CARDIOVASCULAR DYNAMICS INC, S-1, 1996-11-12

CARDIOVASCULAR DYNAMICS INC
S-1, 1996-11-12
SURGICAL & MEDICAL INSTRUMENTS & APPARATUS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1996.

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CARDIOVASCULAR DYNAMICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

<TABLE>
<S> <C> <C>
DELAWARE 3841 68-0328265
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
</TABLE>

13900 ALTON PARKWAY, SUITE 122
IRVINE, CALIFORNIA 92718
(714) 457-9546
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

MICHAEL R. HENSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CARDIOVASCULAR DYNAMICS, INC.
13900 ALTON PARKWAY, SUITE 122
IRVINE, CALIFORNIA 92718
(714) 457-9546
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:

EDWARD M. LEONARD, ESQ.
BROBECK, PHLEGER & HARRISON LLP
TWO EMBARCADERO PLACE
2200 GENG ROAD
PALO ALTO, CALIFORNIA 94303
(415) 424-0160

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE REGISTRATION FEE
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Common Stock, $.001 par
value...................... 148,858 shares $12.00 $1,786,296 $541.30
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</TABLE>

(1) Calculated based on the average of the high and low reported sale prices of
a share of the Company's Common Stock as of November 5, 1996 in accordance
with the provisions of Rule 457(c) under the Securities Act of 1933, as
amended.

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED NOVEMBER 8, 1996

148,858 SHARES

CARDIOVASCULAR DYNAMICS, INC.
COMMON STOCK
------------------------

This Prospectus relates to the public offering, which is not being
underwritten, of 148,858 shares of Common Stock, $.001 par value per share, of
CardioVascular Dynamics, Inc. ("CVD", the "Company" or the "Registrant"). All
148,858 shares (the "Shares") may be offered by certain stockholders of the
Company or by pledgees, donees, transferees or other successors in interest that
receive such shares as a gift, partnership distribution or other non-sale
related transfer (the "Selling Stockholders"). 86,858 of the Shares were
originally issued by the Company in connection with the acquisition by statutory
merger of Intraluminal Devices, Inc. ("IDI") through a merger of IDI with and
into a wholly-owned subsidiary of the Company. See "The Merger." In addition,
62,500 of the Shares were originally issued to Fukuda Denshi Co., Ltd. upon
conversion of a $750,000 convertible obligation. The Shares were issued pursuant
to an exemption from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), provided by Section 4(2) thereof. The
Shares are being registered by the Company pursuant to a registration rights
agreement with the Selling Stockholders.

The Shares may be offered by the Selling Stockholders from time to time in
transactions in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to prevailing
market prices or at negotiated prices. The Selling Stockholders may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders and/or the purchasers of the Shares
for whom such broker-dealers may act as agents or to whom they sell as
principals, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions). See "Plan of Distribution."

The Company will not receive any of the proceeds from the sale of the
Shares. The Company has agreed to bear certain expenses in connection with the
registration of the Shares being offered and sold by the Selling Stockholders.

The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "CCVD." On November 5, 1996 the average of the high and low price for
the Common Stock was $12.00.
------------------------

The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Plan of Distribution" herein for a description of
indemnification arrangements.
------------------------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 5-12.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------

The date of this Prospectus is November , 1996
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No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offering made hereby, and if given or made, such information or
representations must not be relied upon as having been authorized by the
Company, any Selling Stockholder or by any other person. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that information herein is correct as of any time
subsequent to the date hereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any security other than the securities
covered by this Prospectus, nor does it constitute an offer to or solicitation
of any person in any jurisdiction in which such offer or solicitation may not
lawfully be made.

Bullett is a registered trademark of CardioVascular Dynamics, Inc.
Trademark applications are pending for the CVD logo, FACT, CAT, ARC, Focus, LYNX
and Periflow. All other trademarks and trade names referred to in this
Prospectus are the property of their respective owners.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, information statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information filed by the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices located at 75 Park Place, New York, New York
10007 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can be obtained by mail from the Public Reference Branch
of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
at prescribed rates. The Common Stock of the Company is quoted on the Nasdaq
National Market, and such material may also be inspected at the offices of
Nasdaq Operations, 1735 K Street N.W. Washington, D.C. 20006. The Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the Commission's web site is
http://www.sec.gov.

The Company has filed with the Commission a registration statement on Form
S-1 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information regarding the Company and
the Common Stock offered hereby, reference is hereby made to the Registration
Statement and to the exhibits and schedules filed therewith. The Registration
Statement, including the exhibits and schedules thereto, may be inspected at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and copies of all or any part thereof may
be obtained from such office upon payment of the prescribed fees.
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from those described in the forward-looking statements. Investors
should carefully consider the information under the heading "Risk Factors" in
addition to the other information contained in this Prospectus before purchasing
the Common Stock offered hereby.

THE COMPANY

CardioVascular Dynamics, Inc. ("CVD" or the "Company") designs, develops,
manufactures and markets catheters used to treat certain vascular diseases. The
Company's catheters are used in conjunction with angioplasty and other
interventional procedures such as vascular stenting and drug delivery. The
Company's proprietary Focus and Multiple Microporous Membrane ("M(3)")
technologies enable physicians to deliver therapeutic radial force, stents,
drugs or contrast media accurately and effectively to the treatment site, and
also allow the perfusion of blood during an interventional procedure. The
Company believes that the combination of these technologies on a
multiple-purpose catheter enables physicians to effectively perform challenging
interventional procedures, resulting in improved treatment outcomes and lower
costs. The Company has ten issued U.S. patents covering certain aspects of its
catheter technologies.

CardioVascular disease, the leading cause of death in the United States, is
caused principally by atherosclerosis. Atherosclerosis is a progressive and
degenerative vascular disease in which cholesterol and other fatty materials are
deposited on the walls of blood vessels, forming a build-up known as plaque.
Treatments for atherosclerosis include drug therapy and open-heart bypass
surgery. In addition, cardiologists are increasingly utilizing minimally
invasive catheter-based treatments such as balloon angioplasty, atherectomy and
laser angioplasty to treat atherosclerosis.

Although catheter-based interventional therapies are generally successful
in initially increasing blood flow, studies indicate that after a traditional
coronary balloon angioplasty up to 50% of treated patients experience restenosis
(generally defined as a 50% or greater reduction in the lumen, or interior,
diameter of the treated vessel at the lesion site). In addition, studies show
that 5% to 8% of elective coronary balloon angioplasty patients may experience
acute reclosure of the treated vessel. Acute reclosure is an increase in the
severity of the vessel closure accompanied by a reduction in blood flow within
the vessel as a consequence of the intervention which occurs within 24 hours of
the procedure. A study has also indicated that angioplasty of chronic total
occlusions represents 10% to 20% of all coronary angioplasty procedures. A
chronic total occlusion is a complete blockage of the vessel preventing blood
flow beyond the lesion site. The Company believes that these challenges are
inadequately addressed with existing, single function, uniform diameter
angioplasty balloons. However, while the Company believes that its products
address certain disadvantages of existing catheter technology, limitations
remain in the use of balloon angioplasty to treat atherosclerosis. The Company's
products may not be suitable for the treatment of all forms of atherosclerosis.
For example, in many cases the existence of a total occlusion limits treatment
options to bypass surgery.

CVD has utilized its core proprietary technologies to develop catheters
that provide clinical and cost benefits in the treatment of vascular diseases.
The Company's catheters are designed to address three principal challenges
facing cardiologists: restenosis of a treated vessel, chronic total occlusions
and acute reclosure of a vessel during or soon after a procedure. The Company's
patented Focus technology combines compliant and non-compliant balloon materials
on a single catheter, creating an angioplasty balloon that has an adjustable,
larger center diameter with fixed, smaller diameters at each end. These
characteristics allow a single balloon to expand to multiple diameters, enabling
the physician to perform interventional procedures in vessels of varying
diameters and anatomical locations. The Company's proprietary M(3) technology
combines multiple membranes of polymeric balloon material to form a single
balloon that enables the accurate delivery of drugs or contrast agents to the
lesion or thrombus site. The M(3) technology can also be utilized to provide
perfusion of blood during an interventional procedure. The Company believes that
the Focus and M(3) technologies may

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enable physicians to cost-effectively treat vascular diseases by reducing the
cost of those procedures which require more than one catheter.

THE MERGER

On October 16, 1996, the Company acquired Intraluminal Devices, Inc.
("IDI") by the statutory merger (the "Merger") of IDI with and into IDI
Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of
the Company ("Sub"). The Merger was accomplished pursuant to the Agreement and
Plan of Reorganization, dated as of October 2, 1996, among the Company, IDI and
Sub, and a related Certificate of Merger (collectively, the "Merger
Agreements"). The Merger of IDI with and into Sub occurred following the
approval of the Merger Agreements by the shareholders of IDI and satisfaction of
certain other closing conditions. As a result of the Merger, the Company became
the owner of 100% of the issued and outstanding common stock of IDI (after
conversion of IDI Preferred Stock into IDI Common Stock). The terms of the
Merger Agreements were the result of arm's-length negotiations among the
parties.

Of the shares being registered hereby, 86,358 were issued to former IDI
shareholders in exchange for the acquisition of all outstanding IDI capital
stock. The shares issued to IDI shareholders were issued pursuant to the
exemption from the registration requirements of the Securities Act provided by
Section 4(2) thereof. In addition, under the terms of the Merger Agreements, the
Company may become obligated to issue additional shares of Common Stock to the
former shareholders of IDI in the event the closing price of the Company's
Common Stock, as reported on the Nasdaq National Market on the fourth day after
this Registration Statement is declared effective, is below $12.97 per share.

IDI is a medical device company engaged in the development of medical
stents for the treatment of patients with vascular disease caused by aneurysms
or atherosclerosis. These diseases include abdominal aortic aneurysms, coronary
artery disease, and peripheral vascular disease (iliac artery aneurysms and
stenosis). There can be no assurance that IDI will successfully complete the
development of any products or that any such products will receive any required
regulatory approvals.

RISK FACTORS

An investment in the Common Stock offered hereby is subject to numerous
risks. The Company has a history of operating losses, expects to continue to
incur operating losses and may require additional funding. In addition, the
Company has experienced and expects to continue to experience significant
fluctuations in quarterly operating results. The Company has limited sales to
date and there can be no assurance that the Company's products will achieve
market acceptance or that the Company's products will not be rendered obsolete
as a result of technological change. There can be no assurance that the
Company's intellectual property will provide competitive advantages or that the
Company's products do not infringe the intellectual property rights of others.
The Company's products compete with or will compete with products marketed by a
number of other manufacturers, many of whom have established market positions
and significantly greater resources than the Company. The Company has very
limited experience manufacturing its products and may experience difficulties in
manufacturing scale-up. The Company also has limited marketing and sales
resources and depends upon the marketing capabilities of certain strategic
partners for the distribution of its products. Products offered by the Company
are subject to approval by regulatory authorities and failure to obtain or
maintain such approvals may delay or prevent the introduction or marketing of
the Company's products. Investors should carefully consider the information set
forth under the heading "Risk Factors" in addition to the other information
contained in this Prospectus before purchasing the Common Stock offered hereby.

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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PERIOD FROM MARCH NINE MONTHS ENDED
16, 1992 YEAR ENDED DECEMBER 31, SEPTEMBER 30,
(INCEPTION) TO --------------------------- ------------------
DECEMBER 31, 1992(1) 1993(1) 1994 1995 1995 1996
-------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................... $ -- $ 126 $ 2,389 $ 4,103 $ 2,798 $ 6,186
Charge for acquired in-process
research and development(2).... -- (2,001) -- (488) (488) --
Loss from operations............. (323) (2,878) (1,022) (2,976) (2,355) (2,576)
Net loss......................... $ (313) $(2,849) $ (971) $(2,874) $(2,278) $(1,845)
Pro forma net loss per
share(3)....................... $ (0.25) $ (0.65) $ (0.51) $ (0.29)
Shares used in computing
pro forma net loss per
share(3)....................... 3,876 4,441 4,433 6,462
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
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<S> <C>
BALANCE SHEET DATA:
Cash............................................................................ $47,377
Working capital................................................................. 47,440
Total assets.................................................................... 52,991
Convertible obligation.......................................................... 750
Accumulated deficit............................................................. (8,270)
Total stockholders' equity...................................................... $47,989
</TABLE>

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(1) The period from March 16, 1992 (inception) to December 31, 1992 and the
period from January 1, 1993 to June 9, 1993 reflect the operations of the
predecessor to the Company. See Note 1 of Notes to Financial Statements.

(2) The charge for acquired in-process research and development reflects a
change in the basis of the Company's assets and liabilities as a result of
the acquisition by EndoSonics which has been allocated to the Company. See
Note 1 of Notes to Financial Statements.

(3) See Note 1 of Notes to Financial Statements for information regarding the
calculation of pro forma net loss per share.

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RISK FACTORS

In evaluating the Company's business, prospective investors should consider
carefully the following risk factors in addition to the other information
presented in this Prospectus. This Prospectus contains forwardlooking statements
that involve risks and uncertainties. The Company's actual results may differ
materially from those described in the forward-looking statements. Investors
should carefully consider the following risk factors in addition to the other
information contained in this Prospectus before purchasing the Common Stock
offered hereby.

History of Operating Losses; Anticipated Future Losses; Future Capital
Requirements. The Company was founded in 1992 and has experienced annual
operating losses since its inception. Its net loss was $2.9 million and $1.8
million in 1995 and in the nine months ended September 30, 1996, respectively.
The Company's accumulated deficit at September 30, 1996 was $8.3 million. The
Company expects to continue to incur operating losses through at least 1997 and
there can be no assurance that the Company will ever be able to achieve or
sustain profitability in the future. The Company expects to incur substantially
increased costs related to, among other things, clinical testing, product
development, manufacturing scale-up and sales and marketing activities. The
Company anticipates that its existing capital resources will be sufficient to
fund its operations through 1997. The Company's future capital requirements will
depend on many factors, including its research and development programs, the
scope and results of clinical trials, the time and costs involved in obtaining
regulatory approvals, the costs involved in obtaining and enforcing patents or
any litigation by third parties regarding intellectual property, the status of
competitive products, the establishment and scale-up of manufacturing capacity,
the establishment of sales and marketing capabilities, the establishment of
collaborative relationships with other parties and costs related to the
acquisition of new technologies and product development. The Company may require
additional funds to finance these activities and for working capital
requirements. The Company may seek such funds through financings, including
private or public equity or debt offerings and collaborative arrangements with
corporate partners. There can be no assurance that funds will be raised on
favorable terms, if at all. If adequate funds are not available, the Company may
be required to delay, scale back or eliminate one or more of its development
programs or obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain
technologies, product candidates or products that the Company would not
otherwise relinquish. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Dependence Upon New Products; Rapid Technological Change; Risk of
Obsolescence. The medical device industry generally, and the interventional
catheter market in particular, are characterized by rapid technological change,
changing customer needs, and frequent new product introductions. As a result,
the useful lives of both the technology and products for the treatment of
cardiovascular and peripheral vascular diseases are limited, in some instances
to as little as twelve months. The Company's future success will depend upon its
ability to develop, manufacture and introduce new products that address the
needs of its customers. There can be no assurance that the Company will be
successful in developing and marketing new products that achieve market
acceptance or that the Company will not experience difficulties that could delay
or prevent the successful development, introduction and marketing of new
products. In addition, there can be no assurance that the Company's existing
products will not be rendered obsolete as a result of technological developments
or that the products that the Company has under development will not be rendered
obsolete prior to the introduction of such products. See "Business -- Products."

Limited Sales to Date; Uncertainty of Market Acceptance. The Company's
catheters are used in conjunction with angioplasty and other intravascular
procedures such as vascular stenting and drug delivery. Although the Company has
received regulatory clearance for a total of fifty-two products, only fourteen
of such products have been marketed. Of those products which have been marketed,
many have been marketed only in limited quantities or in certain markets, or are
allowed to be marketed only in certain countries. In addition, while
interventional catheters are widely used technologies, the Company's catheter
designs are relatively new. The commercial success of the Company's products
will depend upon their acceptance by the medical community as useful,
cost-effective components of interventional cardiovascular and peripheral
vascular procedures, including the acceptance by the medical community of stents
and the availability and acceptance of therapeutic drugs for use in
interventional procedures. The Company currently relies upon

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relationships with certain prominent doctors and researchers in the medical
community to promote the uses and acceptance of its approved products. There can
be no assurance that the Company will be able to maintain such relationships or
establish additional relationships in the future. The erosion or loss of any
such relationship could detrimentally affect the market acceptance of the
Company's products. Failure of the Company's products to achieve such market
acceptance would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Products."

Fluctuations in Quarterly Operating Results. CVD's results of operations
have varied significantly from quarter to quarter. The Company has experienced
an operating loss for each of the last three years and for the nine months ended
September 30, 1996. Quarterly operating results will depend upon several
factors, including the timing and amount of expenses associated with expanding
the Company's operations, the conduct of clinical trials and the timing of
regulatory approvals, new product introductions both in the United States and
internationally, the mix between pilot production of new products and full-scale
manufacturing of existing products, the mix between domestic and export sales,
variations in foreign exchange rates, changes in third-party payors'
reimbursement policies and healthcare reform. The Company does not operate with
a significant backlog of customer orders, and therefore revenues in any quarter
are significantly dependent on orders received within that quarter. In addition,
the Company cannot predict ordering rates by distributors, some of whom place
infrequent stocking orders. The Company's expenses are relatively fixed and
difficult to adjust in response to fluctuating revenues. As a result of these
and other factors, the Company expects to continue to experience significant
fluctuations in quarterly operating results, and there can be no assurance that
the Company will be able to achieve or maintain profitability in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Reliance on Patents and Proprietary Technology; Risk of Patent
Infringement. While the Company owns certain issued and allowed U.S. patents
and has additional U.S. and foreign patent applications pending, there can be no
assurance that the Company's patent applications will issue as patents or that
any issued patents will provide competitive advantages for the Company's
products or will not be successfully challenged or circumvented by its
competitors. The interventional cardiovascular and peripheral vascular markets
in general and the market for balloon angioplasty catheters (including the type
of catheters offered by CVD) in particular has been characterized by substantial
litigation regarding patent and other intellectual property rights. There can be
no assurance that the Company's products do not infringe such patents or rights.
The Company recently received a notice of potential trademark infringement
regarding the Company's use of the term "focal" in connection with the Company's
balloon angioplasty technology and entered into an agreement which prohibits the
Company from using this term. The Company has since ceased any use thereof. In
the event that any parties assert claims against the Company for patent
infringement and such patents are upheld as valid and enforceable, the Company
could be prevented from utilizing the subject matter claimed in such patents, or
would be required to obtain licenses from the owners of any such patents or
redesign its products or processes to avoid infringement. There can be no
assurance that such licenses would be available or, if available, would be so on
terms acceptable to the Company or that the Company would be successful in any
attempt to redesign its products or processes to avoid infringement. In
addition, foreign intellectual property laws may not provide protection
commensurate with that provided by U.S. intellectual property laws, and there
can be no assurance that foreign intellectual property laws will adequately
protect the Company's intellectual property rights abroad. The Company also
relies on trade secrets and proprietary technology and enters into
confidentiality and non-disclosure agreements with its employees, consultants
and advisors. There can be no assurance that the confidentiality of such trade
secrets or proprietary information will be maintained by employees, consultants,
advisors or others, or that the Company's trade secrets or proprietary
technology will not otherwise become known or be independently developed by
competitors in such a manner that the Company has no practical recourse.
Litigation may be necessary to defend against claims of infringement or
invalidity, to enforce patents issued to the Company or to protect trade
secrets, and there can be no assurance that any such litigation would be
successful. Any litigation could result in substantial costs to, and diversion
of resources by, the Company and its officers, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Patents and Proprietary Information."

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Significant Competition. Competition in the market for devices used in the
treatment of cardiovascular and peripheral vascular disease is intense, and is
expected to increase. The interventional cardiology market is characterized by
rapid technological innovation and change, and the Company's products could be
rendered obsolete as a result of future innovations. The Company's catheters and
other products under development compete or will compete with products marketed
by a number of manufacturers, including Advanced Cardiovascular Systems, Inc., a
subsidiary of Guidant Corporation ("ACS"), SCIMED Life Systems, Inc., a
subsidiary of Boston Scientific Corporation ("SCIMED"), Johnson & Johnson
Interventional Systems ("JJIS") and Cordis Corporation, subsidiaries of Johnson
& Johnson, Medtronic, Inc., C.R. Bard, Inc. and Schneider USA, a subsidiary of
Pfizer, Inc. Such companies have significantly greater financial, management and
other resources, established market positions, and significantly larger sales
and marketing organizations than does the Company. The Company also faces
competition from manufacturers of other catheter-based devices, vascular stents
and pharmaceutical products intended to treat vascular disease. In addition, the
Company believes that many of the customers and potential customers of the
Company's products prefer to purchase catheter products from a single source.
Accordingly, many of the Company's competitors, because of their size and range
of product offerings, have a competitive advantage over the Company. There can
be no assurance that the Company's competitors will not succeed in developing or
marketing technologies or products that are more clinically effective or cost
effective than any that are being marketed or developed by the Company, or that
such competitors will not succeed in obtaining regulatory approval for
introducing or commercializing any such products prior to the Company. See
"Business -- Competition."

Limited Manufacturing Experience. The Company's success will depend in
part on its ability to manufacture its products in compliance with ISO 9001, the
FDA's Good Manufacturing Practices ("GMP") regulations, California Department of
Health Services ("CDHS") licensing and other regulatory requirements, in
sufficient quantities and on a timely basis, while maintaining product quality
and acceptable manufacturing costs. The Company began manufacturing certain of
its products at its facilities in July 1995. The Company has also introduced a
significant number of new products in 1996. Accordingly, the Company has very
limited experience in manufacturing its products. In addition, on July 15, 1996,
the Company entered into co-distribution agreements with Medtronic, Inc.
("Medtronic") which granted Medtronic certain non-exclusive rights to distribute
the Company's FACT, CAT and ARC catheters. Under the terms of these agreements,
if the Company is unable to meet its delivery obligations with respect to the
purchased catheters, up to 60% of the Company's manufacturing capacity will be
devoted to manufacturing such catheters for Medtronic. The Company has undergone
and expects to continue to undergo regular GMP inspections in connection with
the manufacture of its products at the Company's facilities. The Company's
success will depend, among other things, on its ability to efficiently manage
the simultaneous manufacture of different products and to integrate the
manufacture of new products with existing products. There can be no assurance
that the Company will not encounter difficulties in scaling up production of new
products, including problems involving production yields, quality control and
assurance, component supply and shortages of qualified personnel. The Company's
failure to successfully commence the manufacturing of these new products, or to
increase production volumes of new or existing products in a timely manner,
would materially adversely affect the Company's business, financial condition
and results of operations. Failure to increase production volumes in a timely or
cost-effective manner or to achieve or maintain compliance with ISO 9001, GMP
regulations, CDHS licensing or other regulatory requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The Company purchases many standard and custom built components from
independent suppliers and subcontracts certain manufacturing processes from
independent vendors. Most of these components and processes are available from
more than one vendor. However, certain manufacturing processes are currently
performed by single vendors. An interruption of performance by any of these
vendors could have a material adverse effect on the Company's ability to
manufacture its products until a new source of supply was qualified and, as a
result, could have an adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Manufacturing" and
"Business -- Government Regulation."

Potential Inability to Manage Growth. The Company has historically relied
on EndoSonics Corporation ("EndoSonics") to perform certain activities on its
behalf, including manufacturing, financial, regulatory and

7
<PAGE> 10

administrative functions. Since July 1995, CVD has conducted its manufacturing
operations at its facilities in Irvine and also currently performs the
financial, regulatory and administrative functions previously performed by
EndoSonics. Accordingly, the Company has experienced a period of significant
expansion of its operations that has placed a significant strain upon its
management systems and resources. The Company has recently implemented a number
of new financial and management controls, reporting systems and procedures. In
addition, the Company has recently hired a significant number of employees and
plans to further increase its total head count. The Company also plans to expand
the geographic scope of its customer base and operations. This expansion has
resulted and will continue to result in substantial demands on the Company's
management resources. The Company's ability to manage future expansion of its
operations will require the Company to continue to improve its financial and
management controls, reporting systems and procedures on a timely basis and to
expand, train and manage its employee work force. There can be no assurance that
the Company will be able to do so successfully. The failure to do so would have
a material adverse effect on the Company's business, financial condition and
results of operations.

Government Regulation. The manufacturing and marketing of the Company's
products are subject to extensive and rigorous government regulation in the
United States and in other countries. The Company believes that its success will
be significantly dependent upon commercial sales of improved versions of its
catheter products. The Company will not be able to market these new products in
the United States unless and until the Company obtains approval or clearance
from the FDA. Foreign and domestic regulatory approvals, if granted, may include
significant limitations on the indicated uses for which a product may be
marketed.

If a medical device manufacturer can establish that a newly developed
device is "substantially equivalent" to a legally marketed Class I or Class II
device, or to a Class III device that the FDA has not called for a premarket
approval ("PMA"), the manufacturer may seek clearance from the FDA to market the
device by filing a premarket notification with the FDA under Section 510(k) of
the Federal Food, Drug, and Cosmetic Act ("510(k)"). All of the 510(k)
clearances received for the Company's catheters were based on substantial
equivalence to legally marketed devices. There can be no assurance that 510(k)
clearance for any future product or significant modification of an existing
product will be granted or that the process will not be unduly lengthy. In
addition, if the FDA has concerns about the safety or effectiveness of any of
the Company's products, it could act to withdraw approval or clearances of those
products or request that the Company present additional data. Any such actions
would have a material adverse effect on the Company's business, financial
condition and results of operations.

If substantial equivalence cannot be established, or if the FDA determines
that the device or the particular application for the device requires a more
rigorous review to assure safety and effectiveness, the FDA will require that
the manufacturer submit a PMA application that must be reviewed and approved by
the FDA prior to sales and marketing of the device in the United States. The PMA
process is significantly more complex, expensive and time consuming than the
510(k) clearance process and always requires the submission of clinical data. It
is expected that certain of the Company's products under development will be
subject to this PMA process. The Company currently has a non-exclusive,
royalty-free right to submit PMA supplement applications utilizing an EndoSonics
PMA as a reference and to manufacture and distribute CVD products as a
supplement to the EndoSonics PMA. This agreement may be terminated in the event
of breach upon 60 days notice by the non-breaching party, subject to the
breaching party's right to cure. In the event of termination, the Company would
be prohibited from submitting new PMA supplements referencing the EndoSonics PMA
and would be required to seek independent FDA approval for any such products,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.

8
<PAGE> 11

Medical Device Reporting laws and regulations require that the Company provide
information to the FDA on deaths or serious injuries alleged to have been
associated with the use of its devices, as well as product malfunctions that
would likely cause or contribute to death or serious injury if the malfunction
were to recur. In addition, the FDA prohibits an approved device from being
marketed for unapproved applications. CVD has received FDA approval to market
the FACT catheters, which utilize the Focus technology, for coronary balloon
angioplasty. These catheters are marketed outside the United States for use in
stent deployment. However, without specific FDA approval for stent deployment,
these catheters may not be marketed by the Company in the United States for such
use.

Failure to comply with applicable regulatory requirements can, among other
consequences, result in fines, injunctions, civil penalties, suspensions or loss
of regulatory approvals, product recalls, seizure of products, operating
restrictions and criminal prosecution. In addition, government regulations may
be established in the future that could prevent or delay regulatory clearance or
approval of the Company's products. Delays in receipt of clearances or
approvals, failure to receive clearances or approvals or the loss of previously
received clearances or approvals would have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company is also subject to other federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices. The extent of government regulation that might
result from any future legislation or administrative action cannot be accurately
predicted. Failure to comply with regulatory requirements could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Products" and "Business -- Government Regulation."

International sales of the Company's products are subject to the
registration requirements of each country. The regulatory review process varies
from country to country and may in some cases require the submission of clinical
data. The Company typically relies on its distributors in such foreign countries
to obtain the requisite regulatory approvals. There can be no assurance,
however, that such approvals will be obtained on a timely basis or at all. In
addition, the FDA must approve the export to certain countries of devices that
require a PMA but are not yet approved domestically.

The Company is in the process of implementing policies and procedures which
are intended to allow the Company to receive ISO 9001 certification of its
quality system. The ISO 9000 series of standards for quality operations has been
developed to ensure that companies know the standards of quality to which they
must adhere to receive certification. The European Union has promulgated rules
which require that medical products receive by mid-1998 the right to affix the
CE mark, an international symbol of adherence to quality assurance standards and
compliance with applicable European medical device directives. ISO 9001
certification is one of the CE mark certification requirements. Failure to
receive the right to affix the CE mark will prevent the Company from selling its
products in member countries of the European Union. While the Company is in the
process of becoming ISO 9001 certified, there can be no assurance that the
Company will be successful in meeting these or any other certification
requirements on a timely basis, or at all.

Limited Marketing and Sales Resources; Dependence Upon Strategic
Partners. CVD intends to rely primarily on certain strategic relationships,
medical device distributors and its direct sales organization to distribute its
products. The Company's ability to distribute its products successfully depends
in part on the marketing capabilities of its strategic partners. In recent years
there has been significant consolidation among medical device suppliers as the
major suppliers have attempted to broaden their product lines in order to
respond to cost pressures from health care providers. This consolidation has
made it increasingly difficult for smaller suppliers, such as the Company, to
effectively distribute their products without a relationship with one or more of
the major suppliers. The Company is currently marketing certain of its products
through licensing agreements with SCIMED and ACS and through co-distribution
agreements with Medtronic. In addition, Fukuda Denshi Company, Ltd. ("Fukuda")
is the Company's exclusive distributor in Japan for certain of the Company's
products. Fukuda is also responsible for obtaining regulatory approval for the
Company's products in Japan. The Company's revenue from these relationships is
dependent upon the efforts made by such parties and there can be no assurance
that such efforts will be successful. There can be no assurance that the

9
<PAGE> 12

Company will be able to maintain or expand its relationships with its strategic
partners or to replace its strategic partners in the event any such relationship
were terminated. In the event of such a termination, the Company's ability to
distribute its products would be materially adversely affected, which would have
a material adverse effect on the Company's business, financial condition and
results of operations.

