extend this credit line prior to its
maturity. As of March 31, 1996, the Company had borrowing availability under
the bank credit line of $200,000. Although there can be no assurance the
Company will be successful in renewing this bank credit line, the Company has
a commitment from Warburg, a significant preferred shareholder, to provide
sufficient funds to continue operations through December 31, 1996.
The Company currently plans to spend approximately $175,000 for capital
expenditures during the remainder of 1996.
8
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
SALES
Sales increased in 1996 by $409,210, or 22%, over 1995. This growth is due
primarily to increased volumes of stimulation electrodes to both retail and
OEM customers. There was a slight decline in retail selling prices and a
slight increase in OEM selling prices in 1996 when compared to 1995.
Management believes that the Company's continued sales growth will depend on
unit volume growth resulting from market acceptance of the clinical advantages
of stimulation slectrodes and the ability to maintain current selling price
levels despite pressure from both its retail and OEM customers.
GROSS MARGIN
Gross margin in 1996 increased by $128,987 from 1995 due primarily to the
Company's increase in sales volume. The gross margin percentage declined to
50.7% in 1996 from 54.8% in 1995 due primarily to the shift in sales mix
toward lower margin OEM products in 1996.
SELLING AND MARKETING EXPENSES
Selling expenses in 1996 declined by $130,896 compared to 1995 as a result of
a decrease in personnel and certain promotional costs.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses in 1996 declined by $116,996 compared to
1995 due primarily to the consolidation of the operations of R2 which was
completed during the second quarter of 1995.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses in 1996 increased by $21,830, or 23%, due to
costs related to the completion of the development of a new product line in
1996 and increases in research costs related to conductive gel and interface
cable technology. An increase in personnel expenses in 1996 at the Company's
headquarters in Carlsbad was offset by a reduction in personnel expenses at
R2's former facility in Chicago.
9
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
PATENT LITIGATION EXPENSES
Patent litigation expenses in 1996 declined to $23,969 from $356,979 in 1995.
This decline is due primarily to the high level of discovery expense in 1995
related to litigation with Katecho, Inc., ("Katecho") which asserts that the
Company's patents are being violated by Katecho. Management believes that the
trial with Katecho, which has not been scheduled at this time, will cost
approximately $500,000.
AMORTIZATION OF INTANGIBLE ASSETS
The decrease in amortization of intangible assets is due to the $3.4 million
write-down of goodwill during the fourth quarter of 1995.
OTHER INCOME (EXPENSE)
Interest expense increased from 1995 to 1996 due primarily to the $3,600,000
increase in notes payable at March 31, 1996 compared to March 31, 1995.
Other, net is due primarily to the net proceeds from a litigation settlement.
See Part II - Item 1. Legal Proceedings
10
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PART II
OTHER INFORMATION
- -------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
On February 28, 1996, the Company settled a lawsuit with Zoll wherein the
Company contended Zoll had engaged in a pattern of unfair trade practices and
unfair competition by marketing its products using false and misleading
statements regarding the safety of Cardiotronics stimulation electrodes. The
terms of the settlement include a payment by Zoll of an undisclosed amount and
an agreement that Zoll would not make certain specified statements. Zoll also
agreed to revise a number of warnings and warranty language that appear in its
future product packaging and user manuals and to provide written confirmation
of its policies to certain customers and Zoll employees.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.1 Employment Agreement, dated May 10, 1996, by and among the Company
and Ronald R. Bromfield
10.2 Employment Agreement, dated May 10, 1996, by and among the Company
and Bruno T. Bisceglia, Jr.
10.3 Employment Agreement, dated May 10, 1996, by and among the Company
and Dennis W. Gladney
10.4 Employment Agreement, dated May 10, 1996, by and among the Company
and Scott P. Youngstrom
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this report
is being filed.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cardiotronics Systems, Inc.
----------------------------
(REGISTRANT)
Date: May 13, 1996 By: /s/ Ronald R. Bromfield
----------------------------
Ronald R. Bromfield
PRESIDENT AND CHIEF EXECUTIVE
OFFICER (PRINCIPAL EXECUTIVE
OFFICER)
Date: May 13, 1996 By: /s/ Scott P. Youngstrom
----------------------------
Scott P. Youngstrom
VICE PRESIDENT, FINANCE &
ADMINISTRATION (PRINCIPAL
FINANCIAL OFFICER)
12
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EXHIBIT INDEX
- -------------------------------------------------------------------------------
Exhibit Page
No. No.
------- ----
10.1 Employment Agreement, dated May 10, 1996, by and among the
Company and Ronald R. Bromfield
10.2 Employment Agreement, dated May 10, 1996, by and among the
Company and Bruno T. Bisceglia, Jr.
10.3 Employment Agreement, dated May 10, 1996, by and among the
Company and Dennis W. Gladney
10.4 Employment Agreement, dated May 10, 1996, by and among the
Company and Scott P. Youngstrom
13
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EMPLOYMENT AGREEMENT
This Agreement is made and entered into by and between CARDIOTRONICS
SYSTEMS, INC., a Colorado corporation, hereinafter referred to as "Employer,"
and Ronald R. Bromfield hereinafter referred to as "Employee":
WHEREAS, Employee has been President and Chief Executive Officer of
Employer and has heretofore faithfully and diligently performed his duties on
behalf of Employer; and
WHEREAS, Employer and Employee desire to set out the terms of Employee's
employment, all as more particularly set forth below.
NOW, in consideration of the mutual promises of the parties and the mutual
benefits they will gain by their performances thereof, all in accordance with
the provisions hereinafter set forth,
IT IS, THEREFORE, AGREED:
1. TERM OF EMPLOYMENT.
a. BASIC TERM. Employer hereby agrees to employ Employee to
render services to Employer in the position and with the duties and
responsibilities described in Section 2 for a period ("Period of Employment") of
one (1) year commencing on April 1, 1996. This Agreement shall terminate upon
the earlier of (i) April 1, 1997, or as extended under Section 1(b) (the "Term
Date"); or (ii) the date this Agreement is terminated in accordance with Section
4. Employee hereby accepts and agrees to such hiring, engagement and employment.
b. RENEWAL.
(1) Subject to Section 4, Employee's employment will be
automatically renewed for an additional one (1) year period (without any action
by either party) on the Term Date and on each anniversary date thereof, unless
Employer gives written notice of termination to Employee at least sixty (60)
days prior to the expiration of the then-current term of the Agreement.
Employer's right to terminate the Period of Employment under this Section 1(b),
instead of renewing the Agreement, shall be without cause and shall entitle
Employee to the benefits and compensation set forth in Section 4(a)(1);
(2) If the Term Date is less than six (6) months after a
change in "control" of the Employer as defined in Rule 405 of the Securities Act
of 1933, the Period of Employment shall be extended for six (6) months, so that
the Term Date following a change of "control" a shall be either the original
Term Date or six (6) months after the change in "control," whichever is longer.
Following an adjustment of a Term Date under this provision, any subsequent
renewal shall be pursuant to Section 1(b)(1).
1
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2. POSITION, DUTIES, RESPONSIBILITIES.
a. POSITION. Employee hereby accepts employment at Employer's
facility in San Diego with Employer as President and Chief Executive Officer.
Employee shall devote his best efforts and his full time and attention to the
performance of the services customarily incident to such office and to such
other services as may be reasonably requested by Employer. Employer shall
retain full direction and control of the means and methods by which Employee
performs the above services.
b. OTHER ACTIVITIES. Except upon the prior written consent of
the Board of Directors of Employer, Employee, during the Period of Employment,
will not (i) accept any other employment or (ii) engage, directly or indirectly,
in any other business activity (whether or not pursued for pecuniary advantage)
that is or may be competitive with, or that might place him in a competing
position to that of Employer. However, Employee is not prohibited from
investing his personal assets in businesses which do not compete with Employer
in such form or manner as will not require any services on the part of the
Employee in the operation of the affairs of the companies in which such
investments are made and in which his participation is solely that of an
investor. Nor shall Employee be prohibited from purchasing securities in any
corporation whose securities are regularly traded provided that such purchase
shall not result in his collectively owning beneficially at any time one percent
(1%) or more of the equity securities of any corporation engaged in a business
competitive to that of Employer.
3. COMPENSATION, BENEFITS, EXPENSES.
a. COMPENSATION. In consideration of the services to be
rendered hereunder, Employee shall be paid a base annual salary at the rate of
One Hundred and Sixty Five Thousand Dollars ($165,000) per year, payable in
equal biweekly payments on Employer's normal payroll dates.
b. SALARY INCREASES. Employee is entitled to reasonable annual
increases in Employee's base salary to be established at the discretion of
Employer's Board of Directors.
c. ANNUAL BONUS. In addition to the base salary and other
compensation specified herein, the Employee may earn an annual bonus, targeted
to be Seventy-Five Thousand Dollars ($75,000), provided he attains individual
objectives and Employer attains corporate objectives established by Employer's
Board of Directors.
d. STOCK OPTIONS. In addition to the base salary and other
compensation specified herein, Employee may receive additional options to
purchase shares of Common Stock of Employer pursuant to Employer's Stock Option
Plan, at the discretion of Employer's Board of Directors.
2
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e. BENEFITS. Employee shall also be eligible for and
participate in such fringe benefits on the same terms as provided for other
employees, including health, dental, life and disability insurance and
retirement programs which may be adopted from time to time by Employer.
f. VACATION. Employee shall earn paid vacation time at the
rate of four (4) weeks per year. Unused vacation shall carry over to the next
year, but Employee shall cease accruing further vacation time at any time he has
accrued six (6) weeks of unused accrued vacation, and shall not accrue further
vacation time until using some or all of the accrued time.
g. EXPENSES. Employer shall reimburse Employee on a monthly
basis for receipts he submits for all reasonable and necessary travel and other
business expenses incurred by Employee in the performance of his duties
hereunder, consistent with Employer's normal expense reimbursement policy.