CVD currently has a limited marketing and sales staff. The Company intends
to expand its direct sales force to market the Company's products expansion.
However, there can be no assurance that CVD will successfully expand its direct
sales and marketing organization, or that if expanded, such organization will be
able to effectively distribute CVD's products. If CVD is unable to achieve
distribution of its products through its direct sales organization, the
Company's business, financial condition and results of operations would be
materially adversely affected.

The Company also has product development relationships with SCIMED and ACS.
SCIMED currently funds certain research and development efforts undertaken by
CVD in the area of combined drug delivery and coronary angioplasty. ACS conducts
development work on the Company's perfusion technology. If CVD is unable to
maintain its relationships with these or future strategic partners its product
development efforts could be materially adversely affected, which would
materially adversely affect the Company's business, financial condition and
results of operations. See "Business -- Marketing and Sales" and "Business --
Strategic Relationships."

Dependence Upon International Sales. The Company derives, and expects to
continue to derive, a significant portion of its revenue from international
sales. In 1995 and the nine months ended September 30, 1996, the Company's
international sales were $2.1 million and $2.6 million, respectively, or 59% and
44% respectively, of product sales. The Company expects to continue to derive
significant revenue from international sales and therefore a significant portion
of the Company's revenues will continue to be subject to the risks associated
with international sales, including economic or political instability, shipping
delays, changes in applicable regulatory policies, inadequate protection of
intellectual property, fluctuations in foreign currency exchange rates and
various trade restrictions, all of which could have a significant impact on the
Company's ability to deliver products on a competitive and timely basis. Future
imposition of, or significant increases in the level of, customs duties, import
quotas or other trade restrictions, could have an adverse effect on the
Company's business, financial condition and results of operation. In foreign
countries, the Company's products are subject to governmental review and
certification. The regulation of medical devices, particularly in the European
Union, continues to expand and there can be no assurance that new laws or
regulations will not have an adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

Limitations on Third-Party Reimbursement. In the United States, the
Company's products are purchased primarily by medical institutions, which then
bill various third-party payors, such as Medicare, Medicaid, and other
government programs and private insurance plans, for the health care services
provided to patients. Government agencies, private insurers and other payors
determine whether to provide coverage for a particular procedure and reimburse
hospitals for medical treatment at a fixed rate based on the diagnosis-related
group ("DRG") established by the U.S. Health Care Financing Administration
("HCFA"). The fixed rate of reimbursement is based on the procedure performed,
and is unrelated to the specific devices used in that procedure. If a procedure
is not covered by a DRG, payors may deny reimbursement. In addition, some payors
may deny reimbursement if they determine that the device used in a treatment was
unnecessary, inappropriate or not cost-effective, experimental or used for a
non-approved indication. Reimbursement of interventional procedures utilizing
the Company's products is currently covered under a DRG. There can be no
assurance that reimbursement for such procedures will continue to be available,
or that future reimbursement policies of payors will not adversely affect the
Company's ability to sell its products on a profitable basis. In addition,
reimbursement may be denied if the product use is not in accordance with
approved FDA labeling. Failure by hospitals and other users of the Company's
products to obtain reimbursement from third-party payors, or changes in
government and private third-party payors' policies toward reimbursement for
procedures employing the Company's products, would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Third-Party Reimbursement."

10
<PAGE> 13

Control by Existing Stockholder; Limitations on Pooling-of-Interests
Accounting in Merger Transactions. EndoSonics owns approximately 45% of the
Company's outstanding Common Stock. As a result, EndoSonics is able to elect at
least two members to the Company's five person board of directors and has the
ability to effectively control the Company and influence its affairs and the
conduct of its business. Such concentration of ownership may have the effect of
delaying, deferring or preventing a change in control of the Company. In
accordance with applicable accounting standards, the Company is prohibited from
accounting for a merger transaction, of or by the Company, as a
pooling-of-interests for a period of two years following June 25, 1996, the date
on which EndoSonics ceased to control 50% of the outstanding voting Common Stock
of the Company. As a result, any business combination consummated prior to the
expiration of such period would have to be accounted for using the purchase
method. Under the purchase method, the excess of the purchase price over the net
book value of the assets acquired would be amortized to expense, which could
result in a significant negative impact on the acquiror's results of operations
and, therefore, reduce the attractiveness of, or the price paid in, a particular
acquisition transaction.

EndoSonics has informed the Company that EndoSonics presently intends to
distribute or otherwise transfer to EndoSonics stockholders a portion of the CVD
shares it holds. While EndoSonics indicated that it may so distribute or
transfer up to a majority of the shares it holds, it also indicated that the
precise amount and timing of any such distribution or transfer will depend upon,
among other matters, an analysis of the tax consequences to EndoSonics and its
stockholders. Any such distribution or transfer may result in a change of
control of CVD. Notwithstanding EndoSonics' stated intent, EndoSonics is not
obligated to make any such distribution or transfer nor is it obligated to take
any action or refrain from taking any action with respect to the shares of CVD
which it holds. See "Certain Transactions."

Dependence Upon Key Personnel. The Company depends to a significant extent
upon key management and technical personnel. The Company's growth and future
success will depend in large part upon its ability to hire, motivate and retain
highly qualified personnel. Competition for such personnel is intense and there
can be no assurance that the Company will be successful in hiring, motivating or
retaining such qualified personnel. The loss of key personnel or the inability
to hire or retain qualified personnel could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Marketing and Sales," "Business -- Employees" and "Management."

Potential Product Liability; Limited Insurance. The Company faces the risk
of financial exposure to product liability claims. The Company's products are
often used in situations in which there is a high risk of serious injury or
death. Such risks will exist even with respect to those products that have
received, or in the future may receive, regulatory approval for commercial sale.
The Company is currently covered under a product liability insurance policy with
coverage limits of $2.0 million per occurrence and $2.0 million per year in the
aggregate. There can be no assurance that the Company's product liability
insurance is adequate or that such insurance coverage will remain available at
acceptable costs. There can be no assurance that the Company will not incur
significant product liability claims in the future. A successful claim brought
against the Company in excess of its insurance coverage could have a material
adverse effect on the Company's business, financial condition and results of
operations. Additionally, adverse product liability actions could negatively
affect the reputation and sales of the Company's products and the Company's
ability to obtain and maintain regulatory approval for its products and
substantially divert the time and effort of management away from the Company's
operations.

Volatility of Stock Price. Since the Company's initial public offering in
June 1996, the price of the Company's Common Stock has fluctuated significantly.
The Company believes that factors such as variations in quarterly results of
operations, any future litigation involving the Company, announcements of
technological innovations or new products by the Company or its competitors,
governmental regulatory action, other developments or disputes with respect to
proprietary rights, general trends in the industry and overall market
conditions, and other factors, could cause the price of the Company's Common
Stock to fluctuate, perhaps substantially. In addition, in recent years the
stock market in general, and the market for small capitalization stocks in
particular, has experienced extreme price fluctuations which have often been
unrelated to the operating performance of affected companies. Such fluctuations
could adversely affect the market price of the Company's Common Stock.

11
<PAGE> 14

Shares Eligible for Future Sale; Potential Adverse Effect on Market
Price. Sales of Common Stock in the public market during and after this
offering could adversely affect the market price of the Common Stock. As of
November 4, 1996, the Company had 8,934,858 shares outstanding. Including the
shares registered for sale hereby, 4,058,858 of these shares are freely tradable
without restriction. Beginning December 17, 1996, approximately 4,076,000
additional shares will be eligible for sale, including 3,240,000 shares held by
EndoSonics and 760,000 shares held by SCIMED. Sales of any such shares in the
public market could adversely affect the market price of the Common Stock. The
Company has also registered 1,200,000 shares of Common Stock reserved for
issuance under the Company's 1996 Stock Option/Stock Issuance Plan and 200,000
shares under the Company's Employee Stock Purchase Plan. As of November 4, 1996,
there were outstanding options under the Company's stock option plans to acquire
1,162,000 shares, all of which are subject to lock-up agreements which expire on
December 16, 1996. After the expiration of the lock-up period, SCIMED will be
entitled to certain demand and piggyback registration rights with respect to its
shares. If SCIMED, by exercising its demand registration rights, causes a large
number of shares to be registered and sold in the public market, such sales
could have an adverse effect on the market price for the Common Stock. If the
Company were required to include in a Company-initiated registration shares held
by SCIMED pursuant to the exercise of its piggyback registration rights, such
sales may have an adverse effect on the Company's ability to raise needed
capital. See "Shares Eligible for Future Sale."

Effect of Certain Charter Provisions; Anti-takeover Effects of Certificate
of Incorporation, Bylaws and Delaware Law. The Company's Board of Directors has
the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions, including
voting rights, of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The issuance of Preferred Stock could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock of the Company. In addition, the Company is subject
to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which will prohibit the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
The application of Section 203 also could have the effect of delaying or
preventing a change of control of the Company. Further, certain provisions of
the Company's Certificate of Incorporation and Bylaws and of Delaware law could
delay or make more difficult a merger, tender offer or proxy contest involving
the Company, which could adversely affect the market price of the Company's
Common Stock. See "Description of Capital Stock."

Absence of Dividends. The Company has never paid any cash dividends on the
Common Stock and does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. Purchasers of the Common Stock offered hereby
will incur immediate substantial dilution in the net tangible book value per
share of Common Stock. See "Dividend Policy."

12
<PAGE> 15

THE COMPANY

The Company was originally incorporated in California in March 1992 and
became a Delaware corporation in June 1993 after being acquired by EndoSonics.
The Company's principal executive offices are located at 13900 Alton Parkway,
Suite 122, Irvine, California 92718 and its telephone number is (714) 457-9546.

USE OF PROCEEDS

The Company will receive no proceeds from this offering. The Shares offered
hereby may be sold by the Selling Stockholders from time to time in transactions
in the over-the-counter market, in negotiated transactions, or a combination of
such methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices related to prevailing market prices or
at negotiated prices. The Selling Stockholders may effect such transactions by
selling the Shares to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).

In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.

The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit on the resale of the Shares purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.

Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares may not simultaneously engage in
market making activities with respect to the Common Stock of the Company for a
period of two business days prior to the commencement of such distribution. In
addition and without limiting the foregoing, each Selling Stockholder will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Selling Stockholders.

Of the Shares, 86,358 were originally issued to former stockholders of IDI
in connection with the statutory merger of IDI with and into IDI Acquisition
Corporation, a wholly-owned subsidiary of the Company, pursuant to an exemption
from the registration requirements of the Securities Act provided by Section
4(2) thereof. The remaining 62,500 Shares were originally issued to Fukuda upon
conversion of a $750,000 convertible obligation. The Company agreed to register
the Shares under the Securities Act and to indemnify and hold the Selling
Stockholders harmless against certain liabilities under the Securities Act that
could arise in connection with the sale by the Selling Stockholders of the
Shares. The Company has agreed to pay all reasonable fees and expenses incident
to the filing of this Registration Statement.

DIVIDEND POLICY

The Company has not paid dividends since its inception. The Company
currently intends to retain all earnings, if any, for use in the expansion of
its business and therefore does not anticipate paying any dividends in the
foreseeable future.

13
<PAGE> 16

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
the Company's Financial Statements and Notes thereto and with Management's
Discussion and Analysis of Financial Condition and Results of Operations, which
are included elsewhere in this Prospectus. The statement of operations data for
the years ended December 31, 1993, 1994 and 1995, and the balance sheet data at
December 31, 1994 and 1995, are derived from financial statements that have been
audited by Ernst & Young LLP, independent auditors, included elsewhere in this
Prospectus. The balance sheet data at December 31, 1992 and 1993 and the
statement of operations data for the period from March 16, 1992 (inception) to
December 31, 1992 are derived from audited financial statements not included in
this Prospectus. The statement of operations data for the nine month periods
ended September 30, 1995 and 1996, and the balance sheet data at September 30,
1996 are derived from unaudited financial statements included elsewhere in this
Prospectus and include, in the opinion of the Company, all adjustments
consisting of only normal recurring adjustments necessary for a fair
presentation of the Company's results of operations for those periods and
financial position at that date. The Company has not paid dividends since its
inception. The results for the nine month period ended September 30, 1996 are
not necessarily indicative of the results to be obtained in any future period.

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 16, 1992 NINE MONTHS ENDED
(DATE OF YEAR ENDED DECEMBER 31, SEPTEMBER 30,
INCEPTION) TO ----------------------------- -------------------
DECEMBER 31, 1992(1) 1993(1) 1994 1995 1995 1996
-------------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Sales............................... $ -- $ 126 $ 1,169 $ 3,462 $ 2,156 $ 5,836
License fee and other from related
party............................. -- -- 1,220 641 230 200
Contract............................ -- -- -- -- 412 150
---- ------- ------- ------- ------- -------
Total revenue.......................... -- 126 2,389 4,103 2,798 6,186
Costs and expenses:
Cost of sales....................... -- 79 848 2,051 1,143 3,136
Charge for acquired in-process
research and development(2)....... -- 2,001 -- 488 488 --
Research and development............ 294 734 1,228 1,683 1,420 2,610
Marketing and sales................. -- 94 748 1,526 1,120 2,094
General and administrative.......... 29 96 587 1,331 982 922
---- ------- ------- ------- ------- -------
Total operating costs and expenses..... 323 3,004 3,411 7,079 5,153 8,762
---- ------- ------- ------- ------- -------
Loss from operations................... (323) (2,878) (1,022) (2,976) (2,355) (2,576)
Other income........................... 10 29 51 102 77 731
---- ------- ------- ------- ------- -------
Net loss............................... $ (313) $(2,849) $ (971) $(2,874) $(2,278) $ (1,845)
==== ======= ======= ======= ======= =======
Pro forma net loss per share(3)........ $ (0.25) $ (0.65) $ (0.51) $ (0.29)
======= ======= ======= =======
Shares used in computing pro forma net
loss per share(3)................... 3,876 4,441 4,433 6,462
======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996
-------------------- ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................... $ 650 $ 547 $ 3,379 $ 1,568 $47,377
Working capital (deficit).......... 583 (75) 1,366 (774) 47,440
Total assets....................... 678 690 4,340 4,002 52,991
Convertible obligation............. -- -- -- 750 750
Accumulated deficit................ (313) (2,580) (3,551) (6,425) (8,270)
Total stockholders' equity (net
capital deficiency)............. 607 (241) 1,288 (1,098) 47,989
</TABLE>

(3) See Note 1 of Notes to Financial Statements for information regarding the
calculation of pro forma net loss per share.

14
<PAGE> 17

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

This Prospectus contains certain forward-looking statements. The Company's
actual results may differ materially from those described in the forward-looking
statements. Investors should carefully consider the information set forth under
the heading "Risk Factors" in addition to the other information contained in
this Prospectus before purchasing the Common Stock offered hereby.

OVERVIEW

CVD designs, develops, manufactures and markets catheters used to treat
certain vascular diseases. The Company's patented catheters utilize its Focus
and M(3) technologies to deliver therapeutic radial pressure, stents, drugs or
contrast media and improved blood flow during angioplasty and stent placement
procedures. To date, the majority of the Company's revenue has been derived from
sales of its angioplasty and angioplasty-related catheters.

From inception (March 16, 1992) through the first quarter of 1994, the
Company operations were limited and consisted primarily of research and
development and other start-up activities. On June 15, 1992, EndoSonics acquired
a 40% interest in CVD in exchange for $0.5 million in cash. Pursuant to an
Agreement and Plan of Reorganization between EndoSonics and CVD signed on June
9, 1993, EndoSonics acquired all of the outstanding capital stock of CVD in
exchange for $0.3 million in cash and 250,000 shares of EndoSonics' Common Stock
with an aggregate market value of $1.6 million. The acquisition by EndoSonics
resulted in a new basis for CVD's assets and liabilities. Accordingly, the
purchase price paid by EndoSonics has been allocated to CVD's identifiable
assets and liabilities, including $2.0 million to acquired in-process research
and development, which was immediately expensed, as no CVD products had received
regulatory approval and the technology did not have alternative future uses.
Pursuant to the terms of the Agreement and Plan of Reorganization, in June 1995,
EndoSonics became obligated to issue 50,000 shares of its Common Stock with an
aggregate market value of $0.5 million, to the former shareholders of CVD
because the market price of EndoSonics' stock did not exceed a specified price
for a specified period during the two-year period following the acquisition. The
fair value of such shares was charged to acquired in-process technology. In
March 1996, EndoSonics purchased 400,000 shares of CVD's Series B Preferred
Stock for a purchase price of $8.0 million, which converted into 800,000 shares
of Common Stock upon the consummation of the initial public offering. See
"Certain Transactions -- Relationship with EndoSonics Corporation."

In September 1994, CVD and SCIMED entered into a Stock Purchase and
Technology License Agreement to develop and license CVD's patented combination
balloon angioplasty/site-specific drug delivery technology (the Transport
product line) for use in the coronary vessels. Through September 30, 1996 the
Company had received in the aggregate approximately $2.2 million in license
fees, research and development funding and technical assistance from SCIMED
under this agreement. SCIMED also purchased a 19% equity position in the Company
for a purchase price of $2.5 million. See "Business -- Strategic Relationships."

In January 1995, the Company and ACS entered into an agreement pursuant to
which the Company acquired certain rights to ACS' SmartNeedle Technology,
subject to the payment of certain royalties. The parties subsequently confirmed
their understanding with respect to certain matters in a second agreement dated
March 4, 1996 (collectively, the "ACS Agreements"). Pursuant to the ACS
Agreements, ACS was granted the option to acquire the exclusive worldwide rights
to certain CVD perfusion technology, which ACS exercised on February 14, 1996.
In exchange for this perfusion technology, ACS is obligated to make milestone
and minimum annual royalty payments to CVD, and also has certain obligations to
develop and market the perfusion technology. Through September 30, 1996 the
Company had received approximately $0.35 million in milestone payments under the
ACS Agreements. See "Business -- Strategic Relationships."

The Company currently sells its products through a combination of medical
device distributors and a limited number of direct sales personnel. The Company
is a party to three agreements for the U.S. distribution of products
incorporating its Focus and M(3) technologies. CVD distributes certain products
in Japan through an exclusive distribution agreement with Fukuda. CVD also has
distribution agreements with 25 companies covering 41 countries outside the
United States and Japan. See "Business -- Strategic Relationships."

15
<PAGE> 18

On July 15, 1996, CVD and Medtronic, Inc. entered into agreements providing
for the co-distribution by Medtronic of the Company's balloon angioplasty
catheters. These catheters employ the Company's patented Focus Technology. Under
the agreements, Medtronic will purchase a minimum number of angioplasty
catheters manufactured by the Company for distribution worldwide for a period of
up to three years. If the Company is unable to meet its delivery obligations
with respect to the purchased catheters, up to 60% of the Company's
manufacturing capacity will be devoted to manufacturing such catheters for
Medtronic. Specific products to be distributed by Medtronic will differ in
individual country markets. The Company will continue to sell Focus Technology
products through its own direct and indirect sales force network. These products
are currently sold under the names, FACT, CAT and ARC. See
"Business -- Strategic Relationships."

Based on the Company's limited operations in 1993, the Company believes
that a year-to-year comparison of 1994 to 1993 is not meaningful and has not
included such a comparison in the discussion that follows.

RESULTS OF OPERATIONS

Years Ended December 31, 1994 and December 31, 1995

Sales Revenue. Sales revenue increased to $3.5 million in 1995 from $1.2
million in 1994, representing an increase of 196%. Sales revenue in 1994
resulted primarily from sales of the Company's Transport products, which were
subsequently licensed to SCIMED in 1995. The Company no longer receives sales
revenue for the Transport. Sales revenue in 1995 was due to sales of the
Company's CAT catheter, which was introduced in the first quarter of 1995, and
sales of the SmartNeedle vascular access products beginning in the second
quarter of 1995. Sales of products in Japan through the Company's exclusive
distribution relationship with Fukuda accounted for 18% of the Company's revenue
in 1995. In addition, sales to JJIS accounted for 12% of the Company's revenue
in 1995.

License Fee and Other Revenue from Related Party. License fee and other
revenue represents amounts earned under the aforementioned agreement with
SCIMED. The 1994 amount consists of a $1.0 million license fee and $0.2 million
of development and other revenue. The 1995 amount consists of $0.6 million of
development and other revenue. Future revenue under this agreement will be
derived primarily from royalties earned on SCIMED's sales of the Transport.

Cost of Sales. Cost of sales increased to $2.1 million in 1995 from $0.8
million in 1994, representing an increase of 142%. This increase resulted
primarily from increased manufacturing volumes related to increased product
sales. In July 1995, the Company transferred its product manufacturing from
EndoSonics' facility to the Company's facility in Irvine, California.

Charge for Acquired In-process Research and Development. The Company
incurred a charge of $0.5 million in 1995 in connection with the 1995 payment by
EndoSonics of additional consideration related to the original acquisition by
EndoSonics of CVD stock. This portion of the excess of the purchase price of CVD
over the fair market value of the net assets acquired was recorded as in-process
research and development. The acquired in-process research and development was
immediately written off as CVD was in the development stage and had not yet
received regulatory approval for any of its products at the time of the
acquisition.

Research and Development. Research and development expenses increased to
$1.7 million in 1995 compared to $1.2 million in 1994, representing an increase
of 37%. This increase was due primarily to increased expenditures related to
development of the Company's Focus and M(3) technology products. These expenses
also increased due to clinical trials and studies related to the Focus
technology products. The Company believes that it must maintain a substantial
commitment to research and development to remain competitive and expects
expenditures related to research and development to increase.

Marketing and Sales. Marketing and sales expenses increased to $1.5
million in 1995 from $0.7 million in 1994, representing an increase of 104%.
This increase resulted from the development and expansion of the Company's U.S.
sales organization and marketing expenses related to the product launch of the
SmartNeedle

16
<PAGE> 19

products. The Company expects to expand its marketing and sales force and
expects expenses associated with marketing and sales to increase in the future.

General and Administrative. General and administrative expenses increased
to $1.3 million in 1995 from $0.6 million in 1994, representing an increase of
127%. This increase resulted from expenses incurred as the Company commenced
operations as an independent entity, rather than as a division of EndoSonics,
and included the addition of a full-time Chief Executive Officer, increased
legal and accounting expenses, increased support staff and increased travel
expenses.

Other Income. Total other income remained relatively constant from 1994 to
1995.

Nine Months Ended September 30, 1995 and September 30, 1996

Sales Revenue. Sales revenue increased to $5.8 million in the nine months
ended September 30, 1996 from $2.2 million in the nine months ended September
30, 1995, representing increased sales of the Company's Focus catheters, and the
introduction of additional products. Sales of products in Japan through the
Company's exclusive distribution relationship with Fukuda accounted for 21% of
total product sales in the nine months ended September 30, 1996.

License Fee and Other Revenue. License fee and other revenue from SCIMED
remained constant at $0.2 million in both the nine months ended September 30,
1996 and 1995.

Contract Revenue. Contract revenue was $0.2 million and $0.4 million in
the nine months ended September 30, 1996 and September 30, 1995, respectively.

Cost of Sales. Cost of sales increased to $3.1 million in the nine months
ended September 30, 1996 from $1.1 million in the comparable period in 1995.
This increase resulted primarily from increased manufacturing volumes related to
increased product sales. In July 1995, the Company transferred its product
manufacturing from EndoSonics' facility to the Company's facility in Irvine,
California.

Research and Development. Research and development increased to $2.6
million in the nine months ended September 30, 1996 compared to $1.4 million in
the nine months ended September 30, 1995, representing an increase of 84%. This
increase resulted primarily from expenditures on the development of vascular
access and Focus technology products. The Company believes it must maintain a
substantial commitment to research and development to remain competitive and
expects expenditures related to research and development to increase.

Marketing and Sales. Marketing and sales increased to $2.1 million in the
nine months ended September 30, 1996 from $1.1 million in the comparable period
in 1995, representing an increase of 87%. This increase resulted mainly from the
expansion of the Company's direct sales force in the United States and marketing
expenses related to the product launch of the FACT catheter. The Company expects
to expand its marketing and sales resources and expects expenses associated with
these activities to increase in the future.

General and Administrative. General and administrative expenses remained
unchanged at approximately $1.0 million in both the nine months ended September
30, 1996 and 1995.

Other Income. Other income, principally interest income, increased to $0.7
million in the nine months ended September 30, 1996 from $0.1 million in the
comparable period in 1995. This increase resulted from the investment of the net
proceeds of the Company's initial public offering which amounted to
approximately $42.8 million.

The Company has experienced an operating loss for each of the last three
years. The Company expects to continue to incur operating losses through at
least 1997 and there can be no assurance that the Company will ever be able to
achieve or sustain profitability in the future. CVD's results of operations have
varied significantly from quarter to quarter. Quarterly operating results will
depend upon several factors, including the timing and amount of expenses
associated with expanding the Company's operations, the conduct of clinical
trials and the timing of regulatory approvals, new product introductions both in
the United States and internationally, the mix between pilot production of new
products and full-scale manufacturing of existing

17
<PAGE> 20

products, the mix between domestic and export sales, variations in foreign
exchange rates, changes in third-party payors' reimbursement policies and
healthcare reform. The Company does not operate with a significant backlog of
customer orders, and therefore revenues in any quarter are significantly
dependent on orders received within that quarter. In addition, the Company
cannot predict ordering rates by distributors, some of whom place infrequent
stocking orders. The Company's expenses are relatively fixed and difficult to
adjust in response to fluctuating revenues. As a result of these and other
factors, the Company expects to continue to experience significant fluctuations
in quarterly operating results, and there can be no assurance that the Company
will be able to achieve or maintain profitability in the future.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its operations primarily from the
sale of its equity securities, advances from EndoSonics, licensing its
technologies and through international product distribution agreements. Prior to
the Company's initial public offering, the Company had raised in aggregate of
approximately $11.4 million from the private sales of preferred and common stock
and $2.7 million in working capital from EndoSonics. The Company repaid
EndoSonics during the third quarter of 1996. In the third quarter of 1996, the
Company closed its initial public offering of common stock, resulting in net
offering proceeds of $42.8 million after deducting underwriting discounts and
commissions and other expenses of the offering. For the years ended December 31,
1995, and 1994, the Company's net cash used in operating activities was $2.1
million and $1.5 million, respectively. For the nine months ended September 30,
1996, the Company's net cash used in operating activities was $1.5 million, as
compared to $1.4 million for the same period of 1995. These increases were
primarily due to funding of operating losses.

On September 30, 1996, CVD had cash and cash equivalents of $47.4 million.
The Company expects to incur substantial costs related to, among other things,
clinical testing, product development, marketing and sales expenses, and
increased working capital, prior to achieving positive cash flow from
operations. The Company anticipates that its existing capital resources will be
sufficient to fund its operations through 1997. CVD's future capital
requirements will depend on many factors, including its research and development
programs, the scope and results of clinical trials, the regulatory approval
process, the costs involved in intellectual property rights enforcement or
litigation, competitive products, the establishment of manufacturing capacity,
the establishment of sales and marketing capabilities, and the establishment of
collaborative relationships with other parties. The Company may need to raise
funds through additional financings, including private or public equity
offerings and collaborative arrangements with existing or new corporate
partners. There can be no assurance that funds will be raised on favorable
terms, or at all. If adequate funds are not available, the Company may be
required to delay, scale back or eliminate one or more of its development
programs or obtain funds through arrangements with collaborative partners or
others that may require the Company to grant rights to certain technologies or
products that the Company would not otherwise grant.

18
<PAGE> 21

BUSINESS

OVERVIEW

CardioVascular Dynamics, Inc. ("CVD" or the "Company") designs, develops,
manufactures and markets catheters used to treat certain vascular diseases. The
Company's catheters are used in conjunction with angioplasty and other
interventional procedures such as vascular stenting and drug delivery. The
Company's proprietary Focus and Multiple Microporous Membrane ("M(3)")
technologies enable physicians to deliver therapeutic radial force, stents,
drugs or contrast media accurately and effectively to the treatment site, and
also allow the perfusion of blood during an interventional procedure. The
Company believes that the combination of these technologies on a multiple
purpose catheter enables physicians to more effectively perform challenging
interventional procedures, which may result in improved treatment outcomes and
lower costs. The Company's catheters are designed to address three principal
challenges facing cardiologists: restenosis of a treated vessel, chronic total
occlusions and acute reclosure of a vessel during or soon after a procedure. The
Company has ten issued U.S. patents covering certain aspects of its catheter
technologies.

INDUSTRY BACKGROUND

Cardiovascular disease, the leading cause of death in the United States, is
caused principally by atherosclerosis. Atherosclerosis is a progressive and
degenerative vascular disease in which cholesterol and other fatty materials are
deposited on the walls of blood vessels, forming a build-up known as plaque. The
accumulation of plaque narrows the interior of the blood vessels, thereby
reducing blood flow. Atherosclerosis in the coronary arteries can lead to heart
attack and death. In peripheral vessels, atherosclerosis can lead to decreased
mobility, loss of function and other complications of the affected limb.

Traditional treatments for atherosclerosis include drug therapy and
open-heart bypass surgery. Currently available drug therapies may alleviate some
of the symptoms of atherosclerosis but may be ineffective with severe disease
and may cause adverse side effects. Traditional open-heart bypass surgery
involves opening a patient's chest, cutting through the sternum, connecting the
patient to a heart/lung machine and grafting a blood vessel to redirect blood
flow around the occluded portion of an artery. Such a procedure is costly and
generally requires up to a week of hospitalization and an extensive recovery
period. In addition, certain companies are developing methods and devices for
performing bypass surgery using minimally invasive techniques.

The need for less invasive and less costly treatments for atherosclerosis
has led to the development of minimally invasive catheter-based treatments such
as balloon angioplasty ("PTCA" in the coronary arteries and "PTA" in the
peripheral arteries), atherectomy and laser angioplasty. These treatments
involve making a small incision in a patient's leg to access an artery and
inserting a catheter. Balloon angioplasty is a procedure in which a
balloon-tipped catheter is guided to the lesion (the site of the plaque) and
then inflated and deflated several times, delivering therapeutic radial force,
which cracks or reshapes the plaque and increases blood flow. Balloons used to
perform such procedures are characterized by their response to pressure as
either compliant (balloon diameter increases with increased pressure) or
non-compliant (balloon diameter remains relatively constant with increasing
pressure). Conventional balloon technology only allows the balloon to expand to
a single, uniform diameter along the length of the balloon. Because of
variations in vessel diameters at the lesion site, multiple catheters are often
required to treat a single lesion. In addition, conventional catheter
technologies often are unable to limit the delivery of therapeutic radial force
specifically to the lesion site and may damage the adjacent vessel wall.
Conventional catheter technology also interrupts blood flow when the balloon is
inflated, which may cause tissue damage, heart attack or death, particularly if
the balloon inflation required is of significant duration. Existing catheters
that do not perfuse blood require cardiologists to inflate and deflate the
balloon multiple times which may reduce the clinical effectiveness of the
treatment. Other treatments include the use of atherectomy catheters, which cut
or grind away the plaque, and laser angioplasty catheters, which deliver laser
energy to break down the plaque.

19
<PAGE> 22

experience restenosis (generally defined as a 50% or greater reduction in the
lumen, or interior, diameter of the treated vessel at the lesion site). In
addition, studies show that 5% to 8% of elective coronary balloon angioplasty
patients may experience acute reclosure of the treated vessel. Acute reclosure
is an increase in the severity of the vessel closure accompanied by a reduction
in blood flow within the vessel as a consequence of the intervention which
occurs within 24 hours of the procedure. A study has also indicated that
angioplasty of chronic total occlusions represents 10% to 20% of all coronary
angioplasty procedures. A chronic total occlusion is a complete blockage of the
vessel preventing blood flow beyond the lesion site. The Company believes that
these challenges are inadequately addressed with existing, single function,
uniform diameter angioplasty balloons. However, while the Company believes that
its products address certain disadvantages of existing catheter technology,
limitations remain in the use of balloon angioplasty to treat atherosclerosis.
The Company's products may not be suitable for the treatment of all forms of
atherosclerosis. For example, in many cases the existence of a total occlusion
limits treatment options to bypass surgery.

Coronary stents have recently emerged as an additional minimally invasive
device for the treatment of atherosclerosis. Stents were used initially for
treating failed angioplasty procedures and acute or threatened vessel closures.
However, improved techniques for the deployment and assessment of stents,
changes in accompanying drug therapy and advancements in stent technology have
led to the increased use of stents to treat restenosis. After an angioplasty,
atherectomy or other catheter-based treatment, a stent, which is a small metal
prostheses, is then advanced along a guidewire to the desired position, expanded
against the inside of the vessel wall and left in place. While certain stents
are self-expanding, most are deployed through the expansion of a compliant or
semi-compliant balloon. Following this deployment, physicians have increasingly
adopted the technique of using a second, high pressure non-compliant balloon to
further expand the stent. Despite advancements in stent technology, existing
compliant or semi-compliant balloons used for stent delivery are designed to
achieve a uniform diameter along the length of the balloon, and their use may
result in sub-optimal stent deployment or damage of the vessel adjacent to the
lesion.

Although there continue to be significant technological and clinical
advances in the treatment of cardiovascular disease, challenges remain in
cost-effectively treating certain conditions, including restenosis of a treated
vessel, chronic total occlusions and acute reclosure of a vessel during or soon
after a procedure. The Company believes that these challenges are inadequately
addressed with existing, single function, uniform diameter angioplasty balloons.

THE CARDIOVASCULAR DYNAMICS SOLUTION

CVD has utilized its core proprietary technologies to develop catheters
that provide clinical and cost benefits in the treatment of vascular disease.
The Company's proprietary Focus and M(3) technologies, which may be utilized
alone or in combinations on a single catheter, enable physicians to deliver
therapeutic radial force, stents, drugs or contrast media accurately to the
treatment site, and also allow the perfusion of blood during an interventional
procedure. The Company believes that the combination of these technologies on a
single catheter enables physicians to cost-effectively treat vascular diseases
by reducing the cost of those procedures that require more than one catheter.

The Company's patented Focus technology combines compliant and
non-compliant balloon materials on a single catheter, creating a balloon that
has an adjustable, larger center diameter with fixed, smaller diameters at each
end. These characteristics allow a single balloon to expand to multiple
diameters, enabling the physician to perform interventional procedures in
vessels of varying diameters and anatomical locations. In particular, the Focus
technology enables cardiologists to incrementally increase the angioplasty
balloon's center diameter during a procedure to enhance the effectiveness of the
treatment in vessels that have uncertain or varying diameters or irregular
plaque deposits. Use of conventional catheter technology in these situations may
require multiple catheters to achieve a similar outcome. The Focus technology
may also reduce the incidental damage to the artery wall adjacent to the lesion,
as the therapeutic radial force is applied more accurately to the treatment
site.

The Company's proprietary M(3) technology combines multiple membranes of
polymeric balloon material to form a single balloon that enables the accurate
delivery of drugs or contrast agents to the lesion or thrombus

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<PAGE> 23

site. Drugs are utilized by cardiologists to reduce the occurrence of restenosis
and acute reclosure, and to dissolve blood clots. Typically, therapeutic drug
delivery is accomplished by means of an intravenous injection, a method that
requires larger amounts of drug than is clinically required because the drug is
diffused throughout the body. The accurate delivery of drugs to the treatment
site may enhance the effectiveness of these pharmacological agents, thereby
reducing the quantity of drug required to achieve an acceptable clinical outcome
and potentially reducing the incidence of acute reclosure and restenosis. In
addition, the Company has developed M(3) catheters with multiple inner lumens,
providing the cardiologist with flexibility in drug treatment regimens. The
multiple lumens of the catheter may also be used to deliver contrast media for
angiographic viewing when advancing a catheter along a totally occluded vessel.
Traditional catheters must be removed to inject contrast media into a total
occlusion. Finally, the M(3) technology can be utilized to provide perfusion of
blood during an interventional procedure. The interruption in blood flow caused
by a conventional angioplasty balloon may cause tissue damage, heart attack or
death, particularly if the balloon inflation required is of significant
duration. Existing catheters that do not perfuse blood require cardiologists to
inflate and deflate the balloon multiple times for shorter periods which may
reduce the clinical effectiveness of the treatment.

STRATEGY

The Company's objective is to be a leader in the design, development and
commercialization of clinically effective solutions for certain vascular
diseases. While there can be no assurance that the Company will achieve this
objective, following are the key elements of CVD's strategy.

Maintain Technological Leadership and Product Technology
Advantages. CVD's strategy is to be a technological leader in the
treatment of vascular diseases through product innovation. The Company
believes that its products have significant performance advantages over
alternative catheter technologies. The Company intends to maintain and
advance its position of technology leadership through aggressive research,
development and clinical testing programs. The Company owns ten issued U.S.
patents related to key aspects of its catheter technologies and has applied
for additional U.S. patents as well as foreign patent protection.

Market Products through Independent Distributors and a Direct
Salesforce. The Company currently markets its products through a
combination of independent distributors and a dedicated salesforce. The
Company currently employs eighteen direct sales people, fourteen of whom
operate in the United States, and four of whom operate internationally. The
Company plans to significantly expand its direct sales force over the next
eighteen months. CVD utilizes independent distributors internationally and
in selected U.S. markets. In addition, the Company entered into
co-distribution agreements with Medtronic, under which Medtronic will
purchase a minimum number of the Company's angioplasty catheters for
distribution worldwide for a period of up to three years.

Establish Relationships with Clinical Opinion Leaders. The Company
believes that establishing relationships with clinical opinion leaders in
the field of interventional cardiology may raise the awareness of the
clinical and cost benefits of the Company's products. CVD is currently
conducting or planning two post-marketing clinical studies with certain of
such leaders. In addition, the Company consults with certain cardiologists
who assist the Company in ongoing product and technology development.

Target International Markets. CVD seeks to commercialize its products
in those international markets where regulatory approval can be obtained
more quickly than in the United States. This enables CVD to generate
revenue more quickly from its product development efforts, to fund its
operations and increase awareness of its products within the international
interventional cardiology community.

Establish Strategic Partnerships. The Company attempts to identify
and evaluate potential strategic relationships where such relationships may
complement and expand the Company's research, development, sales and
marketing capabilities. The Company believes that such strategic
relationships may facilitate the market acceptance of the Company's
products.

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<PAGE> 24

PRODUCTS

Catheter Products

The Company has utilized its Focus and M(3) technologies to develop
catheter products that address the challenges physicians experience in treating
vascular diseases. These technologies are available in various combinations on a
multiple-purpose catheter, thereby enabling physicians to cost-effectively treat
vascular disease. The Company's products are designed to be low profile (small,
uninflated diameter), enabling cardiologists to advance them along narrow
vessels, and flexible and trackable, enabling cardiologists to advance and
control them accurately within the vasculature.

The following table lists CVD's currently marketed products:

<TABLE>
<CAPTION>
FIRST
PRODUCTS INTENDED APPLICATIONS U.S. REGULATORY STATUS COMMERCIAL SALE
- ------------------------- -------------------------- ------------------------ ---------------
<S> <C> <C> <C>
Focus Catheters
ARC
Over-the-wire design PTCA PMA Supplement Approved Q3 1996
CAT/CAT 15
Rail design PTCA or Stent Delivery(2) N/A(1) Q1 1995
Over-the-wire design PTCA PMA Supplement Q1 1996
FACT/FACT 15
Over-the-wire design Stent Delivery(2) Approved
Focus
Over-the-wire design PTA 510(k) Clearance Q3 1995
M(3) Catheters
Bullett Hi-Flo
Over-the-wire design Total Occlusion 510(k) Clearance Q2 1996
Drug Delivery
(coronary)
Bullett F/X
Rail design Total Occlusion 510(k) Clearance Q2 1996
Drug Delivery
(coronary)
Periflow Small Vessel
Over-the-wire design PTA/Drug Delivery 510(k) Clearance Q1 1996
</TABLE>

- ---------------

(1) Available only outside the United States due to patent restrictions.

(2) Not approved in the United States for stent delivery. The marketing of this
product in the United States for such use will require the Company to
obtain a PMA supplement approval. The Company is not currently seeking such
approval.

Focus Catheters. The Company's Focus products have a catheter balloon that
has an adjustable, larger center diameter and smaller, fixed, distal and
proximal diameters. This characteristic provides increased utility in a variety
of therapeutic treatments and anatomical locations. Existing uniform diameter
catheters require cardiologists to use multiple balloons to treat vessels of
varying diameters, resulting in unnecessary costs. In

22
<PAGE> 25

addition, the Focus catheters may deliver stents more effectively by focusing
the radial deployment force on the stented section, rather than along the entire
balloon, which may reduce the damage to the adjacent vessel.

M(3) Catheters. The Company's M(3) catheters offer cardiologists the
ability to deliver drugs or contrast media to the treatment site accurately, and
enable the perfusion of blood during angioplasty procedures. These capabilities
may be combined on an interventional catheter to provide cardiologists the
functionality of multiple catheters, in a single, cost-effective device. The
accurate delivery of drugs to the treatment site may enhance the effectiveness
of these pharmacological agents and may reduce the quantity of drug required to
achieve an acceptable outcome. Drugs are utilized by cardiologists to reduce the
occurrence of restenosis and acute reclosure, and to dissolve blood clots.
Typically, therapeutic drug delivery is accomplished by means of an intravenous
injection, a method that requires larger amounts of drug than is clinically
required because the drug is diffused throughout the body. The Company's M(3)
technology enables cardiologists to deliver drugs directly to the treatment site
through a catheter's lumen, or interior channel. While CVD's M(3) site-specific
drug delivery catheters are currently marketed internationally, they can only be
used in the United States to administer drugs specifically approved by the FDA
for administration by such catheters. The multiple lumens of the catheter may
also be used to deliver contrast media for angiographic viewing when advancing
the catheter along a totally occluded vessel. Traditional catheters must be
removed to inject contrast media into a total occlusion. Finally, the M(3)
technology can be utilized to provide perfusion of blood during an
interventional procedure. This perfusion capability allows the balloon to be
inflated for longer durations and reduces the number of inflations and
deflations required in certain procedures, and may increase the clinical
effectiveness of the treatment.

Vascular Access Products

The Company's vascular access products utilize patented technology to
provide rapid, accurate access to the body's vascular system for guidewire and
catheter entry. The principal current product, called the SmartNeedle, was
acquired from ACS and is based on Doppler ultrasound technology. A miniaturized
ultrasound chip is placed at the tip of a disposable ultrasonic probe which is
then placed inside a conventional vascular access needle. The probe is then
connected to a separate reusable monitor. Once placed in the body as a part of
the access needle, the Doppler chip emits an audible signal which enables the
physician to more accurately determine whether or not the needle resides in the
proper location within the intended arterial or venous lumen. Once positioned
properly, the probe is removed, leaving the conventional access needle in place
within the artery or vein. Since introduction, the SmartNeedle's primary use has
been in interventional cardiology and radiology procedures.

NEW PRODUCT DEVELOPMENT

The Company focuses its research and development efforts on utilizing the
Company's proprietary processes and patented technologies to develop
cost-effective products that address existing and emerging clinical demands. The
Company's strategy is to refine its existing technologies and to enhance the
performance of its existing product offerings, including efforts to make its
Focus and M(3) products lower profile, more flexible and trackable, and operable
at a broader range of inflation pressures. In addition, the Company is
developing additional products utilizing combinations of its technologies that
may provide cardiologists greater therapeutic applicability in a single device.
The Company is also in the process of developing unique catheter designs
intended to provide enhanced delivery of therapeutic radial force and
pharmacological agents. The Company will be required to seek FDA approval for
any new product and it is

23
<PAGE> 26

expected that some of these products will be subject to the PMA process. The
Company's current new product development efforts are summarized in the table
below.

<TABLE>
<CAPTION>
PRODUCTS INTENDED APPLICATIONS U.S. REGULATORY STATUS
- ------------------------------------ ------------------------------------ ----------------------
<S> <C> <C>
Focus Catheters
Lynx
Over-the-wire design PTCA or Stent Delivery Development Stage
Rail design PTCA or Stent Delivery Development Stage
Facilitated Force Controlled Plaque Incision and PTCA Development Stage
Angioplasty
FOCUSTENT Coronary Stent Development Stage
Vascular Stent
IDI Stent Peripheral Vascular Stent Development Stage
M(3) Catheters
Transport(1) PTCA/Drug Delivery Development Stage
Periflow Large-Vessel PTA/Drug Delivery 510(k) Clearance
MicroMembrane Radiation Delivery of Radioactive Materials Development Stage
for Restenosis Prevention
MAC I(2) Perfusion/PTCA Development Stage
MAC II Perfusion/Drug Delivery Development Stage
MAC III Perfusion/PTCA/Drug Delivery Development Stage
</TABLE>

- ---------------

(1) Licensed to SCIMED. See "-- Strategic Relationships."

(2) Licensed to ACS. See "-- Strategic Relationships."

The M(3) technology is being utilized in various experimental clinical
programs to administer the site-specific delivery of therapeutic agents
following angioplasty or stent delivery for the purpose of reducing or
eliminating restenosis. The Company is also using M(3) technology in its
MicroMembrane Radiation Therapy development program for restenosis prevention.
This program is evaluating CVD's M(3) technology to more accurately deliver
radioactive substances specifically to the treatment site.

TECHNOLOGY

The Company has developed proprietary material manufacturing processes that
it has utilized to develop patented interventional catheters. Traditional
balloon extrusion technology does not enable the combination of compliant and
non-compliant materials, resulting in a catheter that can be inflated only to a
uniform diameter. The Company's Focus technology bonds a membrane between
compliant and non-compliant materials, resulting in a balloon with a large
center diameter and smaller, fixed diameters at each end. The center compliant
section of the Focus catheter enlarges predictably at a rate of 0.1mm per
atmosphere of pressure when inflation pressures exceed six atmospheres. The ends
of the balloon remain at their nominal diameters and do not expand with
increased pressure. The Focus capability enables cardiologists to deliver stents
or therapeutic radial force accurately to the treatment site, while minimizing
the force applied to adjacent tissue. Conventional uniform diameter catheters
may damage healthy vessel sections, as these sections receive as much radial
force as do the diseased sites. It is widely believed that vessel wall damage
may lead to acute reclosure of the vessel or restenosis.

The Company's M(3) technology creates a membrane by applying mechanical and
radiation treatment to standard polymeric balloon material during the extrusion
process. Microporous holes are then drilled in the resulting material by
proprietary mechanical or laser drilling processes. CVD's M(3) technology also
enables blood to flow through a coil lumen or inner shaft of the catheter,
allowing perfusion to the distal vessels (those beyond the treatment site)
during angioplasty or drug delivery. Prior to inflation, the balloon acts as a
shaft for the distal portion of the catheter. Once the balloon is inflated, the
cardiologist advances a coil into and through the inner lumen of the inflated
balloon. The coil supports the balloon during balloon angioplasty or drug
delivery and facilitates the perfusion of the distal vessels. The M(3)technology
enables the Company to combine

24
<PAGE> 27

balloon angioplasty and perfusion capabilities on a single catheter in a profile
comparable to standard balloon angioplasty catheters without perfusion
capability. The Company believes that the M(3) technology also enables it to
combine PTCA and perfusion capabilities on a single catheter with a lower
profile than any currently marketed catheter with similar capabilities.

The Company's IDI subsidiary is engaged in the development of medical
stents for the treatment of patients with vascular disease caused by aneurysms
or artherosclerosis. IDI is developing a compact, self-expanding metallic stent
with a micro-porous surface for use as either a stent or a stent graft. By
selecting metal foil of the proper thickness and tensile strength, and
heat-treating it in the proper shape, the Company believes it will be able to
form devices with low profiles, high expansion ratios and excellent hoop
strength, which are factors critical for successful device placement. There can
be no assurance that IDI will successfully complete the development of any
products or that any such products will receive any required regulatory
approvals.

MANUFACTURING

With the exception of certain final assembly and sterilization procedures
for those products designed to be sold only outside the United States, and the
manufacture of those products which the Company has licensed to third parties,
all of the Company's products are produced in its facilities in Irvine,
California. The Company fabricates certain proprietary components, then
assembles, inspects, tests and packages all components into finished products.
By designing and assembling its catheter products, the Company believes it is
better able to control quality and costs, limit third-party access to its
proprietary technology, and manage manufacturing process enhancements and new
product introductions. In addition, the Company purchases many standard and
custom-built components from independent suppliers and subcontracts certain
processes from independent vendors. Most of these components and processes are
available from more than one vendor. However, certain manufacturing processes
are currently performed by single vendors. While the Company believes that there
are other vendors available to perform these processes, an interruption of
performance by any of these vendors could have a material adverse effect on the
Company's ability to manufacture its products until a new source of supply were
qualified and, as a result, could have an adverse effect on the Company's
business, financial condition and results of operations.

The Company's success will depend in part upon its ability to manufacture
its products in compliance with ISO 9001, the FDA's GMP regulations, CDHS
licensing and other regulatory requirements, in sufficient quantities and on a
timely basis, while maintaining product quality and acceptable manufacturing
costs. The Company began manufacturing certain of its products at its facilities
in July 1995. The Company has also introduced a significant number of new
products in 1996. Accordingly, the Company has very limited experience in
manufacturing its products. In addition, on July 15, 1996, the Company entered
into co-distribution agreements with Medtronic which granted Medtronic certain
non-exclusive rights to distribute the Company's FACT, CAT and ARC catheters.
Under the terms of these agreements, if the Company is unable to meet its
delivery obligations with respect to the purchased catheters, up to 60% of the
Company's manufacturing capacity will be devoted to manufacturing such catheters
for Medtronic. The Company has undergone and expects to continue to undergo
regular GMP inspections in connection with the manufacture of its products at
the Company's facilities. The Company's success will depend, among other things,
upon its ability to efficiently manage the simultaneous manufacture of different
products and to integrate the manufacture of new products with existing
products. There can be no assurance that the Company will not encounter
difficulties in scaling up production of new products, including problems
involving production yields, quality control and assurance, component supply and
shortages of qualified personnel. The Company's failure to successfully commence
the manufacturing of these new products, or to increase production volumes of
new and existing products in a timely manner, would materially adversely affect
the Company's business, financial condition and results of operations. Failure
to increase production volumes in a timely or cost-effective manner or to
maintain compliance with ISO 9001, GMP regulations, CDHS or other regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Limited
Manufacturing Experience."

25
<PAGE> 28

MARKETING AND SALES

The Company's products are sold in the United States and international
markets, principally Europe and Japan. However, certain of the Company's
products are not available in each market due to regulatory and intellectual
property restrictions. The Company currently sells its products through a
combination of strategic partners, medical device distributors and nine direct
sales personnel. The Company is a party to three agreements for the U.S.
distribution of products incorporating its Focus and M(3) technologies. CVD also
has distribution agreements with 25 companies covering 41 countries outside the
United States and Japan. CVD distributes certain products in Japan through an
exclusive distribution agreement with Fukuda. Sales of the Company's products
through Fukuda accounted for 18% and 20% of the Company's revenue in 1995 and
the first nine months of 1996, respectively. In addition, sales to JJIS
accounted for 12% of revenue in 1995. The Company intends to expand its sales
and marketing capability and to distribute selected new products through
strategic partnerships. See "Risk Factors -- Limited Marketing and Sales
Resources; Dependence Upon Strategic Relationships."

In 1993, 1994, 1995 and the first nine months of 1996, total export sales
were $101,000, $970,000, $2,054,000 and $2,581,000 respectively, or
approximately 80%, 83%, 59% and 44% respectively, of total product sales. In
1993, 1994, 1995 and the first nine months of 1996 sales to Europe accounted for
$101,000, $255,000, $1,179,000 and $999,000, respectively; sales to Japan
represented $0, $715,000, and $744,000 and $1,227,000 respectively; and sales to
Latin America represented $0, $0, $131,000 and $127,000, respectively. The
Company expects to continue to derive significant revenue from international
sales and therefore a significant portion of the Company's revenues will
continue to be subject to the risks associated with international sales,
including economic or political instability, shipping delays, changes in
applicable regulatory policies, inadequate protection of intellectual property,
fluctuations in foreign currency exchange rates and various trade restrictions,
all of which could have a significant impact on the Company's ability to deliver
products on a competitive and timely basis. Future imposition of, or significant
increases in the level of, customs duties, export quotas or other trade
restrictions, could have an adverse effect on the Company's business, financial
condition and results of operation. In foreign countries, the Company's products
are subject to a wide variety of governmental review and certification. The
regulation of medical devices, particularly in the European Community, continues
to expand and there can be no assurance that new laws or regulations will not
have an adverse effect on the Company. See Note 1 of Notes to Financial
Statements. See "Risk Factors -- Dependence Upon International Sales."

POST-MARKETING CLINICAL STUDIES

The Company has completed the clinical trials required for FDA approval of
those products which are marketed in the United States. In addition to those
trials, the Company is also sponsoring a controlled, randomized, multicenter
clinical study in the United States to continue to evaluate the clinical and
economic value of its core technologies. Data from this study is being
accumulated and analyzed to support the marketing of the Company's current
products.

In a Comparative Performance and Pathological Study conducted by the
Division of Cardiology at the University of Texas Department of Medicine, the
Company's FACT catheter was compared with conventional PTCA catheters from other
leading manufacturers in an animal study. The investigators concluded that the
use of the FACT catheter resulted in reduced arterial damage without reduction
in catheter performance as determined by catheter preparation, trackability,
pushability, inflation/deflation and angiographic visualization.

Certain of the Company's products which utilize Focus technology have
received FDA approval for PTCA and PTA indications. However, none of these
products has received FDA approval for use in stent delivery. An
investigator-controlled study is currently testing the Company's Focus
technology with respect to stent implantation. The Optimal Stent Implantation
Study ("OSTI-2 Study") is evaluating the ability of stent delivery with Focus
technology compared with conventional delivery techniques to reduce acute
outcomes and restenosis rates. The study is being conducted using two patient
subgroups of approximately 100 patients each divided according to vessel size.
In the first group, stent delivery is being evaluated in vessels greater than
three

26
<PAGE> 29

millimeters in diameter; in the second group stent delivery is being evaluated
in vessels less than three millimeters in diameter. Each subgroup presents
different clinical issues related to stent delivery and the OSTI-2 Study
protocol is evaluating the efficacy of Focus technology in each subgroup. The
OSTI-2 Study began in February 1996 and is expected to be completed in 1997.

The Company also intends to sponsor additional studies from time to time to
assess the value of, and to expand clinical indications of, its existing and new
technologies. The Company is planning a clinical study to expand the clinical
uses of its Focus technology catheters to include balloon dilatation of
previously deployed stents in order to properly implant the stent in the
arterial wall. The Company is finalizing the clinical protocol for this study
and expects to begin this study prior to the end of 1996. This study will
include approximately 100 patients and is expected to be completed in 1997.

STRATEGIC RELATIONSHIPS

The Company evaluates on an ongoing basis potential strategic relationships
with corporate and other partners where such relationships may complement and
expand CVD's research, development, sales and marketing capabilities. The
Company is currently a party to four such agreements, described below.

Advanced CardioVascular Systems, Inc. In January 1995, the Company entered
into a license agreement with ACS. The parties subsequently confirmed their
understanding with respect to certain matters in a second agreement dated March
4, 1996 (collectively, the "ACS Agreements"). Under the ACS Agreements, the
Company acquired certain rights to ACS' SmartNeedle technology, subject to the
payment of certain royalties. ACS was granted the option to acquire the
exclusive worldwide rights to certain CVD perfusion technology, which ACS
exercised on February 14, 1996. As a result, ACS has an exclusive worldwide
right to develop, manufacture and market the Company's MAC I product line. In
exchange for this technology, ACS is obligated to make milestone and minimum
annual royalty payments to CVD, and also has certain obligations to develop and
market the technology. In addition, in the event that CVD develops a product
which combines coronary balloon angioplasty, perfusion and drug delivery
technology on the same catheter, ACS will have certain rights to license such
product. The ACS Agreements may be terminated upon 60 days notice in the event
of a breach by the other party, subject to the breaching party's right to cure,
or by ACS upon 30 days notice without cause.

SCIMED Life Systems, Inc. The Company has entered into a Stock Purchase
and Technology License Agreement, dated September 10, 1994, with SCIMED (the
"SCIMED Agreement"). Pursuant to the SCIMED Agreement, SCIMED purchased a 19%
equity position in the Company. SCIMED was also granted an exclusive worldwide
license to certain combined site-specific drug delivery and coronary angioplasty
technology, including the Company's Transport products, for use in the
cardiovascular field in exchange for license and royalty fees. The SCIMED
Agreement also requires CVD to provide certain technical assistance and to
perform additional research and development relating to the licensed technology
in exchange for fees and reimbursement of expenses. In the event that CVD's
SCIMED-funded research and development efforts result in improvements to the
licensed technology, SCIMED will have an exclusive worldwide license to the
technology in the cardiovascular field and a non-exclusive license outside the
cardiovascular field, both of which are subject to the payment of royalties. The
SCIMED Agreement may be terminated in the event of breach on 90 days notice by
the non-breaching party (or on 30 days notice in certain limited circumstances)
or by SCIMED upon 180 days notice.

Fukuda Denshi Co., Ltd. The Company has entered into a Distribution
Agreement, dated May 28, 1993, with Fukuda Denshi Co., Ltd. (the "Fukuda
Agreement"), whereby Fukuda serves as CVD's exclusive distributor for certain of
the Company's products in Japan. In exchange for this exclusive distributorship,
Fukuda paid a fee to CVD in addition to payments owing upon the purchase of the
products. Fukuda also agreed to undertake all necessary clinical trials to
obtain approval from Japanese regulatory authorities for the sale of the
products in Japan. Fukuda's purchases under the Fukuda Agreement are subject to
certain minimum requirements. The initial term of the Fukuda Agreement expires
on May 31, 1998, subject to a five-year extension. The Fukuda Agreement may also
be terminated in the event of breach upon 90 days notice by the non-breaching
party. In July 1995 and May 1996, the distribution agreement with Fukuda was
amended to

27
<PAGE> 30

grant Fukuda exclusive distribution rights to additional CVD products. Under
these amendments, the Company received $750,000 which converted into the right
to receive 62,500 shares of Common Stock upon the consummation of the Company's
initial public offering on June 19, 1996.

EndoSonics Corporation. The Company has entered into a license agreement
with EndoSonics, dated December 22, 1995 (the "EndoSonics Agreement"), pursuant
to which CVD granted EndoSonics the non-exclusive, royalty-free right to CVD's
Focus technology for the development and sale of a combined Focus/ Ultrasound
product. In exchange, CVD received the non-exclusive, royalty-free right to
submit PMA supplement applications utilizing an EndoSonics PMA as a reference
and to manufacture and distribute CVD products as a supplement to the EndoSonics
PMA. The EndoSonics Agreement may be terminated in the event of breach upon 60
days notice by the nonbreaching party, subject to the breaching party's right to
cure. In the event of termination, the Company would be prohibited from
submitting new PMA supplements referencing the EndoSonics PMA and would be
required to seek independent FDA approval for such products, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, in March of 1996, EndoSonics recently
purchased 400,000 shares of CVD's Series B Preferred Stock for a purchase price
of $8,000,000, that converted into 800,000 shares of Common Stock upon the
consummation of the Company's initial public offering on June 19, 1996. See
"Certain Transactions -- Relationship with EndoSonics Corporation."

Medtronic, Inc. On July 15, 1996, the Company entered into co-distribution
agreements with Medtronic, providing for the co-distribution of the Company's
FACT, CAT and ARC balloon angioplasty catheters. Under the terms of these
agreements, Medtronic will purchase a minimum number of angioplasty catheters
manufactured by the Company for distribution worldwide for a period of up to
three years. If the Company is unable to meet its delivery obligations regarding
the purchased catheters, up to 60% of the Company's manufacturing capacity will
be devoted to manufacturing such catheters for Medtronic. Specific products to
be distributed by Medtronic will differ in individual country markets. The
initial term of the Medtronic agreements is for a period of three years from the
date of first delivery of a product. The agreements may be terminated in the
event of breach upon notice by the nonbreaching party, subject to the breaching
party's right to cure.