4. TERMINATION OF PERIOD OF EMPLOYMENT.
a. TERMINATION BY COMPANY.
(1) TERMINATION WITHOUT CAUSE. Employer may terminate this
Agreement at its option, without cause, upon written notice to Employee. In the
event of such a termination, Employer agrees to provide Employee with the
following:
(a) if there has not been a change in "control" of
the Employer, as defined in Rule 405 of the Securities Act of 1933, as
amended, salary continuation in the amount of Seventeen Thousand, Eighty-Three
Dollars ($17,083) per month, less applicable taxes, payable biweekly until
Employee obtains employment or for twelve (12) months, whichever time period
is shorter; or
(b) if there has been a change in "control" of the
Employer, as defined in Rule 405 of the Securities Act of 1933, (i) a lump sum
payment of One Hundred Two Thousand, Five Hundred Dollars ($102,500), less
applicable payroll taxes, and (ii) in the event Employee has not obtained
employment six (6) months after his termination, salary continuation in the
amount of Seventeen Thousand, Eighty-Three Dollars ($17,083) per month, less
applicable payroll taxes, payable biweekly until Employee obtains employment
or for six (6) months, whichever time period is shorter; and
(c) a pro rata payment of Employee's target bonus to
be determined pursuant to Employer's Incentive Plan;
(d) payment of Employee's COBRA premium, less
Employee's contribution at time of termination, for continuation of medical
and dental insurance for twelve (12) months, or until Employee obtains
employment, whichever time period is shorter;
3
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(e) out-placement assistance with a firm of Employee's
choosing to a maximum of ten thousand dollars ($10,000);
(f) accelerated vesting of all stock options granted
Employee prior to the date of termination;
(g) actual relocation costs to a maximum of fifteen
thousand dollars ($15,000);
(h) selling and closing costs for Employee's
residence in Encinitas which exceed the amount Employee realizes after
deducting his purchase price and cost of improvements from the sales price;
(i) a credit of sixty thousand dollars ($60,000)
towards Employee's loan with Employer to defray Employee's loss on sale of his
former residence in Washington; and
(j) an amount, determined on an after tax basis,
equal to any federal, state or local income tax liability that occurs as a
result of the receipt of the items set forth in items (e), (g), (h) and (i)
above. Notwithstanding the above, the items in (g), (h) and (i) shall only be
paid in the event Employee is terminated before April 1, 1998. Notwithstanding
any other provision in this Agreement, no payment shall be made pursuant to
the terms of this Agreement to the extent that such payment would, when added
to the value of other compensation become due and payable to Employee, result
in the payment to Employee of an "excess parachute payment" as defined under
Section 280G of the Internal Revenue Code of 1986, as amended.
(2) TERMINATION FOR CAUSE. Employer may terminate, without
liability, this Agreement for cause as defined below. Employer shall pay
Employee the compensation to which he is entitled pursuant to section 3(a)
through the end of the day upon which notice is given, and thereafter Employer's
obligations hereunder shall terminate. Termination shall be for cause if:
(a) the death of Employee;
(b) the conviction of Employee of a felony;
(c) misconduct, dishonesty, habitual neglect, or
incompetence in the management of the affairs of the Employer;
(d) the refusal or failure by Employee to act in
accordance with any lawful direction or order of the Employer, or the act or
failure to act by Employee which is in bad faith and to the detriment of the
Employer; or
4
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(e) the breach of any term of this Agreement.
(3) TERMINATION FOR DISABILITY. Employer may terminate
this Agreement if, in the good faith judgment of Employer's Board of Directors
(which shall be supported by the advice of a competent health care
professional), the Employee becomes physically or mentally incapacitated or is
so injured that he is unable to perform services required of him hereunder and
such inability to perform continues for a period in excess of six (6) months
and is continuing at the time of the termination. If this Agreement is
terminated for disability, the Employee shall receive disability pay from the
date of such termination for a period of one (1) year in the amount of One
Hundred and Two Thousand, Five Hundred Dollars ($102,500), less applicable
payroll taxes and further reduced by the amount received by the Employee
during such period under any Employer maintained disability insurance policy
or plan or under social security, state disability or similar laws. Such
disability payments shall be paid biweekly to the Employee. Employee shall also
receive accelerated vesting of all stock options granted Employee prior to the
date of termination.
b. TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement by giving 30 days' written notice to Employer at Employer's principal
place of business. In such event, Employer's obligations hereunder shall
terminate after paying Employee the compensation provided for in section 3(a)
and (f) through the last day he works. However, a termination by Employee shall
be a termination without cause pursuant to Section 4(a)(1) if caused by any of
the following:
1. Employer's request or direction that Employee relocate
geographically more than fifty (50) miles from Employer's current location; or
2. any substantial change by Employer of Employee's
compensation, benefits, or job responsibilities.
5. TRADE SECRETS/CONFIDENTIAL INFORMATION. Employer intends to and
has expended substantial sums of money and devoted a great deal of time, labor
and effort to the development, creation and acquisition of a large body of
confidential information that is used by it in its business and is not generally
known or available to the public. Such confidential information gives Employer a
valuable advantage over its competitors and prospective competitors and is
proprietary to Employer. Employee agrees to treat any information of Employer
which is not readily publicly available as a Trade Secret of Employer unless
Employer advises Employee otherwise in writing. Employee acknowledges that
Trade Secrets include not only technical information, but any business
information that Employer treats as confidential. Trade Secrets include, but
are not limited to, all information protected under the Uniform Trade Secrets
Act. Employee agrees that he will not, without Employer's prior written
consent, publish, disclose or otherwise use at any time either during or
subsequent to his employment with Employer, any Trade Secrets or other
confidential information of Employer. Upon termination of Employee's
employment, Employee agrees to promptly return to Employer all correspondence,
drawings, blueprints, manuals, letters,
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notes, notebooks, reports, flowcharts, programs, proposals, computer records,
computer disks or any other physical items or documents relating to Employer's
Trade Secrets or other confidential information, and agrees that he will not
make or retain any unauthorized copies or other reproductions of such
materials.
6. INVENTIONS.
(a) The Employee hereby sells, transfers and assigns to Employer
or to any person, entity designated by Employer all of the entire right, title
and interest of the Employee in and to all inventions, ideas, disclosures and
improvements, whether patented or unpatented, and copyrightable material, made
or conceived by the Employee, solely or jointly, during the term hereof which
relate to methods, apparatus, designs, products, processes or devices, sold,
leased, used or under consideration or development by Employer or any of its
subsidiaries, or which otherwise relate to or pertain to the business, functions
or operations of Employer or any of its subsidiaries or which arise from the
efforts of the Employee during the course of his employment for Employer or any
of its subsidiaries. The Employee shall communicate promptly and disclose to
Employer, in such form as Employer requests, all information, details and data
pertaining to the aforementioned inventions, ideas, disclosures and
improvements; and the Employee shall execute and deliver to Employer such formal
transfers and assignments and such other papers and documents as may be
necessary or required of the Employee to permit Employer or any person or entity
designated by Employer to file and prosecute the patent applications and, as to
copyrightable material, to obtain copyright thereof. Any invention relating to
the business of Employer and disclosed by the Employee within one year following
the termination of this Agreement shall be deemed to fall within the provisions
of this paragraph unless proved to have been first conceived and made following
such termination.
(b) The Employee has been notified and understands that the
provisions of this paragraph 6 do not apply to any of the aforementioned
inventions, ideas, disclosures and improvements that qualify fully under the
provisions of Section 2870 of the California Labor Code, which states as
follows:
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
an 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
inventions 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, or
(2) Result from any work performed by the employee for
the employer.
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b) To the extent a provision in an employment agreement
purports to require an employee to assign an invention otherwise excluded from
being required to be assigned under subdivision (a), the provision is against
the public policy of this state and is unenforceable.
7. COVENANTS NOT TO COMPETE OR INTERFERE.
(a) For a period ending twelve months from and after the date of
termination of the Employee's employment hereunder, except for a termination of
employment for disability or without cause, the Employee shall not engage in any
business (whether as an officer, director, owner, employee, partner or other
direct or indirect participant) which is engaged in the manufacturing,
distribution or research and development of any products being sold by, or under
development by, Employer or its subsidiaries as of the date of such termination
of employment, in any geographic area where Employer or such subsidiaries are
then so manufacturing or distributing such products, nor shall the Employee
interfere with, disrupt or attempt to disrupt the relationship, contractual or
otherwise, between Employer and any customer, supplier, lessor, lessee or
employee of Employer.
(b) For a period ending twelve months from and after the date of
termination of the Employee's employment hereunder the Employee shall not
solicit, encourage or take any other action which is intended to induce any
employee of Employer to terminate employment with Employer.
(c) It is the desire and intent of the parties that the
provisions of this paragraph 7 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular portion of this
paragraph 7 shall be adjudicated to be invalid or unenforceable, this paragraph
7 shall be deemed amended to delete therefrom the portion thus adjudicated to be
invalid or unenforceable, such deletion to apply only with respect to the
operation of this paragraph in the particular jurisdiction in which such
adjudication is made.
8. INJUNCTIVE RELIEF. If there is a breach or threatened breach of
the provisions of paragraphs 5, 6 or 7 of this Agreement, Employer shall be
entitled to an injunction restraining the Employee from such breach. Nothing
herein shall be construed as prohibiting Employer from pursuing any other
remedies for such breach or threatened breach.
9. INSURANCE. Employer may, at its election and for its benefit,
insure the Employee against accidental loss or death, and the Employee shall
submit to such physical examination and supply such information as may be
required in connection therewith.
10. HEADINGS. The headings and captions of this Agreement are
inserted for convenience only and shall not be used to interpret or construe any
provisions of this Agreement.