PATENTS AND PROPRIETARY INFORMATION

The Company's policy is to protect its proprietary position by, among other
methods, filing U.S. and foreign patent applications to protect technology,
inventions and improvements that are important to the development of its
business. The Company has ten issued U.S. patents covering certain aspects of
its catheter technology and licenses, and additional patents relating to the
vascular access technology. No assurance can be given that any issued patents
will provide competitive advantages for the Company's products, or that they
will not be challenged or circumvented by competitors.

The interventional cardiovascular market in general and the balloon
angioplasty catheter market (including the type of catheters offered by CVD) in
particular have been characterized by substantial litigation regarding patent
and other intellectual property rights. There can be no assurance that the
Company's products do not infringe such patents or rights. The Company recently
received a notice of potential trademark infringement regarding the Company's
use of the term "focal" in connection with the Company's balloon angioplasty
catheter. CVD entered into an agreement which prohibits the Company from using
this term. The Company has since ceased any use thereof. In the event that any
such third-parties assert claims against the Company for patent infringement and
such patents are upheld as valid and enforceable, the Company could be prevented
from utilizing the subject matter claimed in such patents, or would be required
to obtain licenses from the owners of any such patents or redesign its products
or processes to avoid infringement. There can be no assurance that such licenses
would be available or, if available, would be so on terms acceptable to the
Company or that the Company would be successful in any attempt to redesign its
products or processes to avoid infringement. In addition, foreign intellectual
property laws may not provide protection commensurate with that provided by U.S.
intellectual property laws, and there can be no assurance that foreign
intellectual property laws will adequately protect the Company's intellectual
property rights abroad. The Company also relies on trade secrets and proprietary
technology and enters into confidentiality

28
<PAGE> 31

and non-disclosure agreements with its employees, consultants and advisors.
There can be no assurance that the confidentiality of such trade secrets or
proprietary information will be maintained by employees, consultants, advisors
or others, or that the Company's trade secrets or proprietary technology will
not otherwise become known or be independently developed by competitors in such
a manner that the Company has no practical recourse. Litigation may be necessary
to defend against claims of infringement or invalidity, to enforce patents
issued to the Company or to protect trade secrets. There can be no assurance
that any such litigation would be successful. Any litigation could result in
substantial costs to, and diversion of resources by, the Company and its
officers, which would have a material adverse effect on its business, financial
condition and results of operations. See "Risk Factors -- Reliance on Patents
and Proprietary Technology; Risk of Patent Infringement."

COMPETITION

The Company believes that the primary competitive factors in the market for
interventional cardiology devices are: clinical effectiveness, product safety,
catheter size, flexibility and trackability, ease of use, reliability, price and
availability of third party reimbursement. In addition, a company's distribution
capability and the time in which products can be developed and receive
regulatory approval are important competitive factors. The Company believes it
competes favorably with respect to the foregoing factors. The Company also
believes that its competitive position is dependent upon its ability to continue
to develop innovative new catheter technologies and obtain rapid regulatory
approval.

Competition in the market for devices used in the treatment of
cardiovascular and peripheral vascular disease is intense, and is expected to
increase. The interventional cardiology market is characterized by rapid
technological innovation and change, and the Company's products could be
rendered obsolete as a result of future innovations. The Company's catheters and
other products under development compete or will compete with catheters marketed
by a number of manufacturers, including ACS, SCIMED, JJIS and Cordis
Corporation, subsidiaries of Johnson & Johnson, Medtronic, Inc., C.R. Bard, Inc.
and Schneider USA, a subsidiary of Pfizer, Inc. Such companies have
significantly greater financial, management and other resources, established
market positions, and significantly larger sales and marketing organizations
than does the Company. The Company also faces competition from manufacturers of
other catheter-based atherectomy devices, vascular stents and pharmaceutical
products intended to treat vascular disease. In addition, the Company believes
that many of the purchasers and potential purchasers of the Company's products
prefer to purchase catheter products from a single source. Accordingly, many of
the Company's competitors, because of their size and range of product offerings,
have a competitive advantage over the Company. There can be no assurance that
the Company's competitors will not succeed in developing or marketing
technologies and products that are more clinically effective or cost effective
than any that are being marketed or developed by the Company, or that such
competitors will not succeed in obtaining regulatory approval for introducing or
commercializing any such products prior to the Company. See "Risk
Factors -- Significant Competition."

THIRD-PARTY REIMBURSEMENT

In the United States, the Company's products are purchased primarily by
medical institutions, which then bill various third-party payors, such as
Medicare, Medicaid, and other government programs and private insurance plans,
for the health care services provided to patients. Government agencies, private
insurers and other payors determine whether to provide coverage for a particular
procedure and reimburse hospitals for medical treatment at a fixed rate based on
the diagnosis-related group ("DRG") established by the U.S. HCFA. The fixed rate
of reimbursement is based on the procedure performed, and is unrelated to the
specific devices used in that procedure. If a procedure is not covered by a DRG,
payors may deny reimbursement. In addition, some payors may deny reimbursement
if they determine that the device used in a treatment was unnecessary,
inappropriate or not cost-effective, experimental or used for a non-approved
indication. Reimbursement of interventional procedures utilizing the Company's
products is currently covered under a DRG. There can be no assurance that
reimbursement for such procedures will continue to be available, or that future
reimbursement policies of payors will not adversely affect the Company's ability
to sell its products on a profitable basis. Failure by hospitals and other users
of the Company's products to obtain reimbursement from

29
<PAGE> 32

third-party payors, or changes in government and private third-party payors'
policies toward reimbursement for procedures employing the Company's products,
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Limitations on
Third-Party Reimbursement."

GOVERNMENT REGULATION

The manufacturing and marketing of the Company's products are subject to
extensive and rigorous government regulation in the United States and in other
countries. The Company believes that its success will be significantly dependent
upon commercial sales of improved versions of its catheter products. The Company
will not be able to market these new products in the United States unless and
until the Company obtains approval or clearance from the FDA. Foreign and
domestic regulatory approvals, if granted, may include significant limitations
on the indicated uses for which a product may be marketed.

If a medical device manufacturer can establish that a newly developed
device is "substantially equivalent" to a legally marketed Class I or Class II
device, or to a Class III device that the FDA has not called for a PMA, the
manufacturer may seek clearance from the FDA to market the device by filing a
premarket notification with the FDA under Section 510(k) of the Federal Food,
Drug, and Cosmetic Act. All of the 510(k) clearances received for the Company's
catheters were based on substantial equivalence to legally marketed devices.
There can be no assurance that 510(k) clearance for any future product or
significant modification of an existing product will be granted or that the
process will not be unduly lengthy. In addition, if the FDA has concerns about
the safety or effectiveness of any of the Company's products, it could act to
withdraw approval or clearances of those products or request that the Company
present additional data. Any such actions would have a material adverse effect
on the Company's business, financial condition and results of operations.

The Company is also required to register as a medical device manufacturer
with the FDA and maintain a license with certain state agencies, such as the
CDHS. As such, the Company is inspected on a routine basis by both the FDA and
the CDHS for compliance with GMP regulations. These regulations require that the
Company manufacture its products and maintain related documentation in a
prescribed manner with respect to manufacturing, testing and control activities.
The Company has also undergone and expects to continue to undergo regular GMP
inspections in connection with the manufacture of its products at the Company's
facilities. Further, the Company is required to comply with various FDA
requirements for labeling. The Medical Device Reporting laws and regulations
require that the Company provide information to the FDA on deaths or serious
injuries alleged to have been associated with the use of its devices, as well as
product malfunctions that would likely cause or contribute to death or serious
injury if the malfunction were to recur. In addition, the FDA prohibits an
approved device from being marketed for unapproved applications. CVD has
received FDA approval to market the FACT catheters, which utilize the FOCUS
technology, for coronary balloon angioplasty. These catheters are marketed
outside the United States for use in stent deployment. However, without specific
FDA approval for stent deployment, these catheters may not be marketed by the
Company in the United States for such use.

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<PAGE> 33

PRODUCT LIABILITY

The Company faces the risk of financial exposure to product liability
claims. The Company's products are often used in situations in which there is a
high risk of serious injury or death. Such risks will exist even with respect to
those products that have received, or in the future may receive, regulatory
approval for commercial sale. The Company is currently covered under a product
liability insurance policy with coverage limits of $2.0 million per occurrence
and $2.0 million per year in the aggregate. There can be no assurance that the
Company's product liability insurance is adequate or that such insurance
coverage will remain available at acceptable costs. There can be no assurance
that the Company will not incur significant product liability claims in the
future. A successful claim brought against the Company in excess of its
insurance coverage could have a material adverse effect on the Company's
business, financial condition and results of operations. Additionally, adverse
product liability actions could negatively affect the reputation and sales of
the Company's products and the Company's ability to obtain and maintain
regulatory approval for its products and substantially divert the time and
effort of management away from the Company's operations.

EMPLOYEES

As of October 31, 1996, the Company had 156 employees, including 92 in
manufacturing, 23 in research, development and regulatory affairs, 25 in sales
and marketing, 9 in administration and 7 in quality assurance. The Company
believes that the success of its business will depend, in part, on its ability
to attract and retain qualified personnel. The Company believes it has good
relations with its employees.

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<PAGE> 34

PROPERTIES

Currently, the Company leases facilities aggregating approximately 33,000
square feet in Irvine, California under lease agreements which expire beginning
in 1998. The Company believes that its facilities are adequate to meet its
requirements through 1997.

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<PAGE> 35

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The executive officers, directors and key employees of the Company, and
their ages as of September 30, 1996, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------------
<S> <C> <C>
Michael R. Henson............. 50 President, Chief Executive Officer and Chairman of the
Board of Directors
Dana P. Nickell............... 47 Vice President, Finance and Administration, Chief
Financial Officer and Secretary
Michael D. Crocker............ 39 Vice President, Engineering
Jeffrey F. O'Donnell.......... 36 Vice President, Sales and Marketing
Jeffrey H. Thiel.............. 41 Vice President, Operations
Bart R. Navarro............... 51 Director of Marketing
Claire K. Walker.............. 49 Director of Clinical Affairs
George F. Kick................ 51 Business Manager, Peripheral Products
Blair W. Breyne............... 37 Director of International Market Development
Robert J. Imdieke............. 43 Manager, Quality Assurance
Mitchell Dann(1).............. 36 Director
William G. Davis(1)........... 64 Director
Gerard von Hoffmann(2)........ 40 Director
Edward M. Leonard(2).......... 54 Director
</TABLE>

- ---------------
(1) Member of Compensation Committee

(2) Member of Audit Committee

Michael R. Henson joined the Company as President and Chief Executive
Officer in February 1995. Prior to joining CVD, Mr. Henson served as the Chief
Executive Officer of EndoSonics from 1988 to February 1995. He was appointed
Chairman of the Board of Directors of EndoSonics in February 1993. Between April
1983 and February 1988, Mr. Henson served as President and Chief Executive
Officer of Trimedyne, Inc., a manufacturer of medical lasers and catheters.
Prior to joining Trimedyne in 1983, Mr. Henson held positions as Vice President
for G.D. Searle & Company, Director of Marketing for the Hospital Products
Division of Abbott Laboratories, and Marketing Manager for Bristol Myers and
Company.

Dana P. Nickell joined the Company as Vice President, Finance and
Administration and Chief Financial Officer in December 1995 and was appointed
Secretary in May 1996. Prior to joining CVD he was Chief Financial Officer of
Innerspace Inc., a medical device manufacturer which filed for bankruptcy
protection in 1995, from May 1994 to April 1995. From August 1993 until April
1994, Mr. Nickell served as Chief Financial Officer of Masimo Corporation, a
developer of pulse oximeter technology. Between November 1988 and June 1993, Mr.
Nickell was Chief Financial Officer and Vice President, Finance, Administration
and Business Development of EndoSonics. He also served as Secretary of
EndoSonics from January 1990 to August 1992. Mr. Nickell is a Certified Public
Accountant.

Michael D. Crocker has served as Vice President, Engineering since the
incorporation of CVD in March 1992. From March 1991 to March 1992, Mr. Crocker
was involved with start-up activities related to CVD. From January 1989 to March
1991, Mr. Crocker provided product development consulting to the following
companies: Medtronic, Advanced Interventional Systems, Pilot CardioVascular and
Imagyn Medical. From November 1986 to January 1989, he served in product
development at Trimedyne, and from March 1983 to November 1986 in product
development and manufacturing at ACS.

Jeffrey F. O'Donnell has served as Vice President, Sales & Marketing at the
Company since November 1995. Prior to joining CVD, Mr. O'Donnell served as
President and Vice President of Marketing and Business Development of Kensey
Nash Corporation, a medical device manufacturer, from January 1994 to May 1995.

33
<PAGE> 36

From 1988 to 1994 Mr. O'Donnell held various sales and regional management
positions at ACS. Prior to working at ACS, Mr. O'Donnell held senior sales and
marketing positions with Boston Scientific and Johnson & Johnson.

Jeffrey H. Thiel has served as Vice President, Operations since October
1996. Prior to joining CVD, Mr. Thiel served as Director of Operations of BEI
Medical Systems from May 1995 to October 1996. From July 1989 to November 1994,
Mr. Thiel held various Manufacturing and Operation Management positions with St.
Jude Medical.

Bart R. Navarro joined the Company in February 1995 as Director of
Manufacturing. From September 1989 to February 1995, Mr. Navarro served as
Director of Manufacturing for Eclipse Surgical Technologies, Inc. From March
1985 to September 1989, Mr. Navarro served as Manager of Manufacturing for MCM
Laboratories, Inc., a medical device manufacturer. From June 1981 to March 1985,
Mr. Navarro served as a Process Engineer for Manufacturing for ACS.

Claire K. Walker has served as Director of Clinical Affairs of the Company
since November 1994. From May 1992 to November 1994, Ms. Walker provided
clinical marketing consulting services to CVD. From September 1990 to November
1992, Ms. Walker served as a principal of CKW and Associates providing project
specific consulting services to InterVentional Technologies, Inc., a medical
device company. From July 1981 to August 1988, Ms. Walker was employed by ACS as
a clinical specialist and from 1984 through 1988 worked as a direct sales
representative. Ms. Walker also worked as a cardiovascular catheterization
laboratory nurse.

George F. Kick joined the Company in March 1995 and served as Director of
U.S. Marketing until December 1995 when he became the Business Manager,
Peripheral Products. From January 1992 to March 1995, Mr. Kick worked as a
consultant and project manager at NeuroNavigational, a medical device
manufacturer, developing minimally invasive vascular surgical systems for
arterial bypass in the leg. From February 1979 to December 1991, he served as
President of Dynamic Concepts, a cardiovascular distribution company,
representing Trimedyne, Telectronics, CryoLife and other high tech start-up
companies.

Blair W. Breyne joined the Company in January 1994 and has served as
Director of International Market Development for the Company since January 1995.
From January 1994 through December 1994, Ms. Breyne served as Manager of
International Market Development. Prior to joining the Company, Ms. Breyne was
employed by EndoSonics from May 1990 through December 1993 as Manager and
National Manager of Sales and Clinical Applications.

Robert J. Imdieke joined the Company as Manager of Quality Assurance in
January 1995. Prior to joining CVD, Mr. Imdieke served as Manager, Quality
Assurance at Imagyn Medical, Inc. from June 1991 to January 1995. From December
1989 until February 1991, he served as Quality Control Supervisor at Advanced
Interventional Systems. Mr. Imdieke also served as Quality Assurance Manager at
Trimedyne, Inc. from November 1984 through May 1989.

Mitchell Dann joined the Company as a director in April 1996. Since April
1991, Mr. Dann has been President of M. Dann & Co., Inc., a venture capital
advisory firm. From October 1982 to April 1991, he co-founded and held the
position of Managing Partner at IAI Venture Capital Group, the venture capital
division of Investment Advisors, Inc. Mr. Dann is Chairman of the Board of
Urologix, Inc.

William G. Davis joined the Company as a director in January 1995. Mr.
Davis is an independent business consultant. From 1957 to 1984, Mr. Davis was
associated with Eli Lilly and Company. He served as Executive Vice President,
Eli Lilly International Corporation, from 1972 to 1975, Executive Vice
President, Pharmaceutical Division, from 1975 to 1982, and President, Medical
Instrument Systems Division, from 1982 until his retirement in 1984. Mr. Davis
is also a director of ALZA Corporation, Collagen Corporation, EndoSonics and
Target Therapeutics, Inc.

Gerard von Hoffmann joined the Company as a director in April 1996. He has
been with the law firm of Knobbe, Martens, Olson & Bear since 1986 and has been
a partner since 1989.

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<PAGE> 37

Edward M. Leonard was appointed as a director in April 1996. He has been a
partner in the law firm of Brobeck, Phleger & Harrison LLP since 1977. Mr.
Leonard is a member of Brobeck's Policy Committee and founded and served as
Managing Partner of Brobeck's Palo Alto office from January 1980 through January
1996. He also served as head of Brobeck's Corporate Practice Group from 1988
through 1992. Mr. Leonard is also a director of EndoSonics.

The Company currently has authorized five directors. Each director holds
office until the next annual meeting of stockholders or until his successor is
duly elected and qualified. The officers serve at the discretion of the Board of
Directors.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has established a Compensation Committee and an
Audit Committee. The Compensation Committee establishes salaries, incentives and
other forms of compensation for directors, officers and other employees of CVD,
administers the various incentive compensation and benefit plans (including the
Company's stock plans) of CVD and recommends policies relating to such incentive
compensation and benefit plans. The Audit Committee reviews the need for
internal auditing procedures and the adequacy of internal controls and meets
periodically with management and the independent auditors. The Board of
Directors may establish additional committees from time to time.

EXECUTIVE COMPENSATION

The following Summary Compensation Table sets forth the compensation earned
by the Company's Chief Executive Officer whose salary and bonus for 1995 was in
excess of $100,000 (the "Named Officer") for services rendered in all capacities
to the Company for that fiscal year. No other executive officer was paid salary
and bonus in excess of $100,000 for the 1995 fiscal year. No executive officer
who would have otherwise been includable in such table on the basis of salary
and bonus earned for 1995 resigned or terminated employment during that year.
See "Certain Transactions -- Relationship with EndoSonics Corporation."

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRESENT PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
- ---------------------------------------------------- ---- -------- ------- ------------
<S> <C> <C> <C> <C>
Michael R. Henson................................... 1995 $189,850 $70,000 250,000
President and Chief Executive Officer
</TABLE>

35
<PAGE> 38

OPTION GRANTS IN LAST FISCAL YEAR

The following table contains information concerning the stock option grants
made to the Named Officer in 1995. No stock appreciation rights were granted to
this individual during such year.

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
------------------------------------------------------- STOCK
NUMBER OF % OF PRICE APPRECIATION
SECURITIES TOTAL OPTIONS FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SH)(3) DATE 5%($) 10%($)
- -------------------------- ------------- -------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Henson(5)...... 200,000 20.90% $1.00 05/14/2005 $125,779 $318,748
50,000 5.22 1.50 12/18/2005 47,167 119,531
</TABLE>

- ---------------
(1) Each of the options listed in the table was granted under the Company's 1995
Stock Option Plan. Each such option will be incorporated into the 1996 Stock
Option/Stock Issuance Plan.

(2) Based upon options granted for an aggregate of 957,000 shares to employees
in 1995, including the Named Officer.

(3) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with such exercise. The Compensation Committee of the
Board of Directors, as the Plan Administrator of the Company's 1996 Stock
Option/Stock Issuance Plan, has the discretionary authority to reprice the
options through the cancellation of those options and the grant of
replacement options with an exercise price based on the fair market value of
the option shares on the grant date.

(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the
option term will be at the assumed 5% and 10% levels or at any other defined
level. Unless the market price of the Common Stock appreciates over the
option term, no value will be realized from the option grants made to the
executive officers.

(5) The options were granted on May 15, 1995 and December 19, 1995, and have a
maximum term of ten years measured from the grant date, subject to earlier
termination upon the optionee's termination of service with the Company.
Each option is immediately exercisable subject to a repurchase right in
favor of the Company which lapses in a series of annual and monthly
installments over the optionee's period of service with the Company. The
Company's repurchase right lapses as to 25% of the option shares upon the
optionee's completion of one year of service measured from November 21, 1994
and December 19, 1995, respectively, and as to the balance of the option
shares in a series of successive equal monthly installments upon the
optionee's completion of each additional month of service over the next 36
months thereafter.

36
<PAGE> 39

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table sets forth information concerning option exercises and
option holdings for 1995 with respect to the Named Officer. No stock
appreciation rights were exercised during such year or were outstanding at the
end of that year.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FY-END(1) AT FY-END(2)
------------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael R. Henson...................... 54,167 195,833 $27,084 $72,916
</TABLE>

- ---------------
(1) Options are immediately exercisable for all the option shares, but any
shares purchased under the options will be subject to repurchase by the
Company at the original exercise price per share upon the optionee's
cessation of service. Shares subject to repurchase are shown under the
"Unexercisable" column.

(2) Based on the fair market value of the Company's Common Stock at year-end,
$1.50 per share (as determined by the Company's Board of Directors), less
the exercise price payable for such shares.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Company's Board was formed in May 1996,
and the members of the Compensation Committee are Messrs. Davis and Dann.
Neither of these individuals was at any time during the fiscal year ended
December 31, 1995, or at any other time, an officer or employee of the Company.
No member of the Compensation Committee of the Company serves as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.

1996 STOCK OPTION/STOCK ISSUANCE PLAN

The Company's 1996 Stock Option/Stock Issuance Plan (the "1996 Plan")
serves as the successor equity incentive program to the Company's 1995 Stock
Option Plan (the "Predecessor Plan"). The 1996 Plan was adopted by the Board of
Directors and approved by the stockholders on May 1, 1996, (the "Effective
Date"). Under the 1996 Plan, 1,200,000 shares of Common Stock have been
authorized for issuance. This share reserve is comprised of the shares which
remained available for issuance under the Predecessor Plan as of the Effective
Date, including the shares subject to outstanding options thereunder. Those
outstanding options were incorporated into the 1996 Plan on the Effective Date,
and no further option grants were made under the Predecessor Plan. The
incorporated options will continue to be governed by their existing terms,
unless the Plan Administrator elects to extend one or more features of the 1996
Plan to those options. However, except as otherwise noted below, the outstanding
options under the Predecessor Plan contain substantially the same terms and
conditions specified below for the Discretionary Option Grant Program in effect
under the 1996 Plan. In no event may any one participant in the 1996 Plan
receive option grants or direct stock issuances for more than 800,000 shares in
the aggregate over the term of the Plan.

The 1996 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which eligible individuals may, at the
discretion of the Plan Administrator, be granted options to purchase shares of
Common Stock at an exercise price not less than 85% of their fair market value
on the grant date, (ii) the Stock Issuance Program under which such individuals
may, in the Plan Administrator's discretion, be issued shares of Common Stock
directly, through the purchase of such shares at a price not less than 85% of
their fair market value at the time of issuance or as a bonus tied to the
performance of services and (iii) the Automatic Option Grant Program under which
option grants will automatically be made at periodic intervals to eligible
non-employee Board members to purchase shares of Common Stock at an exercise
price equal to 100% of their fair market value on the grant date.

The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances, the time or times

37
<PAGE> 40

when such option grants or stock issuances are to be made, the number of shares
subject to each such grant or issuance, the status of any granted option as
either an incentive stock option or a non-statutory stock option under the
Federal tax laws, the vesting schedule to be in effect for the option grant or
stock issuance and the maximum term for which any granted option is to remain
outstanding.

Under the 1996 Plan, upon an acquisition of the Company by merger or asset
sale or a hostile take-over of the Company, each outstanding option and unvested
stock issuance will be subject to accelerated vesting under certain
circumstances. The options granted under the Predecessor Plan will be assumed or
replaced in a merger or asset sale but do not include any acceleration
provisions in connection with a merger or asset-sale or upon a hostile
take-over, although such options may be accelerated at the discretion of the
Plan Administrator.

Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution may be made in
cash or in shares of Common Stock. No stock appreciation rights exist with
respect to options currently outstanding under the Predecessor Plan.

The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Predecessor Plan) in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the Common Stock on the new grant
date.

Under the Automatic Option Grant Program, each non-employee Board member
serving on June 19, 1996, the date the Underwriting Agreement for the initial
public offering was executed, received an option grant on such date for 5,000
shares of Common Stock. Each individual who first becomes a non-employee Board
member thereafter will receive a 5,000-share option grant on the date such
individual joins the Board provided such individual has not been in the prior
employ of the Company. In addition, at each Annual Stockholders Meeting, each
individual who is to continue to serve as a non-employee Board after the meeting
will receive an additional option grant to purchase 5,000 shares of Common Stock
whether or not such individual has been in the prior employ of the Company.

Each automatic grant will have a term of 10 years, subject to earlier
termination following the optionee's cessation of Board service. Each automatic
option will be immediately exercisable; however, any shares purchased upon
exercise of the option will be subject to repurchase should the optionee's
service as a non-employee Board member cease prior to vesting in the shares. The
initial 5,000-share grant will vest in four equal and successive annual
installments over the optionee's period of Board service. Each additional annual
5,000-share grant will vest upon the optionee's completion of one year of Board
service measured from the grant date. However, each outstanding option will
immediately vest upon (i) certain changes in the ownership or control of the
Company or (ii) the death or disability of the optionee while serving as a Board
member.

The Board may amend or modify the 1996 Plan at any time. The 1996 Plan will
terminate on April 30, 2006, unless sooner terminated by the Board.

NON-EMPLOYEE BOARD MEMBER REMUNERATION

The Company has adopted a policy under which each non-employee board member
receives a cash payment in the amount of $1,500 per quarter.

EMPLOYEE STOCK PURCHASE PLAN

The Company's Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the stockholders on May 1,
1996. The Purchase Plan is designed to allow eligible employees of the Company
and participating subsidiaries to purchase shares of Common Stock, at semi-
annual intervals, through their periodic payroll deductions under the Purchase
Plan, and a reserve of 200,000 shares of Common Stock has been established for
this purpose.

The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of twenty-four months. The initial
offering period began on June 19, 1996, the day the Underwriting

38
<PAGE> 41

Agreement for the initial public offering was executed, based on the initial
public offering price and will end on the last business day in July 1998. Each
offering period will be comprised of successive purchase intervals, each having
a duration of six months. However, the first purchase interval under the initial
offering period may have a duration in excess of six months. Shares of Common
Stock will be purchased for each participant at the end of each purchase
interval during the offering period. If the fair market value of the Common
Stock on any purchase date in the offering period is less than the fair market
value of the Common Stock at the start of the offering period, then that
offering period will terminate and a new offering period will automatically
commence on the next business day following that purchase date.

Payroll deductions may not exceed 10% of base salary for each purchase
interval. The purchase price per share will be 85% of the lower of (i) the fair
market value of the Common Stock on the participant's entry date into the
offering period or (ii) the fair market value on the semi-annual purchase date.
In no event may any participant purchase more than 950 shares of Common Stock on
any purchase date.

The Board may terminate the Purchase Plan at any time. The Purchase Plan
will terminate in all events on the last business day in July 2006.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that a director of a corporation will not be personally liable for monetary
damages for breach of such individual's fiduciary duties as a director except
for liability (i) for any breach of such director's duty of loyalty to the
corporation, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which a director derives an improper personal benefit.

The Company's Bylaws provide that the Company will indemnify its directors
and may indemnify its officers, employees and other agents to the fullest extent
permitted by law. The Company believes that indemnification under its Bylaws
covers at least negligence and gross negligence on the part of an indemnified
party and permits the Company to advance expenses incurred by an indemnified
party in connection with the defense of any action or proceeding arising out of
such party's status or service as a director, officer, employee or other agent
of the Company upon an undertaking by such party to repay such advances if it is
ultimately determined that such party is not entitled to indemnification.

The Company has entered into separate indemnification agreements with each
of its directors. These agreements require the Company, among other things, to
indemnify such director against expenses (including attorneys's fees),
judgments, fines and settlements (collectively, "Liabilities") paid by such
individual in connection with any action, suit or proceeding arising out of such
individual's status or service as a director of the Company (other than
Liabilities arising from willful misconduct or conduct that is knowingly
fraudulent or deliberately dishonest) and to advance expenses incurred by such
individual in connection with any proceeding against such individual with
respect to which such individual may be entitled to indemnification by the
Company.

The Company believes that its Certificate of Incorporation and Bylaw
provisions and indemnification agreements are necessary to attract and retain
qualified persons as directors and officers. At present the Company is not aware
of any pending litigation or proceeding involving any director, officer,
employee or agent of the Company where indemnification will be required or
permitted. The Company is not aware of any threatened litigation or proceeding
that might result in a claim for such indemnification.

EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS

The Company does not presently have any employment contracts in effect with
any of its executive officers.

The Compensation Committee as Plan Administrator of the 1996 Plan will have
the authority to provide for the accelerated vesting of the shares of Common
Stock subject to outstanding options held by the Chief Executive Officer and any
other executive officer or the shares of Common Stock subject to direct
issuances

39
<PAGE> 42

held by such individual, in connection with certain changes in control of the
Company or the subsequent termination of the officer's employment following the
change in control event.

CERTAIN TRANSACTIONS

RELATIONSHIP WITH ENDOSONICS CORPORATION

On June 15, 1992, EndoSonics acquired a 40% interest in CVD in exchange for
$568,000 in cash. Upon completion of this investment, EndoSonics' President and
Chief Executive Officer owned a 19% equity interest in CVD and served as
Chairman of the Board. Pursuant to an Agreement and Plan of Reorganization
between EndoSonics and CVD signed on June 9, 1993, EndoSonics acquired all of
the outstanding capital stock of CVD in exchange for $335,000 in cash and
250,000 shares of EndoSonics' Common Stock with an aggregate market value of
$1,563,000. Pursuant to the terms of the Agreement and Plan of Reorganization,
in June 1995, EndoSonics became obligated to issue 50,000 shares of its Common
Stock with an aggregate market value of $488,000, to the former shareholders of
CVD because the market price of EndoSonics' stock did not exceed a specified
price for a specified period during the two-year period following the
acquisition. On March 29, 1996, EndoSonics acquired 400,000 shares of Series B
Preferred Stock for a purchase price of $8,000,000, which converted into 800,000
shares of Common Stock upon the consummation of the initial public offering.

During 1994 and 1995, EndoSonics manufactured certain of the Company's
catheter products. Total purchases from EndoSonics during 1994 and 1995 amounted
to $0.8 million and $0.2 million, respectively. In addition, during 1994
EndoSonics performed certain billing and collection services for the Company in
return for a fee per invoice which amounted to $10,000. In addition, since
August 1993, certain of the Company's corporate expenses, including Mr. Henson's
salary, were paid by EndoSonics and accounting, cash management and other
administrative services were performed by EndoSonics. Pursuant to this
arrangement, the Company paid EndoSonics an aggregate of $290,000, $340,000,
$54,000 and $156,000 for 1993, 1994, 1995 and the nine months ended September
30, 1996, respectively. In addition, EndoSonics paid Mr. Henson's bonus for
1995. See "Management -- Executive Compensation."

The Company entered into a license agreement with EndoSonics, dated
December 22, 1995 (the "EndoSonics Agreement"), pursuant to which CVD granted
EndoSonics the non-exclusive, royalty-free right to CVD's Focus technology for
the development and sale of a combined Focus/Ultrasound product. In exchange,
CVD received the non-exclusive, royalty-free right to submit PMA supplement
applications utilizing an EndoSonics PMA as a reference and to manufacture and
distribute CVD products as a supplement to the EndoSonics PMA. The EndoSonics
Agreement may be terminated in the event of breach upon 60 days notice by the
non-breaching party, subject to the breaching party's right to cure.

CVD and EndoSonics have entered into certain agreements for the purpose of
defining the ongoing relationship between the two companies. EndoSonics owned
approximately 84% of the outstanding voting capital stock of CVD prior to the
initial public offering and currently owns approximately 45% of CVD's Common
Stock. Accordingly, these agreements are not the result of arm's-length
negotiations between independent parties.

CVD and EndoSonics have entered into a Tax Allocation Agreement that
provides, among other things, for (i) the allocation of tax liabilities and
adjustments thereto as between the business of the Company and other businesses
conducted by EndoSonics and its affiliates related to periods in which the
Company is includable in consolidated federal income tax returns filed by
EndoSonics, (ii) the allocation of responsibility for filing tax returns and
(iii) the conduct of and responsibility for taxes owed in connection with tax
audits and various related matters, as described below.

EndoSonics has agreed to indemnify CVD for any federal and state income tax
liability arising out of any audit with respect to periods ending prior to the
closing of the initial public offering and for which CVD was included in
EndoSonics' consolidated federal income tax return or a state unitary or
combined return. In addition, with respect to periods for which CVD is included
in EndoSonics' federal consolidated or state

40
<PAGE> 43

unitary tax return, EndoSonics shall control the filing of such returns and the
conduct of any audits thereof. With respect to periods following the closing of
the initial public offering, the Company will file its own federal income tax
return and will not be included in EndoSonics' federal return. The Company will
initially be included in certain unitary or combined returns for state tax
purposes. To the extent this occurs, this agreement generally treats the Company
as a separate taxpayer and charges the Company with its separate tax return
liability.

EndoSonics and CVD have entered into a Stockholder Agreement providing that
all transactions between the Company and EndoSonics or any affiliate of
EndoSonics must be approved by a special committee of CVD's Board of Directors
comprised of two directors who are not officers, directors, employees or
affiliates of EndoSonics. The members of this committee are Mitchell Dann and
Gerard von Hoffmann. No transactions between the Company and EndoSonics are
currently contemplated. During the effective term of the Agreement, EndoSonics
may not vote to eliminate from the Company's Certificate of Incorporation
provisions requiring cumulative voting for the election of directors. The
provisions of the Agreement became effective upon the consummation of the
initial public offering and terminate on the earlier of seven years from the
date of the Agreement or on the date EndoSonics beneficially owns less than 25%
of CVD's Common Stock.

OTHER TRANSACTIONS

On September 10, 1994, the Company entered into a Stock Purchase and
Technology License Agreement with SCIMED (the "SCIMED Agreement"). Pursuant to
the SCIMED Agreement, SCIMED purchased a 19% equity position in the Company for
a purchase price of $2,500,000. SCIMED was also granted an exclusive worldwide
license to certain site-specific drug delivery/PTCA technology for use in the
cardiovascular field in exchange for license and royalty fees. The SCIMED
Agreement also requires CVD to provide certain technical assistance and to
perform additional research and development relating to the licensed technology
in exchange for fees and reimbursement of expenses, respectively. In the event
that CVD's SCIMED-funded research and development efforts result in improvements
to the licensed technology, SCIMED will have an exclusive worldwide license to
the technology in the cardiovascular field and a non-exclusive license outside
the cardiovascular field, both of which are subject to the payment of royalties.
The SCIMED Agreement may be terminated in the event of breach on 90 days notice
by the non-breaching party (or on 30 days notice in certain limited
circumstances) or by SCIMED upon 180 days notice.

In connection with the adoption of the Predecessor Plan, the Company issued
a warrant to SCIMED in June 1995 to purchase 40,000 shares of Series A Preferred
Stock at an exercise price of $6.58 per share in exchange for a waiver of
SCIMED's anti-dilution rights under the SCIMED Agreement. The Company
subsequently issued a warrant for an additional 20,000 shares of Series A
Preferred at $6.58 per share in connection with an increase in the number of
shares reserved for issuance under the Predecessor Plan. Following the
consummation of the initial public offering, these warrants became exercisable
for 80,000 shares of Common Stock and 40,000 shares of Common Stock,
respectively, at an exercise price of $3.29 per share.

EndoSonics and SCIMED have entered into lock-up agreements with the Company
limiting sales of the Company's Common Stock during the 180-day period following
the date of the Company's initial public offering. See "Shares Eligible for
Future Sale."

On June 15, 1996, CVD extended a loan in the amount of $150,000, to Jeffrey
F. O'Donnell, the Company's Vice President of Sales and Marketing. The note was
secured by a second deed of trust on

41
<PAGE> 44

Mr. O'Donnell's home and has a five-year term with interest compounding
semi-annually at 6%. The principal and interest will be due five years from the
date of the note.

On September 16, 1996, the Company extended an interest free loan to
Michael Henson in the amount of $175,000. The principal amount of the loan will
be due in full on September 19, 1998. The Company secured the note by a deed of
trust on certain real property owned by Mr. Henson.

Edward M. Leonard and Gerard von Hoffmann, directors of the Company, are
members of the law firms of Brobeck, Phleger & Harrison LLP and Knobbe Martens,
Olson & Bear, respectively. Both of these firms render legal services to the
Company.

It is the Company's policy that all interested-party transactions,
including loans, between the Company and its officers, directors, principal
stockholders and their affiliates be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested outside
directors on the Board of Directors.

42
<PAGE> 45

PRINCIPAL AND SELLING STOCKHOLDERS

The following tables set forth certain information regarding beneficial
ownership of the Company's Common Stock as of November 4, 1996, by (i) each
person who is known by the Company to own beneficially more than five percent of
the Company's Common Stock, (ii) each of the Company's directors, (iii) the
Named Officer, (iv) all current officers and directors as a group and (v) each
of the Selling Stockholders.

<TABLE>
<CAPTION>
NUMBER NUMBER
OF SHARES PERCENT OF OF SHARES
BENEFICIALLY OUTSTANDING REGISTERED FOR
NAME OF PRINCIPAL STOCKHOLDER OWNED(1)(2) SHARES SALE
- ----------------------------------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
EndoSonics Corporation..................................... 4,040,000 45.22% --
6616 Owens Drive
Pleasanton, CA 94588
SCIMED Life Systems, Inc.(3)............................... 880,000 9.72 --
One SCIMED Place
Maple Grove, MN 55311
Michael R. Henson(4)....................................... 380,000 4.11 --
Mitchell Dann(5)........................................... 5,000 * --
William G. Davis(6)........................................ 11,000 * --
Gerard von Hoffmann(7)..................................... 5,000 * --
Edward M. Leonard(8)....................................... 5,000 * --
Michael D. Crocker(9)...................................... 100,000 1.11 --
Dana P. Nickell(10)........................................ 56,000 * --
Jeffrey F. O'Donnell(11)................................... 100,000 1.11 --
All directors and officers as a group (14 persons)(12)..... 816,200 8.44% --
--
---------- ------
Total Principal Stockholders..................... 5,736,200 58.56% --
NAME OF SELLING STOCKHOLDER
Dick Allen................................................. 545 * 1,029
Coin Operators
Stradling, Yocca, Carlson & Rauth........................ 3,410 * 3,217
California Central Trust Bank,
Trustee of Stradling, Yocca,
Carlson & Rauth Profit Sharing Plan...................... 2,046 * 1,930
Dima Ventures, Inc......................................... 4,775 * 4,504
Barry Katzen, M.D.......................................... 4,775 * 4,504
Edward A. McDonald......................................... 24,559 * 27,029
Micro Therapeutics, Inc.................................... 16,372 * 15,445
Stevens Blair & Company.................................... 1,364 * 1,287
Stradling, Yocca, Carlson & Rauth
Investment Partnership of 1982........................... 3,410 * 3,217
Ultrasonic Sensing and Monitoring Systems.................. 16,372 * 16,603
Paul Brown................................................. 2,046 * 1,930
George Wallace............................................. 5,457 * 5,148
Tom Winston, M.D........................................... 1,227 * 514
Fukuda Denshi Co., Ltd..................................... 62,500 * 62,500
--
----------
Total Selling Stockholders.......................... 148,858 1.67% 148,858
--
---------- ------
Total Principal and Selling Stockholders......... 5,885,058 60.83% 148,858
========== ====== ==
</TABLE>

- ---------------
* Represents beneficial ownership of less than 1%.

43
<PAGE> 46

(1) The number of shares of Common Stock beneficially owned includes any shares
issuable pursuant to stock options that may be exercised within 60 days
after November 4, 1996. All options are immediately exercisable subject to
a repurchase right in favor of the Company. Shares issuable pursuant to
such options are deemed outstanding for computing the percentage of the
person holding such options but are not deemed to be outstanding for
computing the percentage of any other person.

(2) The number of shares of Common Stock outstanding includes the 86,358 shares
of Common Stock being issued by the Company in this offering and the
issuance of 62,500 shares of Common Stock to Fukuda pursuant to the terms
of the Amendment to Japanese Distribution Agreements dated May 13, 1996 by
and between CVD and Fukuda.

(3) Includes warrants to purchase 120,000 shares of the Company's Common Stock.

(4) Includes options to purchase 314,000 shares of the Company's Common Stock.

(5) Includes options to purchase 5,000 shares of Common Stock.

(6) Includes options to purchase 11,000 shares of the Company's Common Stock.

(7) Includes options to purchase 5,000 shares of Common Stock.

(8) Includes options to purchase 5,000 shares of Common Stock.

(9) Includes options to purchase 100,000 shares of the Company's Common Stock.

(10) Includes options to purchase 56,000 shares of the Company's Common Stock.

(11) Includes options to purchase 100,000 shares of the Company's Common Stock.

(12) Includes options to purchase 740,000 shares of the Company's Common Stock.

44
<PAGE> 47

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001
par value.

COMMON STOCK

As of the November 6, 1996, there were 8,934,858 shares of Common Stock
outstanding that were held of record by 6 stockholders. The holders of Common
Stock are entitled to one vote per share on all matters to be voted upon by the
stockholders. Subject to preferences that may be applicable to any outstanding
Preferred Stock, the holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefore. See "Dividend Policy." In
the event of the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior distribution rights of Preferred
Stock, if any, then outstanding. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are fully paid and nonassessable, and the shares of Common Stock
to be issued are fully paid and nonassessable.

PREFERRED STOCK

The Company's Certificate of Incorporation authorizes 5,000,000 shares of
Preferred Stock. The Board of Directors has the authority to issue the Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the voting and other rights of the holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. At present, the Company has no plans to issue any of
the Preferred Stock.

ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW

Certificate of Incorporation and Bylaws

The Certificate of Incorporation provides that all stockholder actions must
be effected at a duly called meeting and not by a consent in writing. The Bylaws
provide that the Company's stockholders may call a special meeting of
stockholders only upon a request of stockholders owning at least 50% of the
Company's capital stock. These provisions of the Certificate of Incorporation
and Bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control of the Company. These provisions are intended to
enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors and
to discourage certain types of transactions that may involve an actual or
threatened change of control of the Company. These provisions are designed to
reduce the vulnerability of the Company to an unsolicited acquisition proposal.
The provisions also are intended to discourage certain tactics that may be used
in proxy fights. However, such provisions could have the effect of discouraging
others from making tender offers for the Company's shares and, as a consequence,
they also may inhibit fluctuations in the market price of the Company's shares
that could result from actual or rumored takeover attempts. Such provisions also
may have the effect of preventing changes in the management of the Company. See
"Risk Factors -- Effect of Certain Charter Provisions; Antitakeover Effects of
Certificate of Incorporation, Bylaws and Delaware Law."

Delaware Takeover Statute

The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business

45
<PAGE> 48

combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder; (ii) upon consummation of the
transaction that resulted in the stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned (x)
by persons who are directors and also officers and (y) by employee stock plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer; or (iii) on or subsequent to such date, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.

Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is ChaseMellon. Its
address is Encino Terrace Center, 15821 Ventura Boulevard, Suite 670, Encino, CA
91436, and its telephone number is (818) 971-4753.

46
<PAGE> 49

SHARES ELIGIBLE FOR FUTURE SALE

Sales of Common Stock in the public market during and after this offering
could adversely affect the market price of the Common Stock. As of November 4,
1996, the Company had 8,934,858 shares outstanding. Including the shares
registered for sale hereby, 4,058,858 of these shares are freely tradable
without restriction. Beginning December 17, 1996, approximately 4,076,000
additional shares will be eligible for sale, including 3,240,000 shares held by
EndoSonics and 760,000 shares held by SCIMED. Sales of any such shares in the
public market could adversely affect the market price of the Common Stock. The
Company has also registered 1,200,000 shares of Common Stock reserved for
issuance under the Company's 1996 Stock Option/Stock Issuance Plan and 200,000
shares under the Company's Employee Stock Purchase Plan. As of November 4, 1996,
there were outstanding options under the Company's stock option plans to acquire
1,162,000 shares, all of which are subject to lock-up agreements which expire on
December 16, 1996. After the expiration of the lock-up period, SCIMED will be
entitled to certain demand and piggyback registration rights with respect to its
shares. If SCIMED, by exercising its demand registration rights, causes a large
number of shares to be registered and sold in the public market, such sales
could have an adverse effect on the market price for the Common Stock. If the
Company were required to include in a Company-initiated registration shares held
by SCIMED pursuant to the exercise of its piggyback registration rights, such
sales may have an adverse effect on the Company's ability to raise needed
capital.

In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after the consummation of the initial public offering, a
person (or persons whose shares are aggregated) who has beneficially owned
"restricted" shares for at least two years, including a person who may be deemed
an Affiliate of the Company, is entitled to sell within any three-month period a
number of shares of Common Stock that does not exceed the greater of 1% of the
then-outstanding shares of Common Stock of the Company and the average weekly
trading volume of the Common Stock on the Nasdaq National Market during the four
calendar weeks preceding such sale. Sales under Rule 144 of the Securities Act
are subject to certain restrictions relating to manner of sale, notice and the
availability of current public information about the Company. A person who is
not an Affiliate of the Company at any time during the ninety days preceding a
sale, and who has beneficially owned shares for at least three years, would be
entitled to sell such shares immediately following the initial public offering
without regard to the volume limitations, manner of sale provisions or notice or
other requirements of Rule 144 of the Securities Act. However, the transfer
agent may require an opinion of counsel that a proposed sale of shares comes
within the terms of Rule 144 of the Securities Act prior to effecting a transfer
of such shares.

OPTIONS

As of November 4, 1996, options to purchase a total of 1,162,000 shares of
Common Stock pursuant to the 1996 Stock Option Plan were outstanding and
exercisable. All of the shares subject to options are subject to Lock-up
Agreements. See "-- Lock-up Agreements." An additional 112,000 shares of Common
Stock were available for future option grants or direct issuances under the 1996
Stock Option/Stock Issuance Plan. See "Management -- 1996 Stock Option/Stock
Issuance Plan," and Notes 11 and 13 of Notes to Financial Statements.

Rule 701 under the Securities Act provides that shares of Common Stock
acquired on the exercise of outstanding options may be resold by persons other
than Affiliates, beginning 90 days after the consummation of the initial public
offering, subject to the manner of sale provisions of Rule 144, and by
Affiliates, beginning 90 days after the date of this Prospectus, subject to all
provisions of Rule 144 except its two-year minimum holding period. On July 11,
1996, the Company filed a registration statement on Form S-8 under the
Securities Act to register all shares of Common Stock subject to outstanding
stock options and Common Stock issued or issuable pursuant to the Company's 1996
Stock Option/Stock Issuance Plan and Common Stock issuable pursuant to the
Company's Employee Stock Purchase Plan. Shares covered by this registration
statement are eligible for sale in the public markets, subject to the Lock-up
Agreements, if applicable.

47
<PAGE> 50

LOCK-UP AGREEMENTS

In connection with the Company's initial public offering, each of the
Company's directors and officers and each stockholder of the Company agreed that
they will not, without the prior written consent of the Representatives of the
Underwriters, offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock beneficially owned by them or any shares issuable upon exercise
of stock options until December 19, 1996, a period of 180 days from the
effective date of the public offering.

REGISTRATION RIGHTS

SCIMED, the holder of 760,000 shares of Common Stock will be entitled upon
expiration of a lock-up agreement with the Underwriters to certain rights with
respect to the registration of such shares under the Securities Act. Under the
terms of the agreement between the Company and SCIMED, if the Company proposes
to register any of its securities under the Securities Act, either for its own
account or for the account of other security holders exercising registration
rights, SCIMED is entitled to notice of such registration and is entitled to
include shares of such Common Stock therein. SCIMED may also require the Company
to file a registration statement under the Securities Act at the Company's
expense with respect to its shares of Common Stock, and the Company is required
to use its diligent reasonable efforts to effect such registration. Further,
SCIMED may require the Company to file additional registration statements on
Form S-3 at the Company's expense. These rights are subject to certain
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares included in such registration in certain
circumstances.

48
<PAGE> 51

PLAN OF DISTRIBUTION

The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit on the resale of the Shares purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.

The Shares were originally issued to former shareholders of IDI in
connection with the statutory merger of a wholly-owned subsidiary of the Company
with and into IDI pursuant to an exemption from the registration requirements of
the Securities Act provided by Section 4(2) thereof. The Company agreed to
register the Shares under the Securities Act and to indemnify and hold the
Selling Stockholders harmless against certain liabilities under the Securities
Act that could arise in connection with the sale by the Selling Stockholders of
the Shares. The Company has agreed to pay all reasonable fees and expenses
incident to the filing of this Registration Statement.

LEGAL MATTERS

The legality of the securities being offered hereby will be passed upon for
the Company by Brobeck, Phleger & Harrison LLP, Palo Alto, California.

EXPERTS

The financial statements of CardioVascular Dynamics, Inc. at December 31,
1994 and 1995, and for each of the two years in the period ended December 31,
1995, and the period from June 10, 1993 to December 31, 1993 and of the
predecessor company for the period from January 1, 1993 through June 9, 1993,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

49
<PAGE> 52

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Balance Sheets........................................................................ F-3
Statements of Operations.............................................................. F-4
Statements of Stockholders' Equity (Net Capital Deficiency)........................... F-5
Statements of Cash Flows.............................................................. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>

F-1
<PAGE> 53

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
CardioVascular Dynamics, Inc.

We have audited the accompanying balance sheets of CardioVascular Dynamics,
Inc. (a subsidiary of EndoSonics Corporation) as of December 31, 1994 and 1995,
and the related statements of operations, stockholders' equity (net capital
deficiency) and cash flows for the period from June 10, 1993 to December 31,
1993 and the years ended December 31, 1994 and 1995, and the statements of
operations, stockholders' equity and cash flows of the predecessor company for
the period from January 1, 1993 through June 9, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CardioVascular Dynamics,
Inc. at December 31, 1994 and 1995, and the results of its operations and its
cash flows for the period from June 10, 1993 to December 31, 1993 and the years
ended December 31, 1994 and 1995 and the results of operations and cash flows of
the predecessor company for the period from January 1, 1993 through June 9,
1993, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Palo Alto, California
March 15, 1996, except for Note 11,
as to which the date is
May 13, 1996

F-2
<PAGE> 54

CARDIOVASCULAR DYNAMICS, INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- 1996
1994 1995 -------------
------- ------- (UNAUDITED)
(NOTE 11)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash..................................................... $ 3,379 $ 1,568 $47,377
Accounts receivable, net of allowance for doubtful
accounts of $85, $180 and $270, respectively.......... 727 1,117 2,083
Accounts receivable from related parties................. 125 -- --
Inventories.............................................. 50 754 1,996
Other current assets..................................... 4 58 194
------- ------- -------
Total current assets............................. 4,285 3,497 51,650
Furniture and equipment.................................... 87 357 822
Leasehold improvements..................................... 1 174 275
------- ------- -------
88 531 1,097
Less accumulated depreciation and amortization............. (33) (107) (242)
------- ------- -------
Furniture, fixtures and equipment, net..................... 55 424 855
Other assets............................................... -- 81 486
------- ------- -------
Total assets..................................... $ 4,340 $ 4,002 $52,991
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY)
Current liabilities:
Accounts payable and accrued expenses.................... $ 315 $ 1,684 $ 4,160
Payable to Parent........................................ 2,554 2,537 --
Deferred distributorship fee revenue, current portion.... 50 50 50
------- ------- -------
Total current liabilities........................ 2,919 4,271 4,210
Deferred distributorship fee revenue....................... 133 79 42
Convertible obligation..................................... -- 750 750
Commitments
Stockholders' equity (net capital deficiency):
Convertible Preferred Stock, $.001 par value; no shares
issued and outstanding at December 31, 1994; aggregate
liquidated preference of $13,160,000 as of December
31, 1995; 7,560,000 shares authorized, 2,000,000 and
no shares issued and outstanding as of December 31,
1995 and September 30, 1996, respectively............. -- 2 --
Common Stock, $.001 par value; 30,000,000 shares
authorized, 4,000,000 shares issued and outstanding at
December 31, 1994; no shares and 8,786,000 shares
issued or outstanding at December 31, 1995 and
September 30, 1996, respectively...................... 4 -- 9
Additional paid-in capital............................... 4,835 5,670 56,657
Deferred compensation.................................... -- (345) (407)
Accumulated deficit...................................... (3,551) (6,425) (8,270)
------- ------- -------
Total stockholders' equity (net capital
deficiency).................................... 1,288 (1,098) 47,989
------- ------- -------
Total liabilities and stockholders' equity (net
capital deficiency)............................ $ 4,340 $ 4,002 $52,991
======= ======= =======
</TABLE>

See accompanying notes.

F-3
<PAGE> 55

CARDIOVASCULAR DYNAMICS, INC.

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PREDECESSOR ENTITY
------------------ JUNE 10, 1993 YEAR ENDED NINE-MONTH PERIOD
JANUARY 1, 1993 THROUGH DECEMBER 31, ENDED SEPTEMBER 30,
THROUGH DECEMBER 31, ----------------- -------------------
JUNE 9, 1993 1993 1994 1995 1995 1996
------------------ ------------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Sales (including $43 from a
related party in
1994)................... $ -- $ 126 $ 1,169 $ 3,462 $ 2,156 $ 5,836
License fee and other from
related party........... -- -- 1,220 641 230 200
Contract................... -- -- -- -- 412 150
----- ------- ------- ------- ------- -------
Total revenue...... -- 126 2,389 4,103 2,798 6,186
Operating costs and expenses:
Cost of sales.............. -- 79 848 2,051 1,143 3,136
Charge for acquired
in-process research and
development............. -- 2,001 -- 488 488 --
Research and development
(including $99 for the
period from June 10,
1993 through December
31, 1993 and $73 in 1994
paid to EndoSonics)..... 245 489 1,228 1,683 1,420 2,610
Marketing and sales........ -- 94 748 1,526 1,120 2,094
General and administrative
(including $62 for the
period from June 10,
1993 through December
31, 1993, and $227,
$340, $54 and $156 for
the years ended December
31, 1994 and 1995 and
the nine-month periods
ended September 30, 1995
and 1996, respectively,
paid to EndoSonics)..... 34 62 587 1,331 981 922
----- ------- ------- ------- ------- -------
Total operating
costs and
expenses......... 279 2,725 3,411 7,079 5,152 8,762
----- ------- ------- ------- ------- -------
Loss from operations......... (279) (2,599) (1,022) (2,976) (2,354) (2,576)
Other income:
Interest income............ 6 6 -- 42 29 694
Distributorship fees and
other income............ 4 13 51 60 48 37
----- ------- ------- ------- ------- -------
Total other
income........... 10 19 51 102 77 731
----- ------- ------- ------- ------- -------
Net loss..................... $ (269) $(2,580) $ (971) $(2,874) $(2,227) $(1,845)
===== ======= ======= ======= ======= =======
Pro forma net loss per
share...................... $ (.25) $ (.65) $ (.51) $ (.29)
======= ======= ======= =======
Shares used in computing pro
forma net loss per share... 3,876 4,441 4,433 6,462
======= ======= ======= =======
</TABLE>

See accompanying notes.

F-4
<PAGE> 56

CARDIOVASCULAR DYNAMICS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS'
PREFERRED STOCK COMMON STOCK ADDITIONAL EQUITY
------------------- ------------------- PAID-IN DEFERRED ACCUMULATED (NET CAPITAL
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT DEFICIENCY)
---------- ------ ---------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992
(Predecessor Entity)..... 902,500 $ 893 1,000,000 $ 1 $ 26 $ -- $ (313) $ 607
Net loss through June 9,
1993 (Predecessor
Entity)................ -- -- -- -- -- -- (269) (269)
--
-------- ----- -------- ------- ----- ------- -------
Balance at June 9, 1993
(Predecessor Entity)..... 902,500 893 1,000,000 1 26 -- (582) 338
Effects of merger with
EndoSonics Acquisition
Corp................... (902,500) (893 ) 2,240,000 2 2,310 -- 582 2,001
Net loss from June 10,
1993 to December 31,
1993................... -- -- -- -- -- -- (2,580) (2,580)
--
-------- ----- -------- ------- ----- ------- -------
Balance at December 31,
1993..................... -- -- 3,240,000 3 2,336 -- (2,580) (241)
Sale of Common Stock to
corporate investor..... -- -- 760,000 1 2,499 -- -- 2,500
Net loss................. -- -- -- -- -- -- (971) (971)
--
-------- ----- -------- ------- ----- ------- -------
Balance at December 31,
1994..................... -- -- 4,000,000 4 4,835 -- (3,551) 1,288
Additional effects of
merger with EndoSonics
Acquisition Corp....... -- -- -- -- 488 -- -- 488
Issuance of Preferred
Stock in exchange for
Common Stock........... 2,000,000 2 (4,000,000) (4) 2 -- -- --
Deferred compensation
resulting from grant of
options................ -- -- -- -- 345 (345) -- --
Net loss................. -- -- -- -- -- -- (2,874) (2,874)
--
-------- ----- -------- ------- ----- ------- -------
Balance at December 31,
1995..................... 2,000,000 2 -- -- 5,670 (345) (6,425) (1,098)
Sale of Preferred Stock
to EndoSonics
(unaudited)............ 400,000 -- -- -- 8,000 -- -- 8,000
Conversion of Preferred
Stock (unaudited)...... (2,400,000) (2 ) 2,400,000 2 -- -- -- --
Exercise of Common Stock
Options (unaudited).... -- -- 38,000 -- 76 -- -- 76
Common Stock Split
2-for-1 (unaudited).... -- -- 2,438,000 3 (3) -- -- --
Initial Public Offering
of Common Stock
(unaudited)............ -- -- 3,910,000 4 42,764 -- -- 42,768
Deferred compensation
resulting from grant of
options (unaudited).... -- -- -- -- 150 (150) -- --
Amortization of deferred
compensation
(unaudited)............ -- -- -- -- -- 88 -- 88
Net loss (unaudited)..... -- -- -- -- -- -- (1,845) (1,845)
--
-------- ----- -------- ------- ----- ------- -------
Balance at September 30,
1996 (unaudited)......... -- $ -- 8,786,000 $ 9 $ 56,657 $ (407) $(8,270) $47,989
======== ===== ======== == ======= ===== ======= =======
</TABLE>

See accompanying notes.