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11. NOTICES. All notices or other communications required hereunder
shall be made in writing and shall be deemed to have been duly given immediately
if delivered by hand or two (2) business days after being mailed, if mailed,
postage prepaid, by certified or registered mail, return receipt requested, and
addressed to Employer at:
Cardiotronics Systems, Inc.
5966 La Place Court
Carlsbad, California 92008
or to Employee at:
1809 Sienna Canyon Drive
Encinitas, California 92024
Notice of change of address shall be effective only when done in accordance with
this Section.
12. ENTIRE AGREEMENT.
a. This Agreement supersedes any and all other agreements,
either oral or in writing, between the parties hereto with respect to the
employment of Employee by Employer. This Agreement contains all of the
covenants and agreements between the parties with respect to such employment,
except as provided herein. The terms of this Agreement are intended by the
parties to be the final expression of their agreement and may not be
contradicted by evidence of any prior, contemporaneous or subsequent agreement.
The parties further intend that this Agreement shall constitute the complete and
exclusive statement of its terms and that no extrinsic evidence whatsoever may
be introduced in a judicial, administrative or other legal proceeding involving
this Agreement. The terms of this Agreement may only be modified if done so in
writing and signed by the parties.
b. Notwithstanding Subsection (a) of this Section, this
Agreement shall have no effect upon any existing loan agreements, stock option
plans or other agreements affecting the ownership of common stock or other
securities of Employer, which plans or agreements shall nonetheless remain in
full force and effect according to their terms. Nothing in this Agreement is
intended to alter the terms of any written employee benefit plans or employee
welfare plans applicable to Employee.
c. In the event Employer has or will promulgate a general
employee manual or other written employment policies for its employees,
appropriate policies shall apply to Employee except to the extent such policies
are contrary to this Agreement.
13. EMPLOYER'S RIGHT TO OFFSET. Employer shall have the right to
offset against any payment due to Employee under this Agreement the amount of
any default by Employee in payments pursuant to the loan agreement between
Employee and Employer dated February 18, 1995.
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14. ASSIGNMENT. This Agreement may be assigned, without the consent
of Employee, by Employer to any person, partnership, corporation, or other
entity which has purchased substantially all the assets of Employer, provided
such assignee assumes all the liabilities of Employer hereunder.
15. ARBITRATION. Any controversy between Employer and Employee
involving the terms or enforceability of this Agreement or claims arising out of
Employee's employment or termination shall, on the written request of either
party, be submitted to binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect.
Arbitration under this provision shall be the full and exclusive remedy of the
parties and the award of the arbitrator shall be final and binding upon the
parties.
16. ATTORNEYS' FEES. In the event of any arbitration or judicial
proceeding concerning the execution, performance, termination or other aspect of
this Agreement, or of the employment relationship between Employee and Employer,
the prevailing party in any such dispute shall be entitled to an award of
reasonable attorneys' fees and costs including, without limitation, expert
witness fees and disbursements.
17. AMENDMENTS AND WAIVERS. This Agreement may not be modified,
amended or terminated except as provided in the Agreement or by an instrument in
writing, signed by Employee and by a duly authorized representative of Employer
other than Employee. Through an instrument in writing similarly executed,
either Employee or Employer, as the case may be, may waive compliance by the
other party with any provision of this Agreement that such other party was or is
obligated to comply with or perform, provided, however, that such waiver shall
not operate as a waiver of, or estoppel with respect to, any other or subsequent
failure. The failure of any party to insist in any one or more instances upon
performance with any term or condition of this Agreement shall not be construed
as a waiver of its or his future performance. The obligations of either party
with respect to such term, covenant or condition shall continue in full force
and effect.
18. LAW GOVERNING AGREEMENT. The validity, interpretation,
enforceability and performance of this Agreement shall be governed by and
construed in accordance with the laws of the State of California.
19. SEVERABILITY AND ENFORCEMENT. If any terms, covenants or
conditions in this Agreement, or the applications thereof to any person, party,
place or circumstance, shall be held by an arbitrator or court of competent
jurisdiction to be invalid, unenforceable or void, the remainder of this
Agreement or the application of such terms, covenants or conditions as applied
to other persons, parties, places and circumstances shall remain in full force
and effect.
20. EMPLOYEE ACKNOWLEDGMENT. Employee acknowledges (i) that he has
consulted with or has had the opportunity to consult with independent counsel of
his own choice, concerning this Agreement and has been advised to do so by
Employer, and (ii) that he has read
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and understands the Agreement, is fully aware of its legal effect and has
entered into it freely based on his own judgment.
21. JOINT PREPARATION. This Agreement is deemed to have been
prepared jointly by the parties hereto and to any uncertainty or ambiguity
existing herein, if any, shall not be interpreted against any party, but shall
be interpreted according to the application of the rules of interpretation for
arms length agreements taking into account the specific intention of the parties
wherever such intention is discernable.
EMPLOYER: CARDIOTRONICS SYSTEMS, INC.
By: /s/ Robert S. Grimes Dated: 10 May 96
-------------------------------- -------------------
Title: Chairman - Board of Directors
-----------------------------
EMPLOYEE: Ronald R. Bromfield
By: /s/ Ronald R. Bromfield Dated: 10 May 96
------------------------ -------------------
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EMPLOYMENT AGREEMENT
This Agreement is made and entered into by and between CARDIOTRONICS
SYSTEMS, INC., a Colorado corporation, hereinafter referred to as "Employer,"
and Bruno T. Bisceglia, Jr. hereinafter referred to as "Employee":
WHEREAS, Employee has been Vice President of Key Accounts for Employer and
has heretofore faithfully and diligently performed his duties on behalf of
Employer; and
WHEREAS, Employer and Employee desire to set out the terms of Employee's
employment, all as more particularly set forth below.
NOW, in consideration of the mutual promises of the parties and the mutual
benefits they will gain by their performances thereof, all in accordance with
the provisions hereinafter set forth,
IT IS, THEREFORE, AGREED:
1. TERM OF EMPLOYMENT.
a. BASIC TERM. Employer hereby agrees to employ Employee to
render services to Employer in the position and with the duties and
responsibilities described in Section 2 for a period ("Period of Employment") of
one (1) year commencing on April 1, 1996. This Agreement shall terminate upon
the earlier of (i) April 1, 1997 , or as extended under Section 1(b) (the "Term
Date"); or (ii) the date this Agreement is terminated in accordance with Section
4. Employee hereby accepts and agrees to such hiring, engagement and
employment.
b. RENEWAL.
(1) Subject to Section 4, Employee's employment will be
automatically renewed for an additional one (1) year period (without any action
by either party) on the Term Date and on each anniversary date thereof, unless
Employer gives written notice of termination to Employee at least sixty (60)
days prior to the expiration of the then-current term of the Agreement.
Employer's right to terminate the Period of Employment under this Section 1(b),
instead of renewing the Agreement, shall be without cause and shall entitle
Employee to the benefits and compensation set forth in Section 4(a)(1);
(2) If the Term Date is less than six (6) months after a
change in "control" of the Employer as defined in Rule 405 of the Securities Act
of 1933, the Period of Employment shall be extended for six (6) months, so that
the Term Date following a change of "control" a shall be either the original
Term Date or six (6) months after the change in "control,"
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whichever is longer. Following an adjustment of a Term Date under this
provision, any subsequent renewal shall be pursuant to Section 1(b)(1).
2. POSITION, DUTIES, RESPONSIBILITIES.
a. POSITION. Employee hereby accepts employment at Employer's
facility in San Diego with Employer as Vice President of Key Accounts for
Employer. Employee shall devote his best efforts and his full time and
attention to the performance of the services customarily incident to such office
and to such other services as may be reasonably requested by Employer. Employer
shall retain full direction and control of the means and methods by which
Employee performs the above services.
b. OTHER ACTIVITIES. Except upon the prior written consent of
the Board of Directors of Employer, Employee, during the Period of Employment,
will not (i) accept any other employment or (ii) engage, directly or indirectly,
in any other business activity (whether or not pursued for pecuniary advantage)
that is or may be competitive with, or that might place him in a competing
position to that of Employer. However, Employee is not prohibited from
investing his personal assets in businesses which do not compete with Employer
in such form or manner as will not require any services on the part of the
Employee in the operation of the affairs of the companies in which such
investments are made and in which his participation is solely that of an
investor. Nor shall Employee be prohibited from purchasing securities in any
corporation whose securities are regularly traded provided that such purchase
shall not result in his collectively owning beneficially at any time one percent
(1%) or more of the equity securities of any corporation engaged in a business
competitive to that of Employer.
3. COMPENSATION, BENEFITS, EXPENSES.
a. COMPENSATION. In consideration of the services to be
rendered hereunder, Employee shall be paid a base annual salary at the rate of
Sixty Thousand Dollars ($60,000) per year, payable in equal biweekly payments on
Employer's normal payroll dates.
b. SALARY INCREASES. Employee is entitled to reasonable annual
increases in Employee's base salary to be established at the discretion of
Employer's Board of Directors.
c. COMMISSIONS. In addition to the base salary and other
compensation specified herein, the Employee may earn commissions in accordance
with a commission plan established by Employer's Board of Directors for him.
d. ANNUAL BONUS. In addition to the base salary and other
compensation specified herein, the Employee may earn an annual bonus, targeted
to be Twenty Thousand Dollars ($20,000), provided he attains individual
objectives and Employer attains corporate objectives established by Employer's
Board of Directors.
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e. STOCK OPTIONS. In addition to the base salary and other
compensation specified herein, Employee may receive additional options to
purchase shares of Common Stock of Employer pursuant to Employer's Stock Option
Plan, at the discretion of Employer's Board of Directors.
f. BENEFITS. Employee shall also be eligible for and
participate in such fringe benefits on the same terms as provided for other
employees, including health, dental, life and disability insurance and
retirement programs which may be adopted from time to time by Employer.
g. VACATION. Employee shall earn paid vacation time according
to Employer's current policy.
h. EXPENSES. Employer shall reimburse Employee on a monthly
basis for receipts he submits for all reasonable and necessary travel and other
business expenses incurred by Employee in the performance of his duties
hereunder, consistent with Employer's normal expense reimbursement policy.