F-5
<PAGE> 57

CARDIOVASCULAR DYNAMICS, INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PREDECESSOR ENTITY JUNE 10, NINE-MONTH
------------------ 1993 YEAR ENDED PERIOD ENDED
JANUARY 1, 1993 THROUGH DECEMBER 31, SEPTEMBER 30,
THROUGH DECEMBER 31, ----------------- -----------------
JUNE 9, 1993 1993 1994 1995 1995 1996
------------------ ------------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating activities
Net loss.................................. $ (269) $ (2,580) $ (971) $(2,874) $(2,277) $(1,845)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........... 7 6 18 74 49 135
Amortization of deferred compensation... -- -- -- -- 88
Charge for acquired in-process research
and development....................... -- 2,001 -- 488 488 --
Net changes in:
Trade accounts receivable, net........ -- (65) (662) (390) (350) (966)
Receivable from related parties....... -- -- (125) 125 125 --
Inventories........................... -- (36) (14) (704) (357) (1,242)
Other assets.......................... -- -- -- (54) 4 (136)
Accounts payable and accrued
expenses............................ 12 (41) 273 1,369 996 2,476
Deferred distributor fee revenue...... 246 (13) (50) (54) (41) (37)
----- ------- ------- ------- ------- -------
Net cash used in operating activities..... (4) (728) (1,531) (2,020) (1,363) (1,527)
Investing activities
Capital expenditures for furniture,
fixtures and equipment.................. (17) (10) (35) (443) (419) (566)
Change in other assets.................... -- -- -- (81) (39) (405)
----- ------- ------- ------- ------- -------
Net cash used in investing activities..... (17) (10) (35) (524) (458) (971)
Financing activities
Proceeds from issuance of convertible
obligation.............................. -- -- -- 750 750 --
Proceeds from sale of Common Stock........ -- -- 2,500 -- -- 42,844
Proceeds from sale of Preferred Stock to
Parent.................................. -- -- -- -- -- 8,000
Payable to Parent, net.................... -- 656 1,898 (17) (235) (2,537)
----- ------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities.............................. -- 656 4,398 733 515 48,307
----- ------- ------- ------- ------- -------
Net increase (decrease) in cash........... (21) (82) 2,832 (1,811) (1,306) 45,809
Cash, beginning of period................. 650 629 547 3,379 3,379 1,568
----- ------- ------- ------- ------- -------
Cash, end of period....................... $ 629 $ 547 $ 3,379 $ 1,568 $ 2,073 $47,377
===== ======= ======= ======= ======= =======
</TABLE>

See accompanying notes.

F-6
<PAGE> 58

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Business and Basis of Presentation

CardioVascular Dynamics, Inc. (the "Predecessor") was incorporated on March
16, 1992 in the State of California. The Predecessor, and its successor
corporation discussed below, develops, manufactures and markets proprietary
therapeutic catheters used to treat certain vascular diseases.

In June 1992, EndoSonics Corporation ("EndoSonics") acquired a 40%
preferred interest in the Predecessor. EndoSonics, a Delaware corporation,
develops, manufactures, and markets intravascular ultrasound imaging systems and
diagnostic, therapeutic and imaging catheters for the treatment of coronary and
peripheral vascular disease.

In June 1993, EndoSonics acquired all of the remaining Preferred and Common
Stock of the Predecessor. The acquisition was accomplished through a merger
between the Predecessor and EndoSonics Acquisition Corp., a wholly owned
subsidiary of EndoSonics (which then changed its name to CardioVascular
Dynamics, Inc.). The merger was treated as a tax-free reorganization for income
tax purposes. The accompanying financial statements present the results of
operations, cash flows and changes in stockholders' equity for the Predecessor
through June 9, 1993, and of CardioVascular Dynamics, Inc. (hereinafter referred
to as "CVD" or the "Company") thereafter. For practical purposes the actual
cut-off date was June 30, 1993; however, the activity between June 10, 1993 and
June 30, 1993 was not material.

The acquisition by EndoSonics resulted in a new basis for the CVD assets
and liabilities. Accordingly, the purchase price paid by EndoSonics has been
allocated to the identifiable assets and liabilities, including in-process
research and development, which was immediately expensed as no CVD products had
received regulatory approval and the technology did not have identifiable
alternative uses. The amount by which the purchase price exceeded the
Predecessor's net book value has been reflected as paid-in capital in the
accompanying financial statements. Pursuant to the terms of the original merger
agreement, in June 1995 EndoSonics issued an additional 50,000 shares of its
Common Stock to the former shareholders of the Predecessor. The fair market
value of such shares of $488 has been reflected in the accompanying financial
statements as an additional charge for acquired in-process technology.

Subsequent to the acquisition, EndoSonics began performing certain services
for CVD (see Note 3), including general management, accounting, cash management,
and other administrative and engineering services. The amounts charged to CVD
for such services have been determined based on proportional cost allocations
and have been agreed to by the management of CVD and EndoSonics. In the opinion
of CVD's management, the allocation methods used are reasonable. Such
allocations, however, are not necessarily indicative of costs that would have
been incurred had CVD continued to operate independent of EndoSonics. No formal
agreement currently exists which specifies the nature of services to be provided
by EndoSonics to CVD, or the charges for such services. Therefore, the 1995
amounts are not necessarily indicative of the future charges to be incurred by
CVD.

In 1994, the Board of Directors of CVD approved a 16,200-for-1 Common Stock
split which has been reflected retroactively for all periods subsequent to the
merger in the accompanying financial statements (See Note 11).

Interim Results

The accompanying balance sheet as of September 30, 1996 and the statements
of operations, stockholders' equity and cash flows for the nine months ended
September 30, 1995 and 1996 are unaudited. In the

F-7
<PAGE> 59

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

opinion of management, the statements have been prepared on the same basis as
the audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for the fair statement of the results of
interim periods. The data disclosed in these notes to the financial statements
for these periods are unaudited.

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 period. Actual results could differ from those
estimates.

Inventories

Inventories are comprised of raw materials, work-in-process and finished
goods and are stated at the lower of cost, determined on an average cost basis,
or market value.

Property and Equipment

Property and equipment are stated at cost and depreciated or amortized on a
straight-line basis over the lesser of the estimated useful lives of the assets
or the lease term. The estimated useful lives range from three to five years.

Concentrations of Credit Risk and Significant Customers

The Company maintains its cash and cash equivalents in deposit accounts and
in pooled investment accounts administered by a major financial institution.

The Company sells its products primarily to medical institutions and
distributors worldwide. The Company performs ongoing credit evaluations of its
customers' financial condition and generally does not require collateral from
customers. Management believes that an adequate allowance for doubtful accounts
has been provided.

During 1994 and 1995, product sales to Fukuda Denshi Co., Ltd., ("Fukuda"),
the Company's Japanese distributor (see Note 4), comprised 61% and 18% of total
revenue. Accounts receivable from Fukuda represented 78% and 15% of net accounts
receivable at December 31, 1994 and 1995, respectively.

During the period from June 10, 1993 to December 31, 1993, product sales to
another of the Company's international distributors comprised 57% of total
revenue. One customer comprised 12% of revenues for the year ended December 31,
1995 and 14% of accounts receivable at December 31, 1995.

Export Sales

The Company had export sales by region as follows:

<TABLE>
<CAPTION>
NINE-MONTH
PERIOD FROM YEAR ENDED PERIOD ENDED
JUNE 10, 1993 TO DECEMBER 31, SEPTEMBER
DECEMBER 31, --------------- 30,
1993 1994 1995 1996
---------------- ---- ------ ------------
<S> <C> <C> <C> <C>
Europe................................. $101 $255 $1,179 $ 999
Japan.................................. -- 715 744 1,227
Latin America.......................... -- -- 131 127
Other.................................. -- -- -- 228
---- ---- ------ ------
$101 $970 $2,054 $2,581
==== ==== ====== ======
</TABLE>

F-8
<PAGE> 60

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Revenue Recognition and Warranty

The Company recognizes revenue from the sale of its products when the goods
are shipped to its customers. Reserves are provided for anticipated product
returns and warranty expenses at the time of shipment.

Accounting for Stock-Based Compensation

In October 1995, the Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") was issued and is
effective for the Company's 1996 year end. The Company intends to continue to
account for employee stock options in accordance with APB Opinion No. 25 and
will make the pro forma disclosures required by SFAS 123 beginning in 1996.

Income Taxes

Since June 1993, the Company's results of operations have been included in
consolidated tax returns filed by EndoSonics. There was no income tax provision
for the consolidated tax group during the periods covered by these financial
statements. All net operating loss and credit carryforwards and deferred tax
assets and liabilities have been disclosed herein on a separate company basis
for CVD.

Pro Forma Net Loss Per Share

Pro forma net loss per share is computed using the weighted average number
of shares of Common Stock, convertible Preferred Stock (using the
as-if-converted method) and Common Stock issuable upon conversion of the
Convertible Obligation, outstanding. Common equivalent shares from stock options
and warrants are not included as the effect is anti-dilutive, except that in
accordance with Securities and Exchange Commission Staff Accounting Bulletins,
common equivalents shares issued by the Company at prices substantially below
the anticipated initial public offering price during the period beginning one
year prior to the proposed public offering have been included in the calculation
as if they were outstanding for all periods presented (using the treasury stock
method and the estimated initial public offering price).

Net loss per share information calculated in accordance with APB Opinion
No. 15 for the periods from January 1, 1993 to June 9, 1993 (predecessor entity)
and from June 10, 1993 to December 31, 1993 has not been presented as such
information is not meaningful as a result of the changes in the Company's
capital structure during those periods.

2. SCIMED LIFE SYSTEMS, INC.

In September 1994, CVD and EndoSonics entered into a Stock Purchase and
Technology License Agreement with SCIMED Life Systems, Inc. ("SCIMED"). SCIMED
acquired a 19% interest in CVD in exchange for $2,500 in cash. If the Company
has not completed an initial public offering, or in certain other circumstances,
at the three year anniversary of the agreement, SCIMED may exchange its shares
of CVD Series A Preferred Stock for shares of EndoSonics Common Stock at a
guaranteed conversion rate such that the value of the EndoSonics shares issued
will not be less than $2,500. The Company also granted SCIMED the right, through
the earlier of December 31, 1997 or the effective date of an initial
registration, and offering of CVD shares to the public, to maintain its 19%
ownership interest ("anti-dilution right").

CVD also granted SCIMED an exclusive license to certain patents in the
cardiovascular field of use, which allows SCIMED to manufacture the Transport
PTCA infusion catheter (the "Transport") developed by CVD in exchange for a
$1,000 license fee that was paid in 1994. SCIMED will pay royalties to CVD on
sales of the Transport and other products which use this patented technology.
CVD retains rights to this technology and the associated patents for use outside
of the cardiovascular field.

F-9
<PAGE> 61

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

During June 1995, the Company issued a warrant to SCIMED to purchase up to
40,000 shares of Series A Preferred Stock at an exercise price of $6.58 per
share in exchange for a waiver of SCIMED's anti-dilution right. The warrant
expires in September 1997.

SCIMED also paid CVD $220 and $641 in 1994 and 1995, respectively, on a
cost reimbursement basis to fund continuing development of the technology and
for other support. Additionally, the Company recorded $43 in product sales to
SCIMED during 1994 (none in 1995) and had accounts receivable from SCIMED
totaling $125 as of December 31, 1994, none at December 31, 1995 and September
30, 1996.

3. RELATED PARTY TRANSACTIONS

The following is a summary of significant transactions between CVD and
EndoSonics:

- During 1994 and a portion of 1995, EndoSonics manufactured certain of the
Company's catheter products at cost plus a mark-up of 30%. Total
purchases from EndoSonics during 1994 and 1995 amounted to $843 and $172,
respectively. In addition, during 1994 EndoSonics performed certain
billing and collection services for CVD in return for a fee per invoice
which aggregated to $10.

- Beginning in August 1993, certain EndoSonics corporate expenses,
primarily related to executive management time, accounting, cash
management, and other administrative and engineering services, have been
allocated to the Company. Total expenses allocated were $161 for the
period from June 10, 1993 to December 31, 1993, and $290, $340, $54 and
$156 for the years ended December 31, 1994 and 1995 and for the
nine-month periods ended September 30, 1995 and 1996, respectively.

No interest expense has been charged on the net payable due to EndoSonics.
The following is an analysis of the payable to EndoSonics:

<TABLE>
<CAPTION>
NINE-MONTH
PERIOD FROM YEAR ENDED PERIOD ENDED
JUNE 10, 1993 TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------- ---------------
1993 1994 1995 1995 1996
---------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Beginning balance............................... $ -- $ 656 $2,554 $2,554 $2,537
Inventory purchases............................. 105 843 172 172 --
Corporate cost allocations...................... 161 300 340 162 156
Cash disbursements made by EndoSonics
on behalf of CVD.............................. 430 1,730 312 131 --
Cash collections made by EndoSonics on
behalf of CVD................................. (39) (318) (700) (700) --
Cash payments to EndoSonics..................... -- (549) -- -- (2,693)
Cash disbursements made by CVD on behalf of
EndoSonics and other.......................... (1) (108) (141) -- --
---- ------ ------ ------ ------
Ending balance.................................. $656 $2,554 $2,537 $2,319 $ --
==== ====== ====== ====== ======
Average balance during period................... $280 $1,750 $2,551 $2,272 $2,631
==== ====== ====== ====== ======
</TABLE>

(See Notes 5 and 11)

4. AGREEMENTS WITH FUKUDA

The Company has executed a distribution agreement with Fukuda. The
agreement provides Fukuda with exclusive distribution rights relative to certain
of the Company's products in Japan for periods extending through May 1999, which
may be extended at the option of the parties. Distribution fee revenue received
from Fukuda are deferred and are being recognized as revenue over the initial
periods covered by the respective agreements.

F-10
<PAGE> 62

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In July 1995 and May 1996, the distribution agreement with Fukuda was
amended. In exchange for the exclusive distribution rights to additional CVD
products, the Company received $750,000 which converted into the right to
receive 62,500 shares of Common Stock upon the consummation of the initial
public offering. The Company has accounted for this as a convertible obligation
payable as of December 31, 1995.

5. LICENSE AGREEMENTS

In January 1995 the Company entered into a license agreement with Advanced
CardioVascular Systems, Inc. ("ACS") under which the Company acquired the
exclusive worldwide rights to ACS' SmartNeedle technology. ACS currently
manufactures the product for the Company. The Company is obligated to assume
responsibility for manufacturing the product in 1996, subject to the payment of
royalties. ACS was granted an option, which was exercised in February 1996, to
obtain exclusive worldwide rights to certain CVD perfusion technology. In
exchange for the perfusion technology, ACS is obligated to make milestone and
minimum royalty payments to CVD, and also has certain obligations to develop and
market the perfusion technology. An initial milestone of $150 was earned in the
nine-months ended September 30, 1996.

The Company has entered into a license agreement with EndoSonics pursuant
to which CVD granted EndoSonics the non-exclusive, royalty-free right to certain
technology for use in the development and sale of certain products. In exchange,
CVD received the non-exclusive, royalty-free right to utilize certain of
EndoSonics' product regulatory filings to obtain regulatory approval of CVD
products.

6. INVENTORIES

Inventories are stated at the lower of cost, determined on an average cost
basis, or market value. Inventories consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1994 1995 1996
---- ---- -------------
<S> <C> <C> <C>
Raw materials............................................ $-- $162 $ 731
Work in process.......................................... -- 330 578
Finished goods........................................... 50 262 687
--- ---- ------
$50 $754 $ 1,996
=== ==== ======
</TABLE>

7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1994 1995 1996
---- ------ -------------
<S> <C> <C> <C>
Accounts payable...................................... $122 $ 962 $ 2,401
Accrued payroll and related expenses.................. 86 352 726
Accrued warranty...................................... 20 113 --
Customer Deposits..................................... 754
Other accrued expenses................................ 87 257 279
---- ------ ------
$315 $1,684 $ 4,160
==== ====== ======
</TABLE>

F-11
<PAGE> 63

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

8. COMMITMENTS

Operating Leases

The Company leases its administrative, research and manufacturing
facilities and certain equipment under long-term, noncancelable lease agreements
that have been accounted for as operating leases. Certain of these leases
include scheduled rent increases and renewal options as prescribed by the
agreements.

Future minimum payments by year under long-term, noncancellable operating
leases were as follows as of December 31:

Rental expense charged to operations for all operating leases during the
periods from January 1, 1993 to June 9, 1993, June 10, 1993 to December 31, 1993
and the years ended December 31, 1994 and 1995, was approximately $10, $10, $60,
and $171, respectively.

9. SHAREHOLDERS EQUITY

Preferred Stock

In February 1995, every two shares of the Company's outstanding Common
Stock was exchanged for one share of Series A Preferred Stock with a liquidation
preference of $6.58 per share. In March 1996, the Company issued 400,000 shares
of Series B Preferred Stock to EndoSonics at $20.00 per share for aggregate
proceeds of $8,000.

Authorized and outstanding Preferred Stock and its principal terms are as
follows at March 31, 1996:

<TABLE>
<CAPTION>
PER SHARE
------------------------
LIQUIDATION
SERIES AUTHORIZED OUTSTANDING DIVIDEND PREFERENCE
- ----------------------------------------------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
A.............................................. 2,060,000 2,000,000 $ 0.50 $ 6.58
B.............................................. 500,000 400,000 $ 1.50 $ 20.00
Undesignated................................... 5,000,000 -- -- --
--------- ---------
7,560,000 2,400,000
========= =========
</TABLE>

The holders of Preferred Stock are entitled to receive dividends when and
if declared by the Board of Directors. These dividends are in preference to any
declaration or payment of any dividends or distributions with respect to the
Company's Common Stock. As of December 31, 1995, no dividends have been
declared.

Preferred stockholders have voting rights equivalent to the number of
shares of Common Stock into which their shares are convertible. Subject to
certain antidilution provisions and other adjustments, each share of Series A
and Series B Preferred Stock is convertible, at the holder's option, into two
shares of Common Stock. All shares of Preferred Stock convert automatically to
Common Stock upon the earlier of a public offering of the Company's Common Stock
with an aggregate offering price of $7,500 or upon the date which the Company
obtains the consent of the holders of a majority of the then-outstanding shares
of Preferred Stock.

F-12
<PAGE> 64

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Stock Option Plan

Under the terms of the Company's 1995 Stock Option Plan (the "1995 Plan")
eligible key employees, directors, and consultants can receive options to
purchase shares of the Company's Common Stock at a price not less than 100% for
incentive stock options and 85% for nonqualified stock options of the fair value
on the date of grant, as determined by the Board of Directors. The Company has
authorized 977,000 shares of Common Stock for issuance under the 1995 Plan. The
options granted under the 1995 Plan are exercisable over a maximum term of ten
years from the date of grant and generally vest over a four year period. Shares
underlying the exercise of unvested options are subject to various restrictions
as to resale and right of repurchase by the Company which lapses over the
vesting period.

Through December 31, 1995 the Company had granted options to purchase
957,000 shares of Common Stock with exercise prices ranging from $1.00 to $1.50.
An additional 233,000 options were granted during the nine-month period ended
September 30, 1996 at exercise prices ranging from $2.50 to $13.25 per share. No
options had been exercised and 125,000 options were exercisable at December 31,
1995. As of September 30, 1996, 272,333 options were exercisable, and 76,000
options had been exercised.

During 1995, the Company recorded deferred compensation of approximately
$345 for financial reporting purposes to reflect the difference between the
exercise price of certain options and the deemed fair value, for financial
statement presentation purposes, of the Company's shares of Common Stock. An
additional $150 of deferred compensation was recorded during the nine-month
period ended September 30, 1996. Deferred compensation is being amortized over
the vesting period of the related options.

10. INCOME TAXES

Significant components of the Company's deferred tax assets and liabilities
are as follows at December 31:

<TABLE>
<CAPTION>
1994 1995
--------------- ---------------
FEDERAL STATE FEDERAL STATE
------- ----- ------- -----
<S> <C> <C> <C> <C>
Net operating loss carryforward................. $ 641 $ 55 $ 1,322 $ 60
Research and development credits................ -- -- 97 25
Inventory write-downs........................... -- -- 73 13
Capitalized research and development............ -- -- -- 150
Deferred revenue................................ 64 11 45 8
Bad debt reserve................................ 30 5 63 11
Other........................................... 16 3 20 3
------ ---- ------- -----
Gross deferred tax assets....................... 751 74 1,620 270
Valuation allowance............................. (745) (73) (1,620) (270)
------ ---- ------- -----
Total deferred tax assets....................... 6 1 -- --
Other........................................... (6) (1) -- --
------ ---- ------- -----
Gross deferred tax liabilities.................. (6) (1) -- --
------ ---- ------- -----
Net deferred tax assets......................... $ -- $ -- $ -- $ --
====== ==== ======= =====
</TABLE>

The Company believes that, based on a number of factors including the lack
of an earnings history, there is uncertainty regarding the realizability of the
deferred tax assets such that a full valuation allowance has been recorded. The
valuation allowance increased by $317, $391 and $1,072 in 1993, 1994 and 1995,
respectively.

F-13
<PAGE> 65

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1995, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $3,800, which expire in the years
2006 through 2010 and net operating loss carryforwards for state tax purposes of
approximately $1,000 which expire in the years 1997 through 2000.

Because of the "change of ownership" provision of the Tax Reform Act of
1986, utilization of the Company's net operating loss carryforwards may be
subject to an annual limitation against taxable income in future periods. As a
result of the annual limitation, a portion of these carryforwards may expire
before ultimately becoming available to reduce future income tax liabilities.

11. SUBSEQUENT EVENTS

On June 19, 1996, the Company closed its initial public offering (the
"Offering") which consisted of 3,400,000 shares of Common Stock at $12.00 per
share. On July 17, 1996, the Company's underwriters exercised their
overallotment option to purchase an additional 510,000 shares of Common Stock at
$12.00 per share. CVD received net offering proceeds from the sale of Common
Stock of approximately $42,700,000 after deducting underwriting discounts and
commissions and other expenses of the Offering.

In May 1996, the Board of Directors authorized management of the Company to
file a registration statement with the Securities and Exchange Commission
authorizing the issuance of 3,400,000 shares of Common Stock to the public. Each
share of convertible Preferred Stock outstanding converted into two shares of
Common Stock and the Convertible Obligation converted into 62,500 shares of
Common Stock (assuming an initial public offering price of $12.00 per share).
Unaudited pro forma stockholders' equity, as adjusted for the assumed conversion
of the convertible Preferred Stock and Convertible Obligation described above,
is set forth on the accompanying balance sheet.

In anticipation of the Offering, the Company effected a 2-for-1 stock split
of all outstanding shares of Common Stock and options and changed the conversion
ratio of Preferred Stock to two shares of Common Stock for each Preferred share.
All Common share and per share amounts included in the accompanying financial
statements have been retroactively adjusted to reflect the stock split as well
as the change in the Preferred Stock conversion ratio.

In May 1996 the Company adopted the 1996 Stock Option/Stock Issuance Plan
(the "1996 Plan") which is the successor to the Company's existing 1995 Plan
(see Note 9). A total of 1,200,000 shares of Common Stock have been reserved for
future issuance under the 1996 Plan including those shares previously reserved
under the 1995 Plan. The 1996 Plan provides for the grant of stock options or
issuances of stock to employees, consultants and directors of the Company.

In May 1996, the Company also adopted the 1996 Employee Stock Purchase Plan
(the "Purchase Plan"). A total of 200,000 shares of Common Stock are reserved
for issuance under the Purchase Plan. The Purchase Plan permits eligible
employees to purchase Common Stock through payroll deductions at a price equal
to the lower of 85% of the fair market value of the Company's Common Stock at
the beginning or end of the applicable offering period.

During May 1996, the Company agreed to issue an additional warrant to
SCIMED to purchase up to 20,000 shares of Series A Preferred Stock at an
exercise price of $6.58 per share in exchange for a waiver of SCIMED's
anti-dilution right related to the shares to be issued under the 1996 Plan. (See
Note 2).

In connection with the offering, CVD and EndoSonics have entered into a Tax
Allocation Agreement that will provide, among other things, for (i) the
allocation of tax liabilities and adjustments thereto as between the business of
the Company and other businesses conducted by EndoSonics and its affiliates
related to periods in which the Company is includable in consolidated federal
income tax returns filed by EndoSonics, (ii) the allocation of responsibility
for filing tax returns and (iii) the conduct of and responsibility for taxes
owed in connection with tax audits and various related matters.

F-14
<PAGE> 66

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

F-15
<PAGE> 67

- ------------------------------------------------------
- ------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 2
Risk Factors.......................... 5
The Company........................... 13
Use of Proceeds....................... 13
Dividend Policy....................... 13
Selected Financial Data............... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 19
Management............................ 33
Certain Transactions.................. 40
Principal Stockholders................ 43
Description of Capital Stock.......... 45
Shares Eligible for Future Sale....... 47
Plan of Distribution.................. 49
Legal Matters......................... 49
Experts............................... 49
Index to Financial Statements......... F-1
</TABLE>

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
148,858 SHARES
CARDIOVASCULAR
DYNAMICS, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
November , 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 68

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee.

<TABLE>
<S> <C>
SEC Registration fee....................................................... $ 550
Printing and engraving..................................................... 30,000
Legal fees and expenses.................................................... 26,000
Accounting fees and expenses............................................... 15,000
Blue sky fees and expenses................................................. 5,000
Miscellaneous.............................................................. 5,000
-------
Total............................................................ $81,550
=======
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VIII of the Registrant's Bylaws
provides for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. The Registrant's Certificate
of Incorporation provides that, pursuant to Delaware law, its directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
as directors to the Company and its stockholders. This provision in the
Certificate of Incorporation does not eliminate the directors' fiduciary duty,
and in appropriate circumstances equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Registrant has entered into
Indemnification Agreements with its directors, a form of which is attached as
Exhibit 10.1 hereto and incorporated herein by reference. The Indemnification
Agreements provide the Registrant's directors with further indemnification to
the maximum extent permitted by the Delaware General Corporation Law. Reference
is also made to the Underwriting Agreement contained in Exhibit 1.1 hereto,
indemnifying officers and directors of the Registrant against certain
liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since June 1993, the Registrant has issued and sold the following
securities:

1. On September 10, 1994, the Company issued and sold an aggregate of
380,000 shares of Common Stock (subsequently recapitalized into Series A
Preferred Stock) to SCIMED for an aggregate purchase price of $2,500,000.

2. On July 17, 1995, the Company issued a $750,000 convertible
obligation to Fukuda, which converted into 62,500 shares of Common Stock at
the consummation of the initial public offering.

3. On June 30, 1995 and May 2, 1996, the Company issued warrants to
SCIMED to purchase 40,000 shares of Series A Preferred Stock and 20,000
shares of Series A Preferred Stock, respectively, each at an exercise price
of $6.58 per share. The warrants were issued in connection with the waiver
of

II-1
<PAGE> 69

certain rights by SCIMED under the Stock Purchase and Technology License
Agreement dated September 10, 1994, as amended on September 29, 1995.

4. On March 29, 1996, the Company issued and sold an aggregate of
400,000 shares of Series B Preferred Stock to EndoSonics Corporation for an
aggregate purchase price of $8,000,000.

5. On October 16, 1996, the Company issued an aggregate of 86,358
shares of Common Stock to the shareholders of Intraluminal Devices, Inc.
("IDI") in connection of the merger of IDI with and into a wholly owned
subsidiary of the Company.

The issuances of the securities described above were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of such
Act as transactions by an issuer not involving any public offering. In addition,
the recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates issued in such transactions. All
recipients had adequate access, through their relationships with the Registrant,
to information about the Registrant.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ---------------------------------------------------------------------------------
<C> <S>
1.1(1) Form of Underwriting Agreement.
2.1(3) Agreement and Plan of Reorganization dated as of June 9, 1993 among EndoSonics
Corporation ("EndoSonics"), EndoSonics Acquisition Corporation and CardioVascular
Dynamics, Inc. ("CVD").
2.2(3) First Amendment dated as of June 30, 1993 to the Agreement and Plan of
Reorganization among EndoSonics, EndoSonics Acquisition Corporation and CVD.
2.3 Agreement and Plan of Reorganization by and among CardioVascular Dynamics, Inc.,
IDI Acquisition Corporation and Intraluminal Devices, Inc. ("IDI") dated as of
October 2, 1996.
3.1(3) Certificate of Incorporation.
3.2(3) Amended Bylaws.
4.1(1) Specimen Certificate of Common Stock.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1(3) Form of Indemnification Agreement to be entered into between the Registrant and
its directors and officers.
10.2(3) The Registrant's 1996 Stock Option Plan and forms of agreements thereunder.
10.3(3) The Registrant's Employee Stock Purchase Plan and forms of agreement thereunder.
10.4(3) Series A Supplemental Stock Purchase Agreement dated June 5, 1992, by and between
the Company and CVD.
10.5(3) Stock Purchase Option Agreement dated June 5, 1992, by and between EndoSonics and
CVD.
10.6(3)* Japanese Distribution Agreement dated May 28, 1993, as amended on October 27,
1994 and July 17, 1995, (the "Japanese Distribution Agreements") by and between
CVD and Fukuda Denshi Co., Ltd. ("Fukuda")
10.7(3)* Stock Purchase and Technology License Agreement dated September 10, 1994, as
amended on September 29, 1995, by and among EndoSonics, CVD and SCIMED Life
Systems, Inc. ("SCIMED").
10.8(3) Waiver and Grant of Warrant dated June 30, 1995 by and between SCIMED, CVD and
Endosonics.
10.9(3)* License Agreement dated January 15, 1995 by and between CVD and Advanced
CardioVascular Systems, Inc. ("ACS").
10.10(3)* License Agreement dated March 4, 1996 by and between CVD and ACS.
</TABLE>

II-2
<PAGE> 70

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ---------------------------------------------------------------------------------
<C> <S>
10.11(3) Series B Stock Purchase Agreement dated March 29, 1996 by and between CVD and
EndoSonics.
10.12(3) License Agreement dated December 22, 1995 by and between CVD and EndoSonics.
10.13(1) Form of Stockholder Agreement with EndoSonics.
10.14(1) Form of Tax Allocation Agreement with EndoSonics.
10.15(3) Industrial Lease dated February 23, 1995 by and between the Irvine Company and
CVD.
10.16(1) Waiver and Grant of Warrant dated May 2, 1996 by and between SCIMED, CVD and
Endosonics.
10.17(2) Amendment to Japanese Distribution Agreements dated May 13, 1996 by and between
CVD and Fukuda.
10.18(4)* Supply Agreement dated July 15, 1996 by and between CVD and Medtronic, Inc.
10.19(4)* OEM Agreement dated July 15, 1996 by and between CVD and Medtronic, Inc.
11.1(1) Computation of Earnings Per Share.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2(1) Consent of Brobeck, Phleger & Harrison LLP (Reference is made to Exhibit 5.1).
24.1(3) Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>

- ---------------
* Confidential treatment requested.

(1) Previously filed as an exhibit to Amendment No. 2 to the Company's
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on June 10, 1996.

(2) Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on May 17, 1996.

(3) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on May 3, 1996.

(4) Previously filed as an exhibit to the Company's report on Form 10-Q filed
with the Securities and Exchange Commission on August 14, 1996.

(B) FINANCIAL STATEMENT SCHEDULES

Schedule II -- Valuation and Qualifying Accounts

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, Indemnification Agreements
entered into between the Registrant and its directors, the Underwriting
Agreement, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered hereunder,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnifica-

II-3
<PAGE> 71

tion by it is against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.

The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 72

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Irvine,
State of California, on this 7th day of November, 1996.

CARDIOVASCULAR DYNAMICS, INC.

By: /s/ MICHAEL R. HENSON

------------------------------------
Michael R. Henson
President, Chief Executive Officer
and Chairman of the Board

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael R. Henson and Dana P. Nickell, and each
of them, with full power to act without the other, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement, and any and all amendments
thereto (including pre- and post-effective amendments) or any registration
statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file the same,
with exhibits and schedules thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing necessary or desirable to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------- ------------------
<C> <S> <C>
/s/ MICHAEL R. HENSON President, Chief Executive November 7, 1996
- ------------------------------------------ Officer (Principal Executive
(Michael R. Henson) Officer) and Chairman
/s/ DANA P. NICKELL Vice President, Finance and November 7, 1996
- ------------------------------------------ Administration and Chief
Dana P. Nickell Financial Officer and Secretary
(Principal Financial and
Accounting Officer)
/s/ WILLIAM G. DAVIS Director November 7, 1996
- ------------------------------------------
(William G. Davis)
/s/ MITCHELL DANN Director November 7, 1996
- ------------------------------------------
(Mitchell Dann)
/s/ GERARD VON HOFFMAN Director November 7, 1996
- ------------------------------------------
(Gerard von Hoffman)
/s/ EDWARD M. LEONARD Director and Assistant November 7, 1996
- ------------------------------------------ Secretary
(Edward M. Leonard)
</TABLE>
<PAGE> 73

CARDIOVASCULAR DYNAMICS, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN C
----------------------
COLUMN B ADDITIONS COLUMN E
---------- ---------------------- ----------
COLUMN A BALANCE AT CHARGES TO CHARGED COLUMN D BALANCE AT
- ------------------------------------------ BEGINNING COST AND TO OTHER ---------- END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------------ ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful accounts......... $ 85 $ 95 $ -- $ -- $180
Accrued warranty expenses............... $ 20 $ 93 $ -- $ -- $113
Year ended December 31, 1994
Allowance for doubtful accounts......... $ -- $ 85 $ -- $ -- $ 85
Accrued warranty expenses............... $ -- $ 20 $ -- $ -- $ 20
Year ended December 31, 1993
Allowance for doubtful accounts......... $ -- $ -- $ -- $ -- $ --
Accrued warranty expenses............... $ -- $ -- $ -- $ -- $ --
</TABLE>

S-1
<PAGE> 74

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

EXHIBITS
TO

FORM S-1

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

------------------

CARDIOVASCULAR DYNAMICS, INC.
------------------

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 75

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
- ---------- -----------------------------------------------------------------------------------------
<C> <S> <C>
1.1(1) Form of Underwriting Agreement.
2.1(3) Agreement and Plan of Reorganization dated as of June 9, 1993 among
EndoSonics Corporation ("EndoSonics"), EndoSonics Acquisition Corporation
and CardioVascular Dynamics, Inc. ("CVD").
2.2(3) First Amendment dated as of June 30, 1993 to the Agreement and Plan of
Reorganization among EndoSonics, EndoSonics Acquisition Corporation and CVD.
2.3 Agreement and Plan of Reorganization by and among CardioVascular Dynamics,
Inc., IDI Acquisition Corporation and Intraluminal Devices, Inc. ("IDI")
dated as of October 2, 1996.
3.1(3) Certificate of Incorporation.
3.2(3) Amended Bylaws.
4.1(1) Specimen Certificate of Common Stock.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1(3) Form of Indemnification Agreement to be entered into between the Registrant
and its directors and officers.
10.2(3) The Registrant's 1996 Stock Option Plan and forms of agreements thereunder.
10.3(3) The Registrant's Employee Stock Purchase Plan and forms of agreement
thereunder.
10.4(3) Series A Supplemental Stock Purchase Agreement dated June 5, 1992, by and
between the Company and CVD.
10.5(3) Stock Purchase Option Agreement dated June 5, 1992, by and between
EndoSonics and CVD.
10.6(3)* Japanese Distribution Agreement dated May 28, 1993, as amended on October
27, 1994 and July 17, 1995, (the "Japanese Distribution Agreements") by and
between CVD and Fukuda Denshi Co., Ltd. ("Fukuda")
10.7(3)* Stock Purchase and Technology License Agreement dated September 10, 1994, as
amended on September 29, 1995, by and among EndoSonics, CVD and SCIMED Life
Systems, Inc. ("SCIMED").
10.8(3) Waiver and Grant of Warrant dated June 30, 1995 by and between SCIMED, CVD
and Endosonics.
10.9(3)* License Agreement dated January 15, 1995 by and between CVD and Advanced
CardioVascular Systems, Inc. ("ACS").
10.10(3)* License Agreement dated March 4, 1996 by and between CVD and ACS.
10.11(3) Series B Stock Purchase Agreement dated March 29, 1996 by and between CVD
and EndoSonics.
10.12(3) License Agreement dated December 22, 1995 by and between CVD and EndoSonics.
10.13(1) Form of Stockholder Agreement with EndoSonics.
10.14(1) Form of Tax Allocation Agreement with EndoSonics.
10.15(3) Industrial Lease dated February 23, 1995 by and between the Irvine Company
and CVD.
10.16(1) Waiver and Grant of Warrant dated May 2, 1996 by and between SCIMED, CVD and
Endosonics.
10.17(2) Amendment to Japanese Distribution Agreements dated May 13, 1996 by and
between CVD and Fukuda.
10.18(4)* Supply Agreement dated July 15, 1996 by and between CVD and Medtronic, Inc.
</TABLE>
<PAGE> 76

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
- ---------- -----------------------------------------------------------------------------------------
<C> <S> <C>
10.19(4)* OEM Agreement dated July 15, 1996 by and between CVD and Medtronic, Inc.
11.1(1) Computation of Earnings Per Share.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2(1) Consent of Brobeck, Phleger & Harrison LLP (Reference is made to Exhibit
5.1).
24.1(3) Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>

- ---------------

* Confidential treatment requested.

(1) Previously filed as an exhibit to Amendment No. 2 to the Company's
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on June 10, 1996.

(2) Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on May 17, 1996.

(3) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on May 3, 1996.

(4) Previously filed as an exhibit to the Company's report on Form 10-Q filed
with the Securities and Exchange Commission on August 14, 1996.

<PAGE> 1
EXHIBIT 2.3

AGREEMENT AND PLAN OF REORGANIZATION

BY AND AMONG

CARDIOVASCULAR DYNAMICS, INC.,

IDI ACQUISITION CORPORATION

AND

INTRALUMINAL DEVICES, INC.

DATED AS OF

OCTOBER 2, 1996

<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I THE MERGER.................................................................................. 1
1.1 The Merger........................................................................... 1
1.2 Closing; Effective Time.............................................................. 2
1.3 Effect of the Merger................................................................. 2
1.4 Articles of Incorporation; Bylaws.................................................... 2
1.5 Directors and Officers............................................................... 2
1.6 Effect on Capital Stock.............................................................. 3
1.7 Surrender of Certificates............................................................ 4
1.8 No Further Ownership Rights in Target Capital Stock.................................. 6
1.9 Lost, Stolen or Destroyed Certificates............................................... 6
1.10 Tax and Accounting Consequences...................................................... 6
1.11 Exemption from Registration.......................................................... 6
1.12 Taking of Necessary Action; Further Action........................................... 6

ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET................................................... 7
2.1 Organization, Standing and Power..................................................... 7
2.2 Capital Structure.................................................................... 7
2.3 Authority............................................................................ 8
2.4 Financial Statements................................................................. 9
2.5 Absence of Certain Changes........................................................... 9
2.6 Absence of Undisclosed Liabilities................................................... 10
2.7 Litigation........................................................................... 10
2.8 Restrictions on Business Activities.................................................. 10
2.9 Governmental Authorization........................................................... 10
2.10 Title to Property.................................................................... 10
2.11 Intellectual Property................................................................ 11
2.12 Environmental Matters................................................................ 12
2.13 Taxes................................................................................ 13
2.14 Employee Benefit Plans............................................................... 15
2.15 Certain Agreements Affected by the Merger............................................ 17
2.16 Employee Matters..................................................................... 17
2.17 Interested Party Transactions........................................................ 18
2.18 Insurance............................................................................ 18
2.19 Compliance With Laws................................................................. 18
2.20 Minute Books......................................................................... 18
2.21 Complete Copies of Materials......................................................... 18
2.22 Brokers' and Finders' Fees........................................................... 18
2.23 Registration Statement; Proxy Statement/Prospectus on Form S-1....................... 18
</TABLE>

<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
2.24 Affiliate and Shareholder Agreement; Irrevocable Proxies............................. 19
2.25 Vote Required........................................................................ 19
2.26 Board Approval....................................................................... 19
2.27 Inventory............................................................................ 19
2.28 Accounts Receivable.................................................................. 20
2.29 Customers and Suppliers.............................................................. 20
2.30 Representations Complete............................................................. 20
2.31 Liabilities Assumed.................................................................. 20

ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND
MERGER SUB............................................................................................. 21
3.1 Organization, Standing and Power..................................................... 21
3.2 Capital Structure.................................................................... 21
3.3 Authority............................................................................ 21
3.4 SEC Documents; Financial Statements.................................................. 22
3.5 Absence of Certain Changes........................................................... 23
3.6 Absence of Undisclosed Liabilities................................................... 24
3.7 Broker's and Finders' Fees........................................................... 24
3.8 Registration Statement............................................................... 24
3.9 Representations Complete............................................................. 24

ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME........................................................ 25
4.1 Conduct of Business of Target and Acquiror........................................... 25
4.2 Conduct of Business of Target........................................................ 26
4.3 No Negotiation or Solicitation....................................................... 28

ARTICLE V ADDITIONAL AGREEMENTS....................................................................... 29
5.1 Consent Solicitation................................................................. 29
5.2 Stockholders Consents/Proxies........................................................ 29
5.3 Access to Information................................................................ 30
5.4 Confidentiality...................................................................... 30
5.5 Public Disclosure.................................................................... 30
5.6 Consents; Cooperation................................................................ 31
5.7 Affiliate and Shareholder Agreements................................................. 31
5.8 Irrevocable Proxies.................................................................. 31
5.9 FIRPTA............................................................................... 31
5.10 Legal Requirements................................................................... 32
5.11 Blue Sky Laws........................................................................ 32
5.12 Employee Benefit Plans............................................................... 32
5.13 Escrow Agreement..................................................................... 33
5.14 Registration Rights.................................................................. 33
5.15 Shareholder Agreements............................................................... 33
5.16 Listing of Additional Shares......................................................... 33
5.17 Employee............................................................................. 33
</TABLE>

ii.

<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
5.18 Reorganization....................................................................... 33
5.19 Expenses............................................................................. 33
5.20 Intentionally Omitted................................................................ 34
5.21 Reasonable Commercial Efforts and Further Assurances................................. 34
5.22 Purchase Price Adjustment............................................................ 34

ARTICLE VI CONDITIONS TO THE MERGER................................................................... 35
6.1 Conditions to Obligations of Each Party to Effect the Merger......................... 35
6.2 Tax Opinion.......................................................................... 36
6.3 Additional Conditions to Obligations of Target....................................... 36
6.4 Additional Conditions to the Obligations of Acquiror and Merger Sub.................. 36

ARTICLE VII TERMINATION, AMENDMENT AND WAIVER......................................................... 38
7.1 Termination.......................................................................... 38
7.2 Effect of Termination................................................................ 39
7.3 Expenses and Termination Fees........................................................ 39
7.4 Amendment............................................................................ 40
7.5 Extension; Waiver.................................................................... 40

ARTICLE VIII ESCROW AND INDEMNIFICATION............................................................... 41
8.1 Escrow Fund.......................................................................... 41
8.2 Indemnification...................................................................... 41
8.3 Damage Threshold..................................................................... 42
8.4 Escrow Period........................................................................ 43
8.5 Claims upon Escrow Fund.............................................................. 43
8.6 Objections to Claims................................................................. 44
8.7 Resolution of Conflicts; Arbitration................................................. 44
8.8 Shareholders' Agent.................................................................. 45
8.9 Actions of the Shareholders' Agent................................................... 46
8.10 Third-Party Claims................................................................... 46

ARTICLE IX GENERAL PROVISIONS......................................................................... 46
9.1 Non-Survival at Effective Time....................................................... 46
9.2 Notices.............................................................................. 46
9.3 Interpretation....................................................................... 47
9.4 Counterparts......................................................................... 48
9.5 Entire Agreement; Nonassignability; Parties in Interest.............................. 48
9.6 Severability......................................................................... 48
9.7 Remedies Cumulative.................................................................. 49
9.8 Governing Law........................................................................ 49
9.9 Rules of Construction................................................................ 49
9.10 Attorneys' Fees...................................................................... 49
</TABLE>

iii.

<PAGE> 5
EXHIBITS

Exhibit A - Certificate of Merger
Exhibit B - Affiliate and Shareholder Agreement
Exhibit C - Irrevocable Proxies
Exhibit D - FIRPTA Notice
Exhibit E - Escrow Agreement
Exhibit F - Declaration of Registration Rights
Exhibit G - Acquiror's Corporate Legal Opinion
Exhibit H - Target's Corporate Legal Opinion
Exhibit I - Form of Employment Agreement

SCHEDULES

Target Disclosure Schedule
Acquiror Disclosure Schedule

Schedule 2.10 - Target Real Property
Schedule 2.11 - Target Intellectual Property,
Schedule 2.14 - Target Employee Benefit Plans
Schedule 2.21 - Material Contracts and Agreements
Schedule 2.31 - Assumed Liabilities
Schedule 5.7 - Target "Affiliates"
Schedule 5.12 - Holders of Outstanding Options
Schedule 6.4(a) - Representations and Warranties
Schedule 6.4(c) - List of Third Party Consents

iv.

<PAGE> 6
AGREEMENT AND PLAN OF REORGANIZATION

This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of October 2, 1996, by and among CardioVascular Dynamics, Inc.,
a Delaware corporation ("Acquiror"), IDI Acquisition Corporation, a Delaware
corporation ("Merger Sub") and wholly owned subsidiary of Acquiror, and
Intraluminal Devices, Inc., a California corporation ("Target").

RECITALS

A. The Boards of Directors of Target, Acquiror and Merger Sub believe
it is in the best interests of their respective companies and the shareholders
of their respective companies that Target and Merger Sub combine into a single
company through the statutory merger of Target with and into Merger Sub (the
"Merger") and, in furtherance thereof, have approved the Merger.

B. Pursuant to the Merger, among other things, the outstanding shares
of Target Preferred Stock ("Target Preferred Stock") and Target Common Stock
("Target Common Stock") shall be converted into shares of Acquiror Common Stock
("Acquiror Common Stock"), at the rate set forth herein.

C. Target, Acquiror and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.

D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization that will qualify as a reorganization under the provisions of
sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as
amended (the "Code").

NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:

ARTICLE I

THE MERGER

1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the Certificate
of Merger attached hereto as Exhibit A (the "Agreement of Merger") and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
Target shall be merged with and into Merger Sub, the separate corporate
existence of Target shall cease and Merger Sub shall continue as the surviving
corporation. Merger Sub as the surviving

<PAGE> 7
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."

1.2 Closing; Effective Time. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in Article
VI hereof or at such other time as the parties hereto agree (the "Closing
Date"). The Closing shall take place at the offices of Brobeck, Phleger &
Harrison LLP, 4675 MacArthur Court, Suite 1000, Newport Beach, California, or at
such other location as the parties hereto agree. In connection with the Closing,
the parties hereto shall cause the Merger to be consummated by filing the
Certificate of Merger with the Secretary of State of the State of Delaware, in
accordance with the relevant provisions of Delaware Law (the time of such filing
being the "Effective Time").

1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Target and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Target and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.

1.4 Articles of Incorporation; Bylaws.

(a) At the Effective Time, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such Certificate of Incorporation;
provided, however, that Article I of the Certificate of Incorporation of the
Surviving Corporation shall be amended to read as follows: "The name of the
corporation is IDI Acquisition Corporation.

(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.

1.5 Directors and Officers. At the Effective Time, the directors of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
directors of the Surviving Corporation, until their respective successors are
duly elected or appointed and qualified. The officers of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the initial officers of
the Merger Sub, until their respective successors are duly elected or appointed
and qualified.

<PAGE> 8
1.6 Effect on Capital Stock. By virtue of the Merger and without any
action on the part of Merger Sub, Target or the holders of any of the following
securities:

(a) Conversion of Target Common Stock. At the Effective Time, each
share of Target Common Stock and Target Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Target Capital
Stock ("Target Capital Stock") to be canceled pursuant to Section 1.6(b)) will
be canceled and extinguished and be converted automatically into the right to
receive that number of shares of Acquiror Common Stock obtained by first
dividing $1,400,000 by the average of the closing prices of Acquiror Common
Stock as reported by the National Association of Securities Dealers through the
Nasdaq National Market System for the three Trading Days immediately preceding
the Closing (the "Closing Price") and then dividing that amount by the
outstanding Target Capital Stock (which shall include all shares of Target
Common Stock subject to outstanding options), which quotient is referred to as
the "Exchange Ratio." A "Trading Day" is a date on which a purchase or sale of
Acquiror Common Stock has occurred on the Nasdaq National Market System. No
other adjustment shall be made in the Exchange Ratio as a result of any cash
proceeds received by Target from the date hereof to the Closing Date pursuant to
the exercise of currently outstanding options to acquire Target Common Stock.
Each Target shareholder shall receive a number of shares of Acquiror Common
Stock based on the percentage of Target Capital Stock owned by such shareholder
relative to all issued and outstanding shares of Target Capital Stock.

(b) Cancellation of Target Capital Stock Owned by Target. At the
Effective Time, all shares of Target Capital Stock that are owned by Target as
treasury stock, shall be canceled and extinguished without any conversion
thereof.

(c) Target Stock Option Plan. At the Effective Time, the 1995
Intraluminal Devices, Inc. Incentive Stock Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan (the "Target Stock Option Plan") and all options
to purchase Target Common Stock then outstanding under the Target Stock Option
Plan shall be assumed by Acquiror in accordance with Section 5.12.

(d) Capital Stock of Merger Sub. At the Effective Time, each share
of Common Stock of Merger Sub ("Merger Sub Common Stock") issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one validly issued, fully paid and nonassessable share of Common Stock of
the Surviving Corporation. Each stock certificate of Merger Sub evidencing
ownership of any such shares shall continue to evidence ownership of such shares
of capital stock of the Surviving Corporation.

(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Acquiror Common Stock or Target Capital Stock), reorganization, recapitalization
or other like change with respect to

<PAGE> 9
Acquiror Common Stock or Target Capital Stock occurring after the date hereof
and prior to the Effective Time.

(f) Fractional Shares. No fraction of a share of Acquiror Common
Stock will be issued, but in lieu thereof each holder of shares of Target
Capital Stock who would otherwise be entitled to a fraction of a share of
Acquiror Common Stock (after aggregating all fractional shares of Acquiror
Common Stock to be received by such holder) shall receive from Acquiror an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the Closing Price.

1.7 Surrender of Certificates.

(a) Acquiror to Provide Common Stock and Cash. Promptly after the
Effective Time, Acquiror shall make available to the Shareholders' Agent (as
defined in Section 8.8(a)) for exchange in accordance with this Article I,
through such reasonable procedures as Acquiror may adopt (including, without
limitation, Acquiror's obtaining a written receipt from the Shareholders' Agent
for all consideration paid by Acquiror), (i) the shares of Acquiror Common Stock
issuable pursuant to Section 1.6(a) in exchange for shares of Target Capital
Stock outstanding immediately prior to the Effective Time less the number of
shares of Acquiror Common Stock to be deposited into an escrow fund (the "Escrow
Fund") pursuant to the requirements of Article VIII and (ii) cash in an amount
sufficient to permit payment of cash in lieu of fractional shares pursuant to
Section 1.6(f).

(b) Exchange Procedures. Promptly after the Effective Time, the
Acquiror shall cause to be mailed to each holder of record of a certificate or
certificates (the "Certificates") which immediately prior to the Effective Time
represented outstanding shares of Target Capital Stock, whose shares were
converted into the right to receive shares of Acquiror Common Stock (and cash in
lieu of fractional shares) pursuant to Section 1.6, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon receipt of the Certificates by the
Acquiror, and shall be in such form and have such other provisions as Acquiror
may reasonably specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for certificates representing shares of Acquiror
Common Stock (and cash in lieu of fractional shares). Upon surrender of a
Certificate for cancellation to the Shareholders' Agent or the indemnification
agreement referred to in Section 1.9 below, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, and the Shareholders' Agent's compliance with Section
1.7(a) the holder of such Certificate shall be entitled to receive in exchange
therefor a certificate representing the number of whole shares of Acquiror
Common Stock less the number of shares of Acquiror Common Stock to be deposited
in the Escrow Fund on such holder's behalf pursuant to Article VIII hereof
together with payment in lieu of fractional shares which such holder has the
right to receive pursuant to Section 1.6, and the Certificate so surrendered
shall forthwith be canceled. Until so surrendered, each outstanding Certificate
that, prior to the Effective Time, represented shares of Target Capital Stock
will be deemed from and after the Effective Time, for all

<PAGE> 10
corporate purposes, other than the payment of dividends, to evidence the
ownership of the number of full shares of Acquiror Common Stock into which such
shares of Target Capital Stock shall have been so converted and the right to
receive an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 1.6. As soon as practicable after the Effective Time,
and subject to and in accordance with the provisions of Article VIII hereof,
Acquiror shall cause to be distributed to the Escrow Agent (as defined in
Article VIII hereof) a certificate or certificates representing shares of
Acquiror Common Stock which shall be registered in the name of the Escrow Agent
as nominee for the holders of Certificates cancelled pursuant to this Section
1.7. Such shares shall be beneficially owned by such holders and shall be held
in escrow and shall be available to compensate Acquiror for certain damages as
provided in Article VIII. To the extent not used for such purposes, such shares
shall be released, all as provided in Article VIII hereof.

(c) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions with respect to Acquiror Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered
Certificate with respect to the shares of Acquiror Common Stock represented
thereby until the holder of record of such Certificate shall surrender such
Certificate or indemnification agreement referred to in Section 1.9 below.
Subject to applicable law, following surrender of any such Certificate or
indemnification agreement referred to in Section 1.9 below, there shall be paid
to the record holder of the certificates representing whole shares of Acquiror
Common Stock issued in exchange therefor, without interest, at the time of such
surrender, the amount of any such dividends or other distributions with a record
date after the Effective Time theretofore payable (but for the provisions of
this Section 1.7(d)) with respect to such shares of Acquiror Common Stock.

(d) Transfers of Ownership. If any certificate for shares of
Acquiror Common Stock is to be issued in a name other than the Escrow Agent or
the name in which the Certificate surrendered in exchange therefor is
registered, it will be a condition of the issuance thereof that the Certificate
so surrendered will be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange will have paid to Acquiror
or any agent designated by it any transfer or other taxes required by reason of
the issuance of a certificate for shares of Acquiror Common Stock in any name
other than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Acquiror or any agent designated by it that
such tax has been paid or is not payable.

(e) No Liability. Notwithstanding anything to the contrary in this
Section 1.7, none of the Shareholders' Agent, the Surviving Corporation or any
party hereto shall be liable to any person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.

1.8 No Further Ownership Rights in Target Capital Stock. All shares of
Acquiror Common Stock issued upon the surrender for exchange of shares of Target
Capital

<PAGE> 11
Stock in accordance with the terms hereof (including any cash paid in lieu of
fractional shares) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of Target Capital Stock and there shall be
no further registration of transfers on the records of the Surviving Corporation
of shares of Target Capital Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Article I.

1.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Shareholders' Agent
shall request that the Acquiror issue (and the Acquiror hereby agrees to issue)
in exchange for such lost, stolen or destroyed Certificates, upon the making of
an affidavit of that fact by the holder thereof, such shares of Acquiror Common
Stock and cash in lieu of fractional shares as may be required pursuant to
Section 1.6; provided, however, that Acquiror may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver an indemnification agreement (in
form and substance satisfactory to the Surviving Corporation) against any claim
that may be made against Acquiror, the Surviving Corporation or the
Shareholders' Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.

1.10 Tax and Accounting Consequences. It is intended by the parties
hereto that the Merger shall constitute a reorganization within the meaning of
Code section 368.

1.11 Exemption from Registration. The shares of Acquiror Common Stock
to be issued in connection with the Merger will be issued in a transaction
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of Section 4(2) thereof.

1.12 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Target and Merger Sub, the officers and directors of Target
and Merger Sub are fully authorized in the name of their respective corporations
or otherwise to take, and will take, all such lawful and necessary action, so
long as such action is not inconsistent with this Agreement.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF TARGET

Except as disclosed in a document of even date herewith and delivered
by Target to Acquiror prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the "Target
Disclosure Schedule"), Target represents and warrants to Acquiror and Merger Sub
as follows:

<PAGE> 12
2.1 Organization, Standing and Power. Target is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Target has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect on Target. Target has delivered a true and
correct copy of the Articles of Incorporation and Bylaws or other charter
documents, as applicable, of Target, each as amended to date, to Acquiror.
Target is not in violation of any of the provisions of its Articles of
Incorporation or Bylaws or equivalent organizational documents. Target does not
directly or indirectly own any equity or similar interest in, or any interest
convertible or exchangeable or exercisable for, any equity or similar interest
in, any corporation, partnership, joint venture or other business association or
entity.

2.2 Capital Structure. The authorized capital stock of Target consists
of 5,000,000 shares of Common Stock and 487,500 shares of Preferred Stock, of
which there were issued and outstanding as of the close of business on September
30, 1996, 1,000,000 shares of Common Stock and 487,500 shares of Series A
Preferred Stock (the "Series A Preferred") that are convertible into 487,500
shares of Common Stock. There are no other outstanding shares of capital stock
or voting securities and no outstanding commitments to issue any shares of
capital stock or voting securities after September 30, 1996 other than pursuant
to the exercise of options outstanding as of such date under the Target Stock
Option Plan. All outstanding shares of Target Capital Stock are duly authorized,
validly issued, fully paid and non-assessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof, and are not subject to preemptive rights or rights of first
refusal created by statute, the Articles of Incorporation or Bylaws of Target or
any agreement to which Target is a party or by which it is bound. As of the
close of business on September 30, 1996, Target has reserved (i) 1,000,000
shares of Common Stock for issuance to employees, officers, directors and
consultants pursuant to the Target Stock Option Plan, of which no shares have
been issued pursuant to option exercises or direct stock purchases, 95,000
shares are subject to outstanding, unexercised options, and no shares are
subject to outstanding stock purchase rights. Since September 30, 1996, Target
has not (i) issued or granted additional options under the Target Stock Option
Plan or (ii) granted additional warrants or options (other than Target's
options) to acquire Target Capital Stock. Except for (i) the rights created
pursuant to this Agreement, (ii) the rights of holders of outstanding options
granted pursuant to the Target Stock Option Plan to exercise all of their
options for fully vested shares of Target Common Stock by reason of the Merger
and (iii) options and warrants referred to in this Section 2.2, there are no
other options, warrants, calls, rights, commitments or agreements of any
character to which Target is a party or by which it is bound obligating Target
to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of capital stock of Target or
obligating Target to grant, extend, accelerate the vesting of, change the price
of, or otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. There are no other contracts, commitments or agreements
relating to voting, purchase or sale of Target's capital stock (i) between or
among Target and any of its shareholders and (ii) to

<PAGE> 13
Target's knowledge, between or among any of Target's shareholders, except for
the shareholders delivering Irrevocable Proxies (as defined below). The terms of
the Target Stock Option Plan provide for the acceleration of the exercise
schedule and vesting provisions in effect for options and also permit the
assumption of such immediately exercisable options to purchase fully vested
shares of Target Common Stock or substitution of options to purchase Acquiror
Common Stock as provided in this Agreement, without the consent or approval of
the holders of such securities, or the Target shareholders, or otherwise. True
and complete copies of all agreements and instruments relating to or issued
under the Target Stock Option Plan shall be provided to Acquiror and such
agreements and instruments have not been amended, modified or supplemented, and
there are no agreements to amend, modify or supplement such agreements or
instruments in any case from the form made available to Acquiror. All
outstanding Target Capital Stock was issued in compliance with all applicable
federal and state securities laws.

2.3 Authority. Target has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Target, subject only to the approval of the
Merger by Target's shareholders as contemplated by Section 6.1(a). This
Agreement has been duly executed and delivered by Target and constitutes the
valid and binding obligation of Target enforceable against Target in accordance
with its terms, except that such enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to creditors'
rights generally, and is subject to general principles of equity. The execution
and delivery of this Agreement by Target does not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any material obligation or loss of any material benefit under (i) any provision
of the Articles of Incorporation or Bylaws of Target, as amended, or (ii) any
material mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Target or any of its properties or
assets. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Target in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of the Certificate of Merger, (ii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and the
securities laws of any foreign country; and (iii) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Target and would not prevent,
or materially alter or delay any of the transactions contemplated by this
Agreement.

<PAGE> 14
2.4 Financial Statements. Target has delivered to Acquiror its
unaudited financial statements (balance sheet and statement of operations) on a
consolidated basis for the portion of the calendar year ended September 26, 1996
(collectively, the "Financial Statements"). The Financial Statements are
complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles (except that the
unaudited financial statements do not have notes thereto) applied on a
consistent basis throughout the periods indicated and with each other. The
Financial Statements accurately set out and describe the financial condition and
operating results of Target as of the date, and for the period, indicated
therein, subject to normal year-end audit adjustments. Target maintains and will
continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles.