4. TERMINATION OF PERIOD OF EMPLOYMENT.
a. TERMINATION BY COMPANY.
(1) TERMINATION WITHOUT CAUSE. Employer may terminate this
Agreement at its option, without cause, upon written notice to Employee. In the
event of such a termination, Employer agrees to provide Employee with the
following:
(a) if there has not been a change in "control" of the
Employer, as defined in Rule 405 of the Securities Act of 1933, as amended,
salary continuation in the amount of Ten Thousand Dollars ($10,000.00) per
month, less applicable taxes, payable biweekly until Employee obtains employment
or for twelve (12) months, whichever time period is shorter; or
(b) if there has been a change in "control" of the
Employer as defined in Rule 405 of the Securities Act of 1933, (i) a lump sum
payment of Sixty Thousand Dollars ($60,000.00), less applicable payroll taxes,
and (ii) in the event Employee has not obtained employment six (6) months after
his termination, salary continuation in the amount of Ten Thousand Dollars
($10,000.00) per month, less applicable payroll taxes, payable biweekly until
Employee obtains employment or for six (6) months, whichever time period is
shorter; and
(c) a pro rata payment of Employee's target bonus to
be determined pursuant to Employer's Incentive Plan;
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(d) accelerated vesting of all stock options granted
Employee prior to the date of termination;
(e) payment of Employee's COBRA premium, less
Employee's current contribution prior to termination, for continuation of
medical and dental insurance for twelve (12) months, or until Employee obtains
employment, whichever time period is shorter; and
(f) out-placement assistance with a firm of Employee's
choosing to a maximum of Five Thousand Dollars ($5,000).
(2) TERMINATION FOR CAUSE. Employer may terminate, without
liability, this Agreement for cause as defined below. Employer shall pay
Employee the compensation to which he is entitled pursuant to section 3(a)
through the end of the day upon which notice is given, and thereafter Employer's
obligations hereunder shall terminate. Termination shall be for cause if:
(a) the death of Employee;
(b) the physical or mental disability of Employee
which prevents him from performing the essential job functions of his position
for a period of at least 90 days;
(c) the conviction of Employee of a felony;
(d) misconduct, dishonesty, habitual neglect, or
incompetence in the management of the affairs of the Employer;
(e) the refusal or failure by Employee to act in
accordance with any lawful direction or order of the Employer, or the act or
failure to act by Employee which is in bad faith and to the detriment of the
Employer; or
(f) the breach of any term of this Agreement.
b. TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement by giving 30 days' written notice to Employer at Employer's principal
place of business. In such event, Employer's obligations hereunder shall
terminate after paying Employee the compensation provided for in section 3(a)
and (g) through the last day he works. However, a termination by Employee shall
be a termination without cause pursuant to Section 4(a)(1) if caused by any of
the following:
1. Employer's request or direction that Employee relocate
geographically more than fifty (50) miles from Employer's current location; or
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<PAGE>
2. any substantial change by Employer of Employee's
compensation, benefits, or job responsibilities.
5. TRADE SECRETS/CONFIDENTIAL INFORMATION. Employer intends to and
has expended substantial sums of money and devoted a great deal of time, labor
and effort to the development, creation and acquisition of a large body of
confidential information that is used by it in its business and is not generally
known or available to the public. Such confidential information gives Employer a
valuable advantage over its competitors and prospective competitors and is
proprietary to Employer. Employee agrees to treat any information of Employer
which is not readily publicly available as a Trade Secret of Employer unless
Employer advises Employee otherwise in writing. Employee acknowledges that
Trade Secrets include not only technical information, but any business
information that Employer treats as confidential. Trade Secrets include, but
are not limited to, all information protected under the Uniform Trade Secrets
Act. Employee agrees that he will not, without Employer's prior written
consent, publish, disclose or otherwise use at any time either during or
subsequent to his employment with Employer, any Trade Secrets or other
confidential information of Employer. Upon termination of Employee's
employment, Employee agrees to promptly return to Employer all correspondence,
drawings, blueprints, manuals, letters, notes, notebooks, reports, flowcharts,
programs, proposals, computer records, computer disks or any other physical
items or documents relating to Employer's Trade Secrets or other confidential
information, and agrees that he will not make or retain any unauthorized copies
or other reproductions of such materials.
6. INVENTIONS.
(a) The Employee hereby sells, transfers and assigns to Employer
or to any person, entity designated by Employer all of the entire right, title
and interest of the Employee in and to all inventions, ideas, disclosures and
improvements, whether patented or unpatented, and copyrightable material, made
or conceived by the Employee, solely or jointly, during the term hereof which
relate to methods, apparatus, designs, products, processes or devices, sold,
leased, used or under consideration or development by Employer or any of its
subsidiaries, or which otherwise relate to or pertain to the business, functions
or operations of Employer or any of its subsidiaries or which arise from the
efforts of the Employee during the course of his employment for Employer or any
of its subsidiaries. The Employee shall communicate promptly and disclose to
Employer, in such form as Employer requests, all information, details and data
pertaining to the aforementioned inventions, ideas, disclosures and
improvements; and the Employee shall execute and deliver to Employer such formal
transfers and assignments and such other papers and documents as may be
necessary or required of the Employee to permit Employer or any person or entity
designated by Employer to file and prosecute the patent applications and, as to
copyrightable material, to obtain copyright thereof. Any invention relating to
the business of Employer and disclosed by the Employee within one year following
the termination of this Agreement shall be deemed to fall within the provisions
of this paragraph unless proved to have been first conceived and made following
such termination.
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(b) The Employee has been notified and understands that the
provisions of this paragraph 6 do not apply to any of the aforementioned
inventions, ideas, disclosures and improvements that qualify fully under the
provisions of Section 2870 of the California Labor Code, which states as
follows:
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
an 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
inventions 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, or
(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 from
being required to be assigned under subdivision (a), the provision is against
the public policy of this state and is unenforceable.
7. COVENANTS NOT TO COMPETE OR INTERFERE.
(a) For a period ending twelve months from and after the date of
termination of the Employee's employment hereunder, except for a termination of
employment for disability or without cause, the Employee shall not engage in any
business (whether as an officer, director, owner, employee, partner or other
direct or indirect participant) which is engaged in the manufacturing,
distribution or research and development of any products being sold by, or under
development by, Employer or its subsidiaries as of the date of such termination
of employment, in any geographic area where Employer or such subsidiaries are
then so manufacturing or distributing such products, nor shall the Employee
interfere with, disrupt or attempt to disrupt the relationship, contractual or
otherwise, between Employer and any customer, supplier, lessor, lessee or
employee of Employer.
(b) For a period ending twelve months from and after the date of
termination of the Employee's employment hereunder the Employee shall not
solicit, encourage or take any other action which is intended to induce any
employee of Employer to terminate employment with Employer.
(c) It is the desire and intent of the parties that the
provisions of this paragraph 7 shall be enforced to the fullest extent
permissible under the laws and public policies
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applied in each jurisdiction in which enforcement is sought. Accordingly, if
any particular portion of this paragraph 7 shall be adjudicated to be invalid
or unenforceable, this paragraph 7 shall be deemed amended to delete therefrom
the portion thus adjudicated to be invalid or unenforceable, such deletion to
apply only with respect to the operation of this paragraph in the particular
jurisdiction in which such adjudication is made.
8. INJUNCTIVE RELIEF. If there is a breach or threatened breach of
the provisions of paragraphs 5, 6 or 7 of this Agreement, Employer shall be
entitled to an injunction restraining the Employee from such breach. Nothing
herein shall be construed as prohibiting Employer from pursuing any other
remedies for such breach or threatened breach.
9. INSURANCE. Employer may, at its election and for its benefit,
insure the Employee against accidental loss or death, and the Employee shall
submit to such physical examination and supply such information as may be
required in connection therewith.
10. HEADINGS. The headings and captions of this Agreement are
inserted for convenience only and shall not be used to interpret or construe any
provisions of this Agreement.
11. NOTICES. All notices or other communications required hereunder
shall be made in writing and shall be deemed to have been duly given immediately
if delivered by hand or two (2) business days after being mailed, if mailed,
postage prepaid, by certified or registered mail, return receipt requested, and
addressed to Employer at:
Cardiotronics Systems, Inc.
5966 La Place Court
Carlsbad, California 92008
or to Employee at:
4983 Marin Drive
Oceanside, California 92058
Notice of change of address shall be effective only when done in accordance with
this Section.
12. ENTIRE AGREEMENT.
a. This Agreement supersedes any and all other agreements,
either oral or in writing, between the parties hereto with respect to the
employment of Employee by Employer. This Agreement contains all of the
covenants and agreements between the parties with respect to such employment,
except as provided herein. The terms of this Agreement are intended by the
parties to be the final expression of their agreement and may not be
contradicted by evidence of any prior, contemporaneous or subsequent agreement.
The parties further intend that this Agreement shall constitute the complete and
exclusive statement of its terms and that no extrinsic evidence whatsoever may
be introduced in a judicial, administrative or other legal
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proceeding involving this Agreement. The terms of this Agreement may only be
modified if done so in writing and signed by the parties.
b. Notwithstanding Subsection (a) of this Section, this
Agreement shall have no effect upon any existing loan agreements, stock option
plans or other agreements affecting the ownership of common stock or other
securities of Employer, which plans or agreements shall nonetheless remain in
full force and effect according to their terms. Nothing in this Agreement is
intended to alter the terms of any written employee benefit plans or employee
welfare plans applicable to Employee.
c. In the event Employer has or will promulgate a general
employee manual or other written employment policies for its employees,
appropriate policies shall apply to Employee except to the extent such policies
are contrary to this Agreement.
13. ASSIGNMENT. This Agreement may be assigned, without the consent
of Employee, by Employer to any person, partnership, corporation, or other
entity which has purchased substantially all the assets of Employer, provided
such assignee assumes all the liabilities of Employer hereunder.
14. ARBITRATION. Any controversy between Employer and Employee
involving the terms or enforceability of this Agreement or claims arising out of
Employee's employment or termination shall, on the written request of either
party, be submitted to binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect.
Arbitration under this provision shall be the full and exclusive remedy of the
parties and the award of the arbitrator shall be final and binding upon the
parties.
15. ATTORNEYS' FEES. In the event of any arbitration or judicial
proceeding concerning the execution, performance, termination or other aspect of
this Agreement, or of the employment relationship between Employee and Employer,
the prevailing party in any such dispute shall be entitled to an award of
reasonable attorneys' fees and costs including, without limitation, expert
witness fees and disbursements.
16. AMENDMENTS AND WAIVERS. This Agreement may not be modified,
amended or terminated except as provided in the Agreement or by an instrument in
writing, signed by Employee and by a duly authorized representative of Employer
other than Employee. Through an instrument in writing similarly executed,
either Employee or Employer, as the case may be, may waive compliance by the
other party with any provision of this Agreement that such other party was or is
obligated to comply with or perform, provided, however, that such waiver shall
not operate as a waiver of, or estoppel with respect to, any other or subsequent
failure. The failure of any party to insist in any one or more instances upon
performance with any term or condition of this Agreement shall not be construed
as a waiver of its or his future performance. The obligations of either party
with respect to such term, covenant or condition shall continue in full force
and effect.
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17. LAW GOVERNING AGREEMENT. The validity, interpretation,
enforceability and performance of this Agreement shall be governed by and
construed in accordance with the laws of the State of California.
18. SEVERABILITY AND ENFORCEMENT. If any terms, covenants or
conditions in this Agreement, or the applications thereof to any person, party,
place or circumstance, shall be held by an arbitrator or court of competent
jurisdiction to be invalid, unenforceable or void, the remainder of this
Agreement or the application of such terms, covenants or conditions as applied
to other persons, parties, places and circumstances shall remain in full force
and effect.
19. EMPLOYEE ACKNOWLEDGMENT. Employee acknowledges (i) that he has
consulted with or has had the opportunity to consult with independent counsel of
his own choice, concerning this Agreement and has been advised to do so by
Employer, and (ii) that he has read and understands the Agreement, is fully
aware of its legal effect and has entered into it freely based on his own
judgment.
20. JOINT PREPARATION. This Agreement is deemed to have been
prepared jointly by the parties hereto and to any uncertainty or ambiguity
existing herein, if any, shall not be interpreted against any party, but shall
be interpreted according to the application of the rules of interpretation for
arms length agreements taking into account the specific intention of the parties
wherever such intention is discernable.
EMPLOYER: CARDIOTRONICS SYSTEMS, INC.
By: /s/ Robert S. Grimes Dated: 10 May 96
-------------------------------- -------------------
Title: Chairman - Board of Directors
-----------------------------
EMPLOYEE: Bruno T. Bisceglia, Jr.
By: /s/ Bruno T. Bisceglia, Jr. Dated: 10 May 96
-------------------------------- -------------------
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EMPLOYMENT AGREEMENT
This Agreement is made and entered into by and between CARDIOTRONICS
SYSTEMS, INC., a Colorado corporation, hereinafter referred to as "Employer,"
and Dennis W. Gladney hereinafter referred to as "Employee":
WHEREAS, Employee has been Vice President of Sales and Marketing for
Employer and has heretofore faithfully and diligently performed his duties on
behalf of Employer; and
WHEREAS, Employer and Employee desire to set out the terms of Employee's
employment, all as more particularly set forth below.
NOW, in consideration of the mutual promises of the parties and the mutual
benefits they will gain by their performances thereof, all in accordance with
the provisions hereinafter set forth,
IT IS, THEREFORE, AGREED:
1. TERM OF EMPLOYMENT.
a. BASIC TERM. Employer hereby agrees to employ Employee to
render services to Employer in the position and with the duties and
responsibilities described in Section 2 for a period ("Period of Employment") of
one (1) year commencing on April 1, 1996. This Agreement shall terminate upon
the earlier of (i) April 1, 1997 , or as extended under Section 1(b) (the "Term
Date"); or (ii) the date this Agreement is terminated in accordance with Section
4. Employee hereby accepts and agrees to such hiring, engagement and
employment;
b. RENEWAL.
(1) Subject to Section 4, Employee's employment will be
automatically renewed for an additional one (1) year period (without any action
by either party) on the Term Date and on each anniversary date thereof, unless
Employer gives written notice of termination to Employee at least sixty (60)
days prior to the expiration of the then-current term of the Agreement.
Employer's right to terminate the Period of Employment under this Section 1(b),
instead of renewing the Agreement, shall be without cause and shall entitle
Employee to the benefits and compensation set forth in Section 4(a)(1);
(2) If the Term Date is less than six (6) months after a
change in "control" of the Employer as defined in Rule 405 of the Securities Act
of 1933, the Period of Employment shall be extended for six (6) months, so that
the Term Date following a change of "control" a shall be either the original
Term Date or six (6) months after the change in "control,"
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whichever is longer. Following an adjustment of a Term Date under this
provision, any subsequent renewal shall be pursuant to Section 1(b)(1).
2. POSITION, DUTIES, RESPONSIBILITIES.
a. POSITION. Employee hereby accepts employment at Employer's
facility in San Diego with Employer as Vice President of Sales and Marketing for
Employer. Employee shall devote his best efforts and his full time and
attention to the performance of the services customarily incident to such office
and to such other services as may be reasonably requested by Employer. Employer
shall retain full direction and control of the means and methods by which
Employee performs the above services.
b. OTHER ACTIVITIES. Except upon the prior written consent of
the Board of Directors of Employer, Employee, during the Period of Employment,
will not (i) accept any other employment or (ii) engage, directly or indirectly,
in any other business activity (whether or not pursued for pecuniary advantage)
that is or may be competitive with, or that might place him in a competing
position to that of Employer. However, Employee is not prohibited from
investing his personal assets in businesses which do not compete with Employer
in such form or manner as will not require any services on the part of the
Employee in the operation of the affairs of the companies in which such
investments are made and in which his participation is solely that of an
investor. Nor shall Employee be prohibited from purchasing securities in any
corporation whose securities are regularly traded provided that such purchase
shall not result in his collectively owning beneficially at any time one percent
(1%) or more of the equity securities of any corporation engaged in a business
competitive to that of Employer.
3. COMPENSATION, BENEFITS, EXPENSES.
a. COMPENSATION. In consideration of the services to be
rendered hereunder, Employee shall be paid a base annual salary at the rate of
One Hundred Thousand Dollars ($100,000) per year, payable in equal biweekly
payments on Employer's normal payroll dates.
b. SALARY INCREASES. Employee is entitled to reasonable annual
increases in Employee's base salary to be established at the discretion of
Employer's Board of Directors.
c. COMMISSIONS. In addition to the base salary and other
compensation specified herein, the Employee may earn commissions in accordance
with a commission plan established by Employer's Board of Directors for him.
d. ANNUAL BONUS. In addition to the base salary and other
compensation specified herein, the Employee may earn an annual bonus, targeted
to be Twenty
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Thousand Dollars ($20,000), provided he attains individual objectives and
Employer attains corporate objectives established by Employer's Board of
Directors.
e. STOCK OPTIONS. In addition to the base salary and other
compensation specified herein, Employee may receive additional options to
purchase shares of Common Stock of Employer pursuant to Employer's Stock Option
Plan, at the discretion of Employer's Board of Directors.
f. BENEFITS. Employee shall also be eligible for and
participate in such fringe benefits on the same terms as provided for other
employees, including health, dental, life and disability insurance and
retirement programs which may be adopted from time to time by Employer.
g. VACATION. Employee shall earn paid vacation time according
to Employer's current policy.
h. EXPENSES. Employer shall reimburse Employee on a monthly
basis for receipts he submits for all reasonable and necessary travel and other
business expenses incurred by Employee in the performance of his duties
hereunder, consistent with Employer's normal expense reimbursement policy.
4. TERMINATION OF PERIOD OF EMPLOYMENT.
a. TERMINATION BY COMPANY.
(1) TERMINATION WITHOUT CAUSE. Employer may terminate this
Agreement at its option, without cause, upon written notice to Employee. In the
event of such a termination, Employer agrees to provide Employee with the
following:
(a) if there has not been a change in "control" of the
Employer, as defined in Rule 405 of the Securities Act of 1933, as amended,
salary continuation in the amount of Ten Thousand Dollars ($10,000.00) per
month, less applicable taxes, payable biweekly until Employee obtains employment
or for twelve (12) months, whichever time period is shorter; or
(b) if there has been a change in "control" of the
Employer as defined in Rule 405 of the Securities Act of 1933, (i) a lump sum
payment of Sixty Thousand Dollars ($60,000.00), less applicable payroll taxes,
and (ii) in the event Employee has not obtained employment six (6) months after
his termination, salary continuation in the amount of Ten Thousand Dollars
($10,000.00) per month, less applicable payroll taxes, payable biweekly until
Employee obtains employment or for six (6) months, whichever time period is
shorter; and
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(c) a pro rata payment of Employee's target bonus to
be determined pursuant to Employer's Incentive Plan;
(d) accelerated vesting of all stock options granted
Employee prior to the date of termination;
(e) payment of Employee's COBRA premium, less
Employee's current contribution prior to termination, for continuation of
medical and dental insurance for twelve (12) months, or until Employee obtains
employment, whichever time period is shorter; and
(f) out-placement assistance with a firm of Employee's
choosing to a maximum of Five Thousand Dollars ($5,000).
(2) TERMINATION FOR CAUSE. Employer may terminate, without
liability, this Agreement for cause as defined below. Employer shall pay
Employee the compensation to which he is entitled pursuant to section 3(a)
through the end of the day upon which notice is given, and thereafter Employer's
obligations hereunder shall terminate. Termination shall be for cause if:
(a) the death of Employee;
(b) the physical or mental disability of Employee
which prevents him from performing the essential job functions of his position
for a period of at least 90 days;
(c) the conviction of Employee of a felony;
(d) misconduct, dishonesty, habitual neglect, or
incompetence in the management of the affairs of the Employer;
(e) the refusal or failure by Employee to act in
accordance with any lawful direction or order of the Employer, or the act or
failure to act by Employee which is in bad faith and to the detriment of the
Employer; or
(f) the breach of any term of this Agreement.
b. TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement by giving 30 days' written notice to Employer at Employer's principal
place of business. In such event, Employer's obligations hereunder shall
terminate after paying Employee the compensation provided for in section 3(a)
and (g) through the last day he works. However, a termination by Employee shall
be a termination without cause pursuant to Section 4(a)(1) if caused by any of
the following:
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1. Employer's request or direction that Employee relocate
geographically more than fifty (50) miles from Employer's current location; or
2. any substantial change by Employer of Employee's
compensation, benefits, or job responsibilities.
5. TRADE SECRETS/CONFIDENTIAL INFORMATION. Employer intends to and
has expended substantial sums of money and devoted a great deal of time, labor
and effort to the development, creation and acquisition of a large body of
confidential information that is used by it in its business and is not generally
known or available to the public. Such confidential information gives Employer a
valuable advantage over its competitors and prospective competitors and is
proprietary to Employer. Employee agrees to treat any information of Employer
which is not readily publicly available as a Trade Secret of Employer unless
Employer advises Employee otherwise in writing. Employee acknowledges that
Trade Secrets include not only technical information, but any business
information that Employer treats as confidential. Trade Secrets include, but
are not limited to, all information protected under the Uniform Trade Secrets
Act. Employee agrees that he will not, without Employer's prior written
consent, publish, disclose or otherwise use at any time either during or
subsequent to his employment with Employer, any Trade Secrets or other
confidential information of Employer. Upon termination of Employee's
employment, Employee agrees to promptly return to Employer all correspondence,
drawings, blueprints, manuals, letters, notes, notebooks, reports, flowcharts,
programs, proposals, computer records, computer disks or any other physical
items or documents relating to Employer's Trade Secrets or other confidential
information, and agrees that he will not make or retain any unauthorized copies
or other reproductions of such materials.
6. INVENTIONS.
(a) The Employee hereby sells, transfers and assigns to Employer
or to any person, entity designated by Employer all of the entire right, title
and interest of the Employee in and to all inventions, ideas, disclosures and
improvements, whether patented or unpatented, and copyrightable material, made
or conceived by the Employee, solely or jointly, during the term hereof which
relate to methods, apparatus, designs, products, processes or devices, sold,
leased, used or under consideration or development by Employer or any of its
subsidiaries, or which otherwise relate to or pertain to the business, functions
or operations of Employer or any of its subsidiaries or which arise from the
efforts of the Employee during the course of his employment for Employer or any
of its subsidiaries. The Employee shall communicate promptly and disclose to
Employer, in such form as Employer requests, all information, details and data
pertaining to the aforementioned inventions, ideas, disclosures and
improvements; and the Employee shall execute and deliver to Employer such formal
transfers and assignments and such other papers and documents as may be
necessary or required of the Employee to permit Employer or any person or entity
designated by Employer to file and prosecute the patent applications and, as to
copyrightable material, to obtain copyright thereof. Any invention relating to
the business of Employer and disclosed by the Employee within one
5
<PAGE>
year following the termination of this Agreement shall be deemed to fall
within the provisions of this paragraph unless proved to have been first
conceived and made following such termination.
(b) The Employee has been notified and understands that the
provisions of this paragraph 6 do not apply to any of the aforementioned
inventions, ideas, disclosures and improvements that qualify fully under the
provisions of Section 2870 of the California Labor Code, which states as
follows:
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
an 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
inventions 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, or
(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 from
being required to be assigned under subdivision (a), the provision is against
the public policy of this state and is unenforceable.
7. COVENANTS NOT TO COMPETE OR INTERFERE.
(a) For a period ending twelve months from and after the date of
termination of the Employee's employment hereunder, except for a termination of
employment for disability or without cause, the Employee shall not engage in any
business (whether as an officer, director, owner, employee, partner or other
direct or indirect participant) which is engaged in the manufacturing,
distribution or research and development of any products being sold by, or under
development by, Employer or its subsidiaries as of the date of such termination
of employment, in any geographic area where Employer or such subsidiaries are
then so manufacturing or distributing such products, nor shall the Employee
interfere with, disrupt or attempt to disrupt the relationship, contractual or
otherwise, between Employer and any customer, supplier, lessor, lessee or
employee of Employer.
(b) For a period ending twelve months from and after the date of
termination of the Employee's employment hereunder the Employee shall not
solicit, encourage or take any other action which is intended to induce any
employee of Employer to terminate employment with Employer.
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(c) It is the desire and intent of the parties that the
provisions of this paragraph 7 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular portion of this
paragraph 7 shall be adjudicated to be invalid or unenforceable, this paragraph
7 shall be deemed amended to delete therefrom the portion thus adjudicated to be
invalid or unenforceable, such deletion to apply only with respect to the
operation of this paragraph in the particular jurisdiction in which such
adjudication is made.
8. INJUNCTIVE RELIEF. If there is a breach or threatened breach of
the provisions of paragraphs 5, 6 or 7 of this Agreement, Employer shall be
entitled to an injunction restraining the Employee from such breach. Nothing
herein shall be construed as prohibiting Employer from pursuing any other
remedies for such breach or threatened breach.
9. INSURANCE. Employer may, at its election and for its benefit,
insure the Employee against accidental loss or death, and the Employee shall
submit to such physical examination and supply such information as may be
required in connection therewith.
10. HEADINGS. The headings and captions of this Agreement are
inserted for convenience only and shall not be used to interpret or construe any
provisions of this Agreement.
11. NOTICES. All notices or other communications required hereunder
shall be made in writing and shall be deemed to have been duly given immediately
if delivered by hand or two (2) business days after being mailed, if mailed,
postage prepaid, by certified or registered mail, return receipt requested, and
addressed to Employer at:
Cardiotronics Systems, Inc.
5966 La Place Court
Carlsbad, California 92008
or to Employee at:
25882 Montanoso
Mission Viejo, California 92961
Notice of change of address shall be effective only when done in accordance with
this Section.
12. ENTIRE AGREEMENT.
a. This Agreement supersedes any and all other agreements,
either oral or in writing, between the parties hereto with respect to the
employment of Employee by Employer. This Agreement contains all of the
covenants and agreements between the parties with respect to such employment,
except as provided herein. The terms of this Agreement are intended by the
parties to be the final expression of their agreement and may not be
contradicted by evidence of any prior, contemporaneous or subsequent agreement.
The parties further intend that this Agreement shall constitute the complete and
exclusive statement of its terms and that no
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<PAGE>
extrinsic evidence whatsoever may be introduced in a judicial, administrative
or other legal proceeding involving this Agreement. The terms of this
Agreement may only be modified if done so in writing and signed by the parties.
b. Notwithstanding Subsection (a) of this Section, this
Agreement shall have no effect upon any existing loan agreements, stock option
plans or other agreements affecting the ownership of common stock or other
securities of Employer, which plans or agreements shall nonetheless remain in
full force and effect according to their terms. Nothing in this Agreement is
intended to alter the terms of any written employee benefit plans or employee
welfare plans applicable to Employee.
c. In the event Employer has or will promulgate a general
employee manual or other written employment policies for its employees,
appropriate policies shall apply to Employee except to the extent such policies
are contrary to this Agreement.
13. ASSIGNMENT. This Agreement may be assigned, without the consent
of Employee, by Employer to any person, partnership, corporation, or other
entity which has purchased substantially all the assets of Employer, provided
such assignee assumes all the liabilities of Employer hereunder.
14. ARBITRATION. Any controversy between Employer and Employee
involving the terms or enforceability of this Agreement or claims arising out of
Employee's employment or termination shall, on the written request of either
party, be submitted to binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect.
Arbitration under this provision shall be the full and exclusive remedy of the
parties and the award of the arbitrator shall be final and binding upon the
parties.
15. ATTORNEYS' FEES. In the event of any arbitration or judicial
proceeding concerning the execution, performance, termination or other aspect of
this Agreement, or of the employment relationship between Employee and Employer,
the prevailing party in any such dispute shall be entitled to an award of
reasonable attorneys' fees and costs including, without limitation, expert
witness fees and disbursements.
16. AMENDMENTS AND WAIVERS. This Agreement may not be modified,
amended or terminated except as provided in the Agreement or by an instrument in
writing, signed by Employee and by a duly authorized representative of Employer
other than Employee. Through an instrument in writing similarly executed,
either Employee or Employer, as the case may be, may waive compliance by the
other party with any provision of this Agreement that such other party was or is
obligated to comply with or perform, provided, however, that such waiver shall
not operate as a waiver of, or estoppel with respect to, any other or subsequent
failure. The failure of any party to insist in any one or more instances upon
performance with any term or condition of this Agreement shall not be construed
as a waiver of its or his future performance.
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The obligations of either party with respect to such term, covenant or
condition shall continue in full force and effect.
17. LAW GOVERNING AGREEMENT. The validity, interpretation,
enforceability and performance of this Agreement shall be governed by and
construed in accordance with the laws of the State of California.
18. SEVERABILITY AND ENFORCEMENT. If any terms, covenants or
conditions in this Agreement, or the applications thereof to any person, party,
place or circumstance, shall be held by an arbitrator or court of competent
jurisdiction to be invalid, unenforceable or void, the remainder of this
Agreement or the application of such terms, covenants or conditions as applied
to other persons, parties, places and circumstances shall remain in full force
and effect.
19. EMPLOYEE ACKNOWLEDGMENT. Employee acknowledges (i) that he has
consulted with or has had the opportunity to consult with independent counsel of
his own choice, concerning this Agreement and has been advised to do so by
Employer, and (ii) that he has read and understands the Agreement, is fully
aware of its legal effect and has entered into it freely based on his own
judgment.
20. JOINT PREPARATION. This Agreement is deemed to have been
prepared jointly by the parties hereto and to any uncertainty or ambiguity
existing herein, if any, shall not be interpreted against any party, but shall
be interpreted according to the application of the rules of interpretation for
arms length agreements taking into account the specific intention of the parties
wherever such intention is discernable.
EMPLOYER: CARDIOTRONICS SYSTEMS, INC.
By: /s/ Robert S. Grimes Dated: 10 May 96
-------------------------------- -------------------
Title: Chairman - Board of Directors
-----------------------------
EMPLOYEE: Dennis W. Gladney
By: /s/ Dennis W. Gladney Dated: 10 May 96
-------------------------------- -------------------
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EMPLOYMENT AGREEMENT
This Agreement is made and entered into by and between CARDIOTRONICS
SYSTEMS, INC., a Colorado corporation, hereinafter referred to as "Employer,"
and Scott P. Youngstrom hereinafter referred to as "Employee":
WHEREAS, Employee will be the Chief Financial Officer for Employer; and
WHEREAS, Employer and Employee desire to set out the terms of Employee's
employment, all as more particularly set forth below.
NOW, in consideration of the mutual promises of the parties and the mutual
benefits they will gain by their performances thereof, all in accordance with
the provisions hereinafter set forth,
IT IS, THEREFORE, AGREED:
1. TERM OF EMPLOYMENT.
a. BASIC TERM. Employer hereby agrees to employ Employee to
render services to Employer in the position and with the duties and
responsibilities described in Section 2 for a period ("Period of Employment") of
one (1) year commencing on April 1, 1996. This Agreement shall terminate upon
the earlier of (i) April 1, 1997 , or as extended under Section 1(b) (the "Term
Date"); or (ii) the date this Agreement is terminated in accordance with Section
4. Employee hereby accepts and agrees to such hiring, engagement and
employment.
b. RENEWAL.
(1) Subject to Section 4, Employee's employment will be
automatically renewed for an additional one (1) year period (without any action
by either party) on the Term Date and on each anniversary date thereof, unless
Employer gives written notice of termination to Employee at least sixty (60)
days prior to the expiration of the then-current term of the Agreement.
Employer's right to terminate the Period of Employment under this Section 1(b),
instead of renewing the Agreement, shall be without cause and shall entitle
Employee to the benefits and compensation set forth in Section 4(a)(1);
(2) If the Term Date is less than six (6) months after a
change in "control" of the Employer as defined in Rule 405 of the Securities Act
of 1933, the Period of Employment shall be extended for six (6) months, so that
the Term Date following a change of "control" a shall be either the original
Term Date or six (6) months after the change in "control,"
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whichever is longer. Following an adjustment of a Term Date under this
provision, any subsequent renewal shall be pursuant to Section 1(b)(1).
2. POSITION, DUTIES, RESPONSIBILITIES.
a. POSITION. Employee hereby accepts employment at Employer's
facility in San Diego with Employer as CFO. Employee shall devote his best
efforts and his full time and attention to the performance of the services
customarily incident to such office and to such other services as may be
reasonably requested by Employer. Employer shall retain full direction and
control of the means and methods by which Employee performs the above services.
b. OTHER ACTIVITIES. Except upon the prior written consent of
the Board of Directors of Employer, Employee, during the Period of Employment,
will not (i) accept any other employment or (ii) engage, directly or indirectly,
in any other business activity (whether or not pursued for pecuniary advantage)
that is or may be competitive with, or that might place him in a competing
position to that of Employer. However, Employee is not prohibited from
investing his personal assets in businesses which do not compete with Employer
in such form or manner as will not require any services on the part of the
Employee in the operation of the affairs of the companies in which such
investments are made and in which his participation is solely that of an
investor. Nor shall Employee be prohibited from purchasing securities in any
corporation whose securities are regularly traded provided that such purchase
shall not result in his collectively owning beneficially at any time one percent
(1%) or more of the equity securities of any corporation engaged in a business
competitive to that of Employer.
3. COMPENSATION, BENEFITS, EXPENSES.
a. COMPENSATION. In consideration of the services to be
rendered hereunder, Employee shall be paid a base annual salary at the rate of
Eighty Eight Thousand Dollars ($88,000) per year, payable in equal biweekly
payments on Employer's normal payroll dates.
b. SALARY INCREASES. Employee is entitled to reasonable annual
increases in Employee's base salary to be established at the discretion of
Employer's Board of Directors.
c. ANNUAL BONUS. In addition to the base salary and other
compensation specified herein, the Employee may earn an annual bonus, targeted
to be Twenty Thousand Dollars ($20,000), provided he attains individual
objectives and Employer attains corporate objectives established by Employer's
Board of Directors.
d. STOCK OPTIONS. In addition to the base salary and other
compensation specified herein, Employee may receive additional options to
purchase shares of
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Common Stock of Employer pursuant to Employer's Stock Option Plan, at the
discretion of Employer's Board of Directors.
e. BENEFITS. Employee shall also be eligible for and
participate in such fringe benefits on the same terms as provided for other
employees, including health, dental, life and disability insurance and
retirement programs which may be adopted from time to time by Employer.
f. VACATION. Employee shall earn paid vacation time according
to Employer's current policy.
g. EXPENSES. Employer shall reimburse Employee on a monthly
basis for receipts he submits for all reasonable and necessary travel and other
business expenses incurred by Employee in the performance of his duties
hereunder, consistent with Employer's normal expense reimbursement policy.
4. TERMINATION OF PERIOD OF EMPLOYMENT.
a. TERMINATION BY COMPANY.
(1) TERMINATION WITHOUT CAUSE. Employer may terminate this
Agreement at its option, without cause, upon written notice to Employee. In the
event of such a termination, Employer agrees to provide Employee with the
following:
(a) if there has not been a change in "control" of the
Employer, as defined in Rule 405 of the Securities Act of 1933, as amended,
salary continuation in the amount of Seven Thousand Three Hundred Thirty-Three
Dollars ($7,333.00) per month, less applicable taxes, payable biweekly until
Employee obtains employment or for twelve (12) months, whichever time period is
shorter; or
(b) if there has been a change in "control" of the
Employer as defined in Rule 405 of the Securities Act of 1933, (i) a lump sum
payment of Forty-Four Thousand Dollars ($44,000.00), less applicable payroll
taxes, and (ii) in the event Employee has not obtained employment six (6) months
after his termination, salary continuation in the amount of Seven Thousand Three
Hundred Thirty-Three Dollars ($7,333.00) per month, less applicable payroll
taxes, payable biweekly until Employee obtains employment or for six (6) months,
whichever time period is shorter; and
(c) a pro rata payment of Employee's target bonus to
be determined pursuant to Employer's Incentive Plan;
(d) accelerated vesting of all stock options granted
Employee prior to the date of termination;
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(e) payment of Employee's COBRA premium, less
Employee's current contribution prior to termination, for continuation of
medical and dental insurance for twelve (12) months, or until Employee obtains
employment, whichever time period is shorter; and
(f) out-placement assistance with a firm of Employee's
choosing to a maximum of Five Thousand Dollars ($5,000).
(2) TERMINATION FOR CAUSE. Employer may terminate, without
liability, this Agreement for cause as defined below. Employer shall pay
Employee the compensation to which he is entitled pursuant to section 3(a)
through the end of the day upon which notice is given, and thereafter Employer's
obligations hereunder shall terminate. Termination shall be for cause if:
(a) the death of Employee;
(b) the physical or mental disability of Employee
which prevents him from performing the essential job functions of his position
for a period of at least 90 days;
(c) the conviction of Employee of a felony;
(d) misconduct, dishonesty, habitual neglect, or
incompetence in the management of the affairs of the Employer;
(e) the refusal or failure by Employee to act in
accordance with any lawful direction or order of the Employer, or the act or
failure to act by Employee which is in bad faith and to the detriment of the
Employer; or
(f) the breach of any term of this Agreement.
b. TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement by giving 30 days' written notice to Employer at Employer's principal
place of business. In such event, Employer's obligations hereunder shall
terminate after paying Employee the compensation provided for in section 3(a)
and (f) through the last day he works. However, a termination by Employee shall
be a termination without cause pursuant to Section 4(a)(1) if caused by any of
the following:
1. Employer's request or direction that Employee relocate
geographically more than fifty (50) miles from Employer's current location; or
2. any substantial change by Employer of Employee's
compensation, benefits, or job responsibilities.
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5. TRADE SECRETS/CONFIDENTIAL INFORMATION. Employer intends to and
has expended substantial sums of money and devoted a great deal of time, labor
and effort to the development, creation and acquisition of a large body of
confidential information that is used by it in its business and is not generally
known or available to the public. Such confidential information gives Employer a
valuable advantage over its competitors and prospective competitors and is
proprietary to Employer. Employee agrees to treat any information of Employer
which is not readily publicly available as a Trade Secret of Employer unless
Employer advises Employee otherwise in writing. Employee acknowledges that
Trade Secrets include not only technical information, but any business
information that Employer treats as confidential. Trade Secrets include, but
are not limited to, all information protected under the Uniform Trade Secrets
Act. Employee agrees that he will not, without Employer's prior written
consent, publish, disclose or otherwise use at any time either during or
subsequent to his employment with Employer, any Trade Secrets or other
confidential information of Employer. Upon termination of Employee's
employment, Employee agrees to promptly return to Employer all correspondence,
drawings, blueprints, manuals, letters, notes, notebooks, reports, flowcharts,
programs, proposals, computer records, computer disks or any other physical
items or documents relating to Employer's Trade Secrets or other confidential
information, and agrees that he will not make or retain any unauthorized copies
or other reproductions of such materials.
6. INVENTIONS.
(a) The Employee hereby sells, transfers and assigns to Employer
or to any person, entity designated by Employer all of the entire right, title
and interest of the Employee in and to all inventions, ideas, disclosures and
improvements, whether patented or unpatented, and copyrightable material, made
or conceived by the Employee, solely or jointly, during the term hereof which
relate to methods, apparatus, designs, products, processes or devices, sold,
leased, used or under consideration or development by Employer or any of its
subsidiaries, or which otherwise relate to or pertain to the business, functions
or operations of Employer or any of its subsidiaries or which arise from the
efforts of the Employee during the course of his employment for Employer or any
of its subsidiaries. The Employee shall communicate promptly and disclose to
Employer, in such form as Employer requests, all information, details and data
pertaining to the aforementioned inventions, ideas, disclosures and
improvements; and the Employee shall execute and deliver to Employer such formal
transfers and assignments and such other papers and documents as may be
necessary or required of the Employee to permit Employer or any person or entity
designated by Employer to file and prosecute the patent applications and, as to
copyrightable material, to obtain copyright thereof. Any invention relating to
the business of Employer and disclosed by the Employee within one year following
the termination of this Agreement shall be deemed to fall within the provisions
of this paragraph unless proved to have been first conceived and made following
such termination.
(b) The Employee has been notified and understands that the
provisions of this paragraph 6 do not apply to any of the aforementioned
inventions, ideas,
5
<PAGE>
disclosures and improvements that qualify fully under the provisions of
Section 2870 of the California Labor Code, which states as follows:
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
an 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
inventions 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, or
(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 from
being required to be assigned under subdivision (a), the provision is against
the public policy of this state and is unenforceable.
7. COVENANTS NOT TO COMPETE OR INTERFERE.
(a) For a period ending twelve months from and after the date of
termination of the Employee's employment hereunder, except for a termination of
employment for disability or without cause, the Employee shall not engage in any
business (whether as an officer, director, owner, employee, partner or other
direct or indirect participant) which is engaged in the manufacturing,
distribution or research and development of any products being sold by, or under
development by, Employer or its subsidiaries as of the date of such termination
of employment, in any geographic area where Employer or such subsidiaries are
then so manufacturing or distributing such products, nor shall the Employee
interfere with, disrupt or attempt to disrupt the relationship, contractual or
otherwise, between Employer and any customer, supplier, lessor, lessee or
employee of Employer.
(b) For a period ending twelve months from and after the date of
termination of the Employee's employment hereunder the Employee shall not
solicit, encourage or take any other action which is intended to induce any
employee of Employer to terminate employment with Employer.
(c) It is the desire and intent of the parties that the
provisions of this paragraph 7 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular portion of this
paragraph 7 shall be adjudicated to be invalid or unenforceable, this
paragraph 7
6
<PAGE>
shall be deemed amended to delete therefrom the portion thus adjudicated to be
invalid or unenforceable, such deletion to apply only with respect to the
operation of this paragraph in the particular jurisdiction in which such
adjudication is made.
8. INJUNCTIVE RELIEF. If there is a breach or threatened breach of
the provisions of paragraphs 5, 6 or 7 of this Agreement, Employer shall be
entitled to an injunction restraining the Employee from such breach. Nothing
herein shall be construed as prohibiting Employer from pursuing any other
remedies for such breach or threatened breach.
9. INSURANCE. Employer may, at its election and for its benefit,
insure the Employee against accidental loss or death, and the Employee shall
submit to such physical examination and supply such information as may be
required in connection therewith.
10. HEADINGS. The headings and captions of this Agreement are
inserted for convenience only and shall not be used to interpret or construe any
provisions of this Agreement.
11. NOTICES. All notices or other communications required hereunder
shall be made in writing and shall be deemed to have been duly given immediately
if delivered by hand or two (2) business days after being mailed, if mailed,
postage prepaid, by certified or registered mail, return receipt requested, and
addressed to Employer at:
Cardiotronics Systems, Inc.
5966 La Place Court
Carlsbad, California 92008
or to Employee at:
208 East Glaucus
Leucadia, California 92024
Notice of change of address shall be effective only when done in accordance with
this Section.
12. ENTIRE AGREEMENT.
a. This Agreement supersedes any and all other agreements,
either oral or in writing, between the parties hereto with respect to the
employment of Employee by Employer. This Agreement contains all of the
covenants and agreements between the parties with respect to such employment,
except as provided herein. The terms of this Agreement are intended by the
parties to be the final expression of their agreement and may not be
contradicted by evidence of any prior, contemporaneous or subsequent agreement.
The parties further intend that this Agreement shall constitute the complete and
exclusive statement of its terms and that no extrinsic evidence whatsoever may
be introduced in a judicial, administrative or other legal proceeding involving
this Agreement. The terms of this Agreement may only be modified if done so in
writing and signed by the parties.
7
<PAGE>
b. Notwithstanding Subsection (a) of this Section, this
Agreement shall have no effect upon any existing loan agreements, stock option
plans or other agreements affecting the ownership of common stock or other
securities of Employer, which plans or agreements shall nonetheless remain in
full force and effect according to their terms. Nothing in this Agreement is
intended to alter the terms of any written employee benefit plans or employee
welfare plans applicable to Employee.
c. In the event Employer has or will promulgate a general
employee manual or other written employment policies for its employees,
appropriate policies shall apply to Employee except to the extent such policies
are contrary to this Agreement.
13. ASSIGNMENT. This Agreement may be assigned, without the consent
of Employee, by Employer to any person, partnership, corporation, or other
entity which has purchased substantially all the assets of Employer, provided
such assignee assumes all the liabilities of Employer hereunder.
14. ARBITRATION. Any controversy between Employer and Employee
involving the terms or enforceability of this Agreement or claims arising out of
Employee's employment or termination shall, on the written request of either
party, be submitted to binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect.
Arbitration under this provision shall be the full and exclusive remedy of the
parties and the award of the arbitrator shall be final and binding upon the
parties.
15. ATTORNEYS' FEES. In the event of any arbitration or judicial
proceeding concerning the execution, performance, termination or other aspect of
this Agreement, or of the employment relationship between Employee and Employer,
the prevailing party in any such dispute shall be entitled to an award of
reasonable attorneys' fees and costs including, without limitation, expert
witness fees and disbursements.
16. AMENDMENTS AND WAIVERS. This Agreement may not be modified,
amended or terminated except as provided in the Agreement or by an instrument in
writing, signed by Employee and by a duly authorized representative of Employer
other than Employee. Through an instrument in writing similarly executed,
either Employee or Employer, as the case may be, may waive compliance by the
other party with any provision of this Agreement that such other party was or is
obligated to comply with or perform, provided, however, that such waiver shall
not operate as a waiver of, or estoppel with respect to, any other or subsequent
failure. The failure of any party to insist in any one or more instances upon
performance with any term or condition of this Agreement shall not be construed
as a waiver of its or his future performance. The obligations of either party
with respect to such term, covenant or condition shall continue in full force
and effect.
8
<PAGE>
17. LAW GOVERNING AGREEMENT. The validity, interpretation,
enforceability and performance of this Agreement shall be governed by and
construed in accordance with the laws of the State of California.
18. SEVERABILITY AND ENFORCEMENT. If any terms, covenants or
conditions in this Agreement, or the applications thereof to any person, party,
place or circumstance, shall be held by an arbitrator or court of competent
jurisdiction to be invalid, unenforceable or void, the remainder of this
Agreement or the application of such terms, covenants or conditions as applied
to other persons, parties, places and circumstances shall remain in full force
and effect.
19. EMPLOYEE ACKNOWLEDGMENT. Employee acknowledges (i) that he has
consulted with or has had the opportunity to consult with independent counsel of
his own choice, concerning this Agreement and has been advised to do so by
Employer, and (ii) that he has read and understands the Agreement, is fully
aware of its legal effect and has entered into it freely based on his own
judgment.
20. JOINT PREPARATION. This Agreement is deemed to have been
prepared jointly by the parties hereto and to any uncertainty or ambiguity
existing herein, if any, shall not be interpreted against any party, but shall
be interpreted according to the application of the rules of interpretation for
arms length agreements taking into account the specific intention of the parties
wherever such intention is discernable.
EMPLOYER: CARDIOTRONICS SYSTEMS, INC.
By: /s/ Robert S. Grimes Dated: 10 May 96
-------------------------------- -------------------
Title: Chairman - Board of Directors
-----------------------------
EMPLOYEE: Scott P. Youngstrom
By: /s/ Scott P. Youngstrom Dated: 10 May 96
-------------------------------- -------------------
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet of Cardiotronics Systems, Inc. and Subsidiary as of
March 31, 1996 and the related statement of operations for the year then
ended and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 642,037
<SECURITIES> 0
<RECEIVABLES> 1,279,363
<ALLOWANCES> (25,970)
<INVENTORY> 706,023
<CURRENT-ASSETS> 2,690,796
<PP&E> 852,685
<DEPRECIATION> (259,226)
<TOTAL-ASSETS> 11,745,930
<CURRENT-LIABILITIES> 9,836,655
<BONDS> 0
0
347,043
<COMMON> 5,710
<OTHER-SE> 1,556,522
<TOTAL-LIABILITY-AND-EQUITY> 11,745,930
<SALES> 2,299,142
<TOTAL-REVENUES> 2,299,142
<CGS> 1,133,792
<TOTAL-COSTS> 1,133,792
<OTHER-EXPENSES> 1,318,394
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138,719
<INCOME-PRETAX> (259,010)
<INCOME-TAX> 0
<INCOME-CONTINUING> (259,010)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (259,010)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> 0
</TABLE>