2.5 Absence of Certain Changes. Since September 26, 1996, (the "Target
Balance Sheet Date"), Target has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect to Target;
(ii) any acquisition, sale or transfer of any material asset of Target other
than in the ordinary course of business and consistent with past practice; (iii)
any change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by Target or any revaluation by
Target of any of its assets; (iv) any declaration, setting aside, or payment of
a dividend or other distribution with respect to the shares of Target, or any
direct or indirect redemption, purchase or other acquisition by Target of any of
its shares of capital stock; (v) any material contract entered into by Target,
other than in the ordinary course of business and as provided to Acquiror, or
any material amendment or termination of, or default under, any material
contract to which Target is a party or by which it is bound; (vi) any amendment
or change to the Articles of Incorporation or Bylaws of Target; (vii) any
increase in or modification of the compensation or benefits payable or to become
payable by Target to any of its directors or employees or (viii) any negotiation
or agreement by Target to do any of the things described in the preceding
clauses (i) through (vii) (other than negotiations with Acquiror and its
representatives regarding the transactions contemplated by this Agreement).

2.6 Absence of Undisclosed Liabilities. Target has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet for the period ended September 26, 1996 (the "Target Balance
Sheet"), (ii) those incurred in the ordinary course of business and not required
to be set forth in the Target Balance Sheet under generally accepted accounting
principles, (iii) those incurred in the ordinary course of business since the
Target Balance Sheet Date and consistent with past practice, and (iv) those
incurred in connection with the execution of this Agreement and the consummation
of this transactions contemplated by this Agreement.

<PAGE> 15
2.7 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target, threatened
against Target or any of its properties or any of its officers or directors (in
their capacities as such) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Target. There is no
judgment, decree or order against Target, or, to the knowledge of Target, any of
its directors or officers (in their capacities as such), that could prevent,
enjoin, or materially alter or delay any of the transactions contemplated by
this Agreement, or that could reasonably be expected to have a Material Adverse
Effect on Target. All litigation to which Target is a party (or, to the
knowledge of Target, threatened to become a party) is disclosed in the Target
Disclosure Schedule.

2.8 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Target which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current or future business practice of Target, any acquisition of property
by Target or the conduct of business by Target as currently conducted or as
proposed to be conducted by Target.

2.9 Governmental Authorization. Target has obtained each federal,
state, county, local or foreign governmental consent, license, permit, grant, or
other authorization of a Governmental Entity (i) pursuant to which Target
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of Target's business or the holding of any such
interest ((i) and (ii) herein collectively called "Target Authorizations"), and
all of such Target Authorizations are in full force and effect, except where the
failure to obtain or have any such Target Authorizations could not reasonably be
expected to have a Material Adverse Effect on Target.

2.10 Title to Property. Target has good and marketable title to all of
its properties, interests in properties and assets, real and personal, reflected
in the Target Balance Sheet or acquired after the Target Balance Sheet Date
(except properties, interests in properties and assets sold or otherwise
disposed of since the Target Balance Sheet Date in the ordinary course of
business), or with respect to leased properties and assets, valid leasehold
interests in, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (i) the lien of current taxes not
yet due and payable, (ii) such imperfections of title, liens and easements as do
not and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties and (iii) liens securing debt
which is reflected on the Target Balance Sheet. The plants, property and
equipment of Target that are used in the operations of their businesses are in
all material respects in good operating condition and repair. All properties
used in the operations of Target are reflected in the Target Balance Sheet to
the extent generally accepted accounting principles require the same to be
reflected. Schedule 2.10 identifies each parcel of real property owned or leased
by Target.

10.

<PAGE> 16
2.11 Intellectual Property.

(a) Target owns, or is licensed or otherwise possesses legally
enforceable rights to use all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, maskworks, net lists, schematics,
technology, know-how, trade secrets, inventory, ideas, algorithms, processes,
computer software programs or applications (in both source code and object code
form), and tangible or intangible proprietary information or material
("Intellectual Property") that are used or currently proposed to be used in the
business of Target as currently conducted or as proposed to be conducted by
Target, except to the extent that the failure to have such rights have not had
and would not reasonably be expected to have a Material Adverse Effect on
Target.

(b) Schedule 2.11 lists (i) all patents and patent applications
and all registered and unregistered trademarks, trade names and service marks,
registered and unregistered copyrights, and maskworks, included in the
Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all
licenses, sublicenses and other agreements as to which Target is a party and
pursuant to which any person is authorized to use any Intellectual Property, and
(iii) all licenses, sublicenses and other agreements as to which Target is a
party and pursuant to which Target is authorized to use any third party patents,
trademarks or copyrights, including software ("Third Party Intellectual Property
Rights") which are incorporated in, are, or form a part of any Target product
that is material to its business.

(c) There is no material unauthorized use, disclosure,
infringement or misappropriation of any Intellectual Property rights of Target,
any trade secret material to Target, or any Intellectual Property right of any
third party to the extent licensed by or through Target, by any third party,
including any employee or former employee of Target. Target has not entered into
any agreement to indemnify any other person against any charge of infringement
of any Intellectual Property, other than indemnification provisions contained in
sales invoices arising in the ordinary course of business.

(d) Target is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreement relating to
the Intellectual Property or Third Party Intellectual Property Rights, the
breach of which would have a Material Adverse Effect on Target.

(e) All patents, registered trademarks, service marks and
copyrights held by Target are valid and subsisting. Target (i) has not been sued
in any suit, action or proceeding which involves a claim of infringement of any
patents, trademarks, service marks, copyrights or violation of any trade secret
or other proprietary right of any third party; and

11.

<PAGE> 17
(ii) has not brought any action, suit or proceeding for infringement of
Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party. The manufacturing, marketing,
licensing or sale of its product does not infringe any patent, trademark,
service mark, copyright, trade secret or other proprietary right of any third
party, where such infringement would have a Material Adverse Effect on Target.

(f) Target has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Intellectual Property of the rights to such contributions that Target does not
already own by operation of law, the absence of which would have a Material
Adverse Effect on Target.

(g) All use, disclosure or appropriation of Intellectual Property
not otherwise protected by patents, patent applications or copyright
("Confidential Information"), owned by Target by or to a third party has been
pursuant to the terms of a written agreement between Target and such third
party. All use, disclosure or appropriation of Confidential Information not
owned by Target has been pursuant to the terms of a written agreement between
Target and the owner of such Confidential Information, or is otherwise lawful.

2.12 Environmental Matters.

(a) The following terms shall be defined as follows:

(i) "Environmental and Safety Laws" shall mean any federal,
state or local laws, ordinances, codes, regulations, rules, policies and orders
that are intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants, or which are
intended to assure the safety of employees, workers or other persons, including
the public.

(ii) "Hazardous Materials" shall mean any toxic or hazardous
substance, material or waste or any pollutant or contaminant, or infectious or
radioactive substance or material, including without limitation, those
substances, materials and wastes defined in or regulated under any Environmental
and Safety Laws.

(iii) "Property" shall mean all real property leased or owned
by Target either currently or in the past.

(iv) "Facilities" shall mean all buildings and improvements
on the Property of Target.

12.

<PAGE> 18
(b) Target represents and warrants as follows: (i) to Target's
knowledge, no methylene chloride or asbestos is contained in or has been used at
or released from the Facilities; (ii) to Target's knowledge, all Hazardous
Materials and wastes have been disposed of in accordance with all Environmental
and Safety Laws; and (iii) Target has received no notice (written) of any
noncompliance of the Facilities or its past or present operations with
Environmental and Safety laws; (iv) no notices, administrative actions or suits
are pending, or, to Target's knowledge, threatened relating to a violation of
any Environmental and Safety Laws; (v) to Target's knowledge, Target is not a
potentially responsible party under the federal Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA), or state analog statute,
arising out of events occurring prior to the Closing Date; (vi) to Target's
knowledge, there have not been in the past, and are not now, any Hazardous
Materials on, under or migrating to or from the Facilities or Property; (vii) to
Target's knowledge, there have not been in the past, and are not now, any
underground tanks or underground improvements at, on or under the Property
including without limitation, treatment or storage tanks, sumps, or water, gas
or oil wells; (viii) Target has not deposited, stored, disposed of or located
polychlorinated biphenyls (PCB) on the Property or Facilities or any equipment
on the Property containing PCBs at levels in excess of 50 parts per million;
(ix) to Target's knowledge, there is no formaldehyde on the Property or in the
Facilities, nor any insulating material containing urea formaldehyde in the
Facilities; (x) to Target's knowledge, the Facilities and Target's uses and
activities therein have at all times complied with all Environmental and Safety
Laws; and (xi) Target has all the permits and licenses required to be issued and
are in full compliance with the terms and conditions of those permits.

2.13 Taxes. Target has timely filed all Tax Returns required to be
filed. All such Tax Returns were correct and complete in all respects. All Taxes
owed by Target (whether or not shown on any Tax Return) have been paid. Target
is not the beneficiary of any extension of time within which to file any Tax
Return. The Financial Statements (i) fully accrue all actual and contingent
liabilities for Taxes with respect to the period covered thereby and Target has
not and will not incur any Tax liability in excess of the amount reflected on
the Financial Statements with respect to such period, and (ii) properly accrue
in accordance with generally accepted accounting principles all liabilities for
Taxes payable after September 6, 1996 with respect to all transactions and
events occurring on or prior to such date. No material Tax liability since
September 6, 1996 has been incurred by Target other than in the ordinary course
of business and adequate provision has been made in the Financial Statements for
all Taxes since that date in accordance with generally accepted accounting
principles on at least a quarterly basis. Target has withheld and paid to the
applicable financial institution or Tax Authority all amounts required to be
withheld. No notice of deficiency or similar document of any Tax Authority has
been received by Target and there are no liabilities for Taxes with respect to
the issues that have been raised (and are currently pending) by any Tax
Authority that could, if determined adversely to Target, materially and
adversely affect the liability of Target for Taxes. Target does not expect any
Tax Authority to assess any additional Taxes for any period for which Tax
Returns have been filed. There is (i) no claim for Taxes that is a lien against
the property of Target other than

13.

<PAGE> 19
liens for Taxes not yet due and payable, (ii) Target has received no
notification of any audit of any Tax Return of Target being conducted, pending
or threatened by a Tax authority, (iii) no extension or waiver of the statute of
limitations on the assessment of any Taxes granted by Target and currently in
effect, and (iv) no agreement, contract or arrangement to which Target is a
party that may result in the payment of any material amount that would not be
deductible by reason of Code sections 280G or 404. Target will not be required
to include any material adjustment in Taxable income for any Tax period (or
portion thereof) pursuant to Code section 481 or 263A or any comparable
provision under state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the Merger. Target has not filed a consent
under Code section 341(f) concerning collapsible corporations. Target has not
been a United States real property holding corporation within the meaning of
Code section 897(c)(2) during the applicable period specified in Code section
897(c)(i)(A)(ii). Target is not a party to any tax sharing or tax allocation
agreement nor does Target owe any amount under any such agreement. For purposes
of this Agreement, the following terms have the following meanings: "Tax" (and,
with correlative meaning, "Taxes" and "Taxable") means (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custody duty or other tax governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Entity (a "Tax Authority") responsible for the imposition of any
such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period and
(iii) any liability for the payment of any amounts of the type described in (i)
or (ii) as a result of any express or implied obligation to indemnify any other
person. As used herein, "Tax Return" shall mean any return, statement, report or
form (including, without limitation,) estimated Tax returns and reports,
withholding Tax returns and reports and information reports and returns required
to be filed with respect to Taxes. Target is in full compliance with all terms
and conditions of any Tax exemptions or other Tax-sparing agreement or order of
a foreign government applicable to it and the consummation of the Merger shall
not have any adverse effect on the continued validity and effectiveness of any
such Tax exemptions or other Tax-sparing agreement or order.

2.14 Employee Benefit Plans.

(a) Schedule 2.14 lists, with respect to Target, and any trade or
business (whether or not incorporated) which is treated as a single employer
with Target (an "ERISA Affiliate") within the meaning of Code section 414(b),
(c), (m) or (o), (i) all material employee benefit plans (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), (ii) each loan to a non-officer employee in excess of $10,000, loans
to officers and directors and any stock option, stock purchase, phantom stock,
stock appreciation right, supplemental retirement, severance, sabbatical,
medical, dental, vision care, disability, employee relocation, cafeteria benefit
(Code section

14.

<PAGE> 20
125) or dependent care (Code section 129), life insurance or accident insurance
plans, programs or arrangements, (iii) all bonus, pension, profit sharing,
savings, deferred compensation or incentive plans, programs or arrangements,
(iv) other fringe or employee benefit plans, programs or arrangements that apply
to senior management of Target and that do not generally apply to all employees,
and (v) any current or former employment or executive compensation or severance
agreements, written or otherwise, as to which unsatisfied obligations of Target
of greater than $10,000 remain for the benefit of, or relating to, any present
or former employee, consultant or director of Target (together, the "Target
Employee Plans").

(b) Target has furnished to Acquiror a copy of each of the Target
Employee Plans and related plan documents (including trust documents, insurance
policies or contracts, employee booklets, summary plan descriptions and other
authorizing documents, and, to the extent still in its possession, any material
employee communications relating thereto) and has, with respect to each Target
Employee Plan which is subject to ERISA reporting requirements, provided copies
of the Form 5500 reports filed for the last three plan years. Any Target
Employee Plan intended to be qualified under Code section 401(a) has either
obtained from the Internal Revenue Service a favorable determination letter as
to its qualified status under the Code, including all amendments to the Code
effected by the Tax Reform Act of 1986 and subsequent legislation, or has
applied to the Internal Revenue Service for such a determination letter prior to
the expiration of the requisite period under applicable Treasury Regulations or
Internal Revenue Service pronouncements in which to apply for such determination
letter and to make any amendments necessary to obtain a favorable determination,
or has been established under a standardized prototype plan for which an
Internal Revenue Service opinion letter has been obtained by the plan sponsor
and is valid as to the adopting employer. Target has also furnished Acquiror
with the most recent Internal Revenue Service determination or opinion letter
issued with respect to each such Target Employee Plan, and nothing has occurred
since the issuance of each such letter which could reasonably be expected to
cause the loss of the tax-qualified status of any Target Employee Plan subject
to Code section 401(a).

(c) (i) None of the Target Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Code section 4975, with respect to any Target Employee Plan, which
could reasonably be expected to have, in the aggregate, a Material Adverse
Effect; (iii) each Target Employee Plan has been administered in accordance with
its terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), except as would
not have, in the aggregate, a Material Adverse Effect, and Target and each ERISA
Affiliate have performed all material obligations required to be performed by
them under, are not in any material respect in default under or violation of,
and have no knowledge of any material default or violation by any other party
to, any of the Target Employee Plans; (iv) neither Target nor any ERISA
Affiliate is subject to any liability or penalty under Code sections 4976
through 4980 or Title I of ERISA with respect to any of the Target Employee

15.

<PAGE> 21
Plans; (v) all material contributions required to be made by Target or any ERISA
Affiliate to any Target Employee Plan have been made on or before their due
dates and a reasonable amount has been accrued for contributions to each Target
Employee Plan for the current plan years; (vi) with respect to each Target
Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA
(excluding any such event for which the thirty (30) day notice requirement has
been waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 or ERISA has occurred; and (vii) no
Target Employee Plan is covered by, and neither Target nor any ERISA Affiliate
has incurred or expects to incur any liability under Title IV of ERISA or Code
section 412. With respect to each Target Employee Plan subject to ERISA as
either an employee pension plan within the meaning of Section 3(2) of ERISA or
an employee welfare benefit plan within the meaning of Section 3(l) of ERISA,
Target has prepared in good faith and timely filed all requisite governmental
reports (which were true and correct as of the date filed) and has properly and
timely filed and distributed or posted all notices and reports to employees
required to be filed, distributed or posted with respect to each such Target
Employee Plan. No suit, administrative proceeding, action or other litigation
has been brought, or to the knowledge of Target is threatened, against or with
respect to any such Target Employee Plan, including any audit or inquiry by the
IRS or United States Department of Labor. Neither Target nor any ERISA Affiliate
is a party to, or has made any contribution to or otherwise incurred any
obligation under, any "multiemployer plan" as defined in Section 3(37) of ERISA.

(d) With respect to each Target Employee Plan, Target has complied
with (i) the applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
proposed regulations thereunder and (ii) the applicable requirements of the
Family Leave Act of 1993 and the regulations thereunder, except to the extent
that such failure to comply would not, in the aggregate, have a Material Adverse
Effect.

(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Target or any ERISA Affiliate to severance benefits or any other
payment (including, without limitation, unemployment compensation, golden
parachute or bonus), except as expressly provided in this Agreement, or (ii)
accelerate the time of payment or vesting of any such benefits, or increase the
amount of compensation due any such employee or service provider (other than the
acceleration of the exercise or vesting schedule applicable to options granted
under the Target Stock Option Plan and outstanding at the Effective Time).

(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Target or any ERISA Affiliate relating
to, or change in participation or coverage under, any Target Employee Plan which
would materially increase the expense of maintaining such Plan above the level
of expense incurred with respect to that Plan for the most recent fiscal year
included in Target's financial statements.

16.

<PAGE> 22
2.15 Certain Agreements Affected by the Merger. Neither the execution
and delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director or employee of Target, (ii) materially
increase any benefits otherwise payable by Target or (iii) result in the
acceleration of the time of payment or vesting of any such benefits (other than
the acceleration of the exercise or vesting schedule applicable to options
granted under the Target Stock Option Plan and outstanding at the Effective
Time).

2.16 Employee Matters. To Target's knowledge, Target is in compliance
in all material respects with all currently applicable laws and regulations
respecting employment, discrimination in employment, terms and conditions of
employment, wages, hours and occupational safety and health and employment
practices, and are not engaged in any unfair labor practice. There are no
pending claims against Target under any workers compensation plan or policy or
for long term disability. Target has no material obligations under COBRA with
respect to any former employees or qualifying beneficiaries thereunder. There
are no proceedings pending or, to the knowledge of Target, threatened, between
Target and its employees, which proceedings have or could reasonably be expected
to have a Material Adverse Effect on Target. Target is not a party to any
collective bargaining agreement or other labor unions contract nor does Target
know of any activities or proceedings of any labor union or organize any such
employees. In addition, Target has provided all employees, with all relocation
benefits, stock options, bonuses and incentives, and all other compensation that
such employee has earned up through the date of this Agreement or that such
employee was otherwise promised in their employment agreements with Target.

2.17 Interested Party Transactions. Target is not indebted to any
director, officer, employee or agent of Target (except for amounts due as normal
salaries and bonuses and in reimbursement of ordinary expenses), and no such
person is indebted to Target.

2.18 Insurance. Target has no insurance policies or bonds of the type
carried by persons conducting businesses or owning assets similar to those of
Target.

2.19 Compliance With Laws. Target has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as could not be reasonably expected to
have a Material Adverse Effect on Target.

2.20 Minute Books. The minute books of Target made available to
Acquiror contain a complete and accurate summary of all meetings of directors
and shareholders or actions by written consent since the time of incorporation
of Target through the date of this

17.

<PAGE> 23
Agreement, and reflect all transactions referred to in such minutes accurately
in all material respects.

2.21 Complete Copies of Materials. Target has delivered or made
available true and complete copies of each document which has been requested by
Acquiror or its counsel in connection with their legal and accounting review of
Target. All the material contracts and agreements (as such terms are defined in
Regulation S-K promulgated under the Act) to which Target is a party are listed
in Schedule 2.21 hereto.

2.22 Brokers' and Finders' Fees. Target has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.

2.23 Registration Statement; Proxy Statement/Prospectus on Form S-1.
The information supplied by Target for inclusion in any registration statement
on Form S-1 (or such other or successor form as shall be appropriate) pursuant
to which the shares of Acquiror Common Stock to be issued in the Merger will be
registered with the SEC (the "Registration Statement") shall not at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The information supplied by Target for
inclusion in the Consent Solicitation to be sent to the shareholders of Target
shall not, on the date the Consent Solicitation is mailed to Target's
shareholders, and at the Effective Time, contain any statement which, at such
time, is false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they are made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies which has become false or misleading. Notwithstanding the foregoing,
Target makes no representation, warranty or covenant with respect to any
information supplied by Acquiror or Merger Sub which is contained in any of the
foregoing documents.

2.24 Affiliate and Shareholder Agreement; Irrevocable Proxies. As of
the Closing Date, sixty-six and two-thirds percent (66 2/3%) of the persons
and/or entities deemed "Affiliates" of Target within the meaning of Rule 145
promulgated under the Securities Act and holders of all shares of Target Capital
Stock issued and outstanding, have agreed in writing to vote for approval of the
Merger pursuant to shareholder agreements attached hereto as Exhibit B
("Affiliate and Shareholder Agreements"), and pursuant to Irrevocable Proxies
attached hereto as Exhibit C ("Irrevocable Proxies").

18.

<PAGE> 24
2.25 Vote Required. The affirmative vote of the holders of a majority
of the shares of Target's Common Stock and Preferred Stock voting as separate
classes outstanding is the only vote of the holders of any of Target's Capital
Stock necessary under California law to approve this Agreement and the
transactions contemplated hereby.

2.26 Board Approval. The Board of Directors of Target has unanimously
approved this Agreement and the Merger, (ii) determined that in its opinion the
Merger is in the best interests of the shareholders of Target and is on terms
that are fair to such shareholders and (iii) recommended that the shareholders
of Target approve this Agreement and the Merger.

2.27 Inventory. The inventories shown on the Financial Statements or
thereafter acquired by Target, consisted of items of a quantity and quality
usable or salable in the ordinary course of business. Since September 6, 1996,
Target has continued to consume inventories in a normal and customary manner
consistent with past practices. Target has not received notice that it will
experience in the foreseeable future any difficulty in obtaining, in the desired
quantity and quality and at a reasonable price and upon reasonable terms and
conditions, the raw materials, supplies or component products required for the
manufacture, assembly or production of its products. The values at which
inventories are carried reflect the inventory valuation policy of Target, which
is consistent with its past practice and in accordance with generally accepted
accounting principles applied on a consistent basis.

19.

<PAGE> 25
2.28 Accounts Receivable. Subject to any reserves set forth in the
Financial Statements, the accounts receivable, if any, shown on the Financial
Statements represent and will represent bona fide claims against debtors for
sales and other charges, and are not subject to discount except for normal cash
and immaterial trade discounts. The amount carried for doubtful accounts and
allowances, if any, disclosed in the Financial Statements is sufficient to
provide for any losses which may be sustained on realization of any receivables.

2.29 Customers and Suppliers. As of the date hereof, Target has no
customers. No supplier of Target, has canceled or otherwise terminated, or made
any threat to Target to cancel or otherwise terminate its relationship with
Target, or has at any time on or after January 1, 1996 decreased materially its
services or supplies to Target. Target has not knowingly breached, so as to
provide a benefit to Target that was not intended by the parties, any agreement
with, or engaged in any fraudulent conduct with respect to, any supplier of
Target.

2.30 Representations Complete. None of the representations or
warranties made by Target herein or in any Schedule or Exhibit hereto, including
the Target Disclosure Schedule, or certificate furnished by Target pursuant to
this Agreement or any written statement furnished to Acquiror pursuant hereto or
in connection with the transactions contemplated hereby, when all such documents
are read together in their entirety, contains or will contain at the Effective
Time any untrue statement of a material fact, or omits or will omit at the
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading; provided, however, that (a) for purposes of this
representation, any document attached hereto and any document specifically
referenced in the Target Disclosure Schedule as a "Superseding Document" (even
if not attached hereto) that provides information inconsistent with or in
addition to any other written statement furnished to Acquiror in connection with
the transaction contemplated hereby, shall be deemed to supersede any other
document or written statement furnished to Acquiror with respect to such
inconsistent or additional information, and (b) it is understood that the
financial projections delivered by Target represent only Target's best estimate
under the circumstances of what it reasonably believes (although it is not aware
of any fact or information that would lead it to believe that such projections
are misleading in any material respect) and are based upon assumptions set forth
in such projections that Target believes were reasonable as of the time such
projections were made. Target does not make any other representation or warranty
regarding such projections or Target's possible or anticipated operating
performance other than as set forth in this Section 2.30.

2.31 Liabilities Assumed. The financial liabilities of Target
(exclusive of those arising in connection with the agreements noted in the
following sentence) do not exceed $35,000 plus the amount of cash on hand at the
Closing Date. The only liabilities

20.

<PAGE> 26
to be assumed by Merger Sub are the liabilities noted in the preceding sentence
and liabilities noted in Schedule 2.31.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB

Except as disclosed in a document of even date herewith and
delivered by Acquiror to Target prior to the execution and delivery of this
Agreement and referring to the representations and warranties in this Agreement
(the "Acquiror Disclosure Schedule"), Acquiror and Merger Sub represent and
warrant to Target as follows:

3.1 Organization, Standing and Power. Each of Acquiror and Merger
Sub, is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization. Each of Acquiror and Merger
Sub has the corporate power to own its properties and to carry on its business
as now being conducted and as proposed to be conducted and is duly qualified to
do business and is in good standing in each jurisdiction in which the failure to
be so qualified and in good standing would have a Material Adverse Effect on
Acquiror. Acquiror has delivered a true and correct copy of the Articles of
Incorporation and Bylaws or other charter documents, as applicable, of Acquiror
and Merger Sub, each as amended to date, to Target. Neither Acquiror nor Merger
Sub is in violation of any of the provisions of its Articles of Incorporation or
Bylaws or equivalent organizational documents. Acquiror is the owner of all
outstanding shares of capital stock of Merger Sub and all such shares are duly
authorized, validly issued, fully paid and nonassessable.

3.2 Capital Structure. The authorized capital stock of Acquiror
consists of 30,000,000 shares of Common Stock, $.001 par value, and 5,000,000
Shares of Preferred Stock, $.001 par value, of which there were issued and
outstanding as of the close of business on September 30, 1996, 9,400,000 shares
of Common Stock on a fully diluted basis and no shares of Preferred Stock. The
authorized capital stock of Merger Sub consists of 1,000 shares of Common Stock,
no par value, all of which are issued and outstanding and are held by Acquiror.
All outstanding shares of Acquiror and Merger Sub have been duly authorized,
validly issued, fully paid and are nonassessable and free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof. The shares of Acquiror Common Stock to be issued pursuant to
the Merger will be duly authorized, validly issued, fully paid, and
non-assessable.

3.3 Authority. Acquiror and Merger Sub have all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Acquiror and Merger
Sub. This Agreement

21.

<PAGE> 27
has been duly executed and delivered by Acquiror and Merger Sub and constitutes
the valid and binding obligations of Acquiror and Merger Sub, except that such
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to creditors' rights generally, and is
subject to general principles of equity. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any material obligation or loss of
a material benefit under (i) any provision of the Articles of Incorporation or
Bylaws of Acquiror or Merger Sub as amended, or (ii) any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Acquiror or Merger Sub or their properties or assets.
No consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity, is required by or with respect to Acquiror
or Merger Sub in connection with the execution and delivery of this Agreement by
Acquiror and Merger Sub or the consummation by Acquiror and Merger Sub of the
transactions contemplated hereby, except for (i) the filing of the Certificate
of Merger, as provided in Section 1.2, (ii) the filing of a Form 8-K with the
Securities and Exchange Commission ("SEC") and National Association of
Securities Dealers ("NASD") within 15 days after the Closing Date if deemed
necessary by Acquiror, (iii) any filings as may be required under applicable
state securities laws and the securities laws of any foreign country, (iv) the
filing with the Nasdaq National Market of a Notification Form for Listing of
Additional Shares and the filing of registration forms on Forms S-1 and S-8 with
the SEC, as appropriate, with respect to the shares of Acquiror Common Stock
issuable upon conversion of the Target Capital Stock in the Merger and upon
exercise of the options under the Target Stock Option Plans assumed by Acquiror,
and (v) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Acquiror and would not prevent or delay any of the transactions
contemplated by this Agreement.

3.4 SEC Documents; Financial Statements. Acquiror has made available to
Target a true and complete copy of each statement, report, registration
statement (with the prospectus in the form filed pursuant to Rule 424(b) of the
Securities Act), definitive proxy statement, and other filing filed with the SEC
by Acquiror since June 20, 1996, and, prior to the Effective Time, Acquiror will
have furnished Target with true and complete copies of any additional documents
filed with the SEC by Acquiror prior to the Effective Time (collectively, the
"Acquiror SEC Documents"). In addition, Acquiror has made available to Target
all exhibits to the Acquiror SEC Documents filed prior to the date hereof, and
will promptly make available to Target all exhibits to any additional Acquiror
SEC Documents filed prior to the Effective Time. All documents required to be
filed as exhibits to the Target SEC Documents have been so filed, and all
material contracts so filed as exhibits are in full force and effect, except
those which have expired in accordance with their terms, and

22.

<PAGE> 28
Acquiror is not in default thereunder. As of their respective filing dates, the
Acquiror SEC Documents complied in all material respects with the requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
Securities Act, and none of the Acquiror SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Acquiror SEC Document prior to the date
hereof. The financial statements of Acquiror, including the notes thereto,
included in the Acquiror SEC Documents (the "Acquiror Financial Statements")
were complete and correct in all material respects as of their respective dates,
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Qs, as permitted by Form
10-Q of the SEC). The Acquiror Financial Statements fairly present the
consolidated financial condition and operating results of Acquiror at the dates
and during the periods indicated therein (subject, in the case of unaudited
statements, to normal, recurring year-end adjustments). There has been no change
in Acquiror accounting policies except as described in the notes to the Acquiror
Financial Statements.

3.5 Absence of Certain Changes. Since June 30, 1996 (the "Acquiror
Balance Sheet Date"), Acquiror has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
would reasonably be expected to result in, a Material Adverse Effect to
Acquiror; (ii) any acquisition, sale or transfer of any material asset of
Acquiror other than in the ordinary course of business and consistent with past
practice; (iii) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by Acquiror or any
revaluation by Acquiror of any of its assets; (iv) any declaration, setting
aside, or payment of a dividend or other distribution with respect to the shares
of Acquiror, or any direct or indirect redemption, purchase or other acquisition
by Acquiror of any of its shares of capital stock; (v) any material contract
entered into by Acquiror, other than in the ordinary course of business and as
provided to Target, or any material amendment or termination of, or default
under, any material contract to which Acquiror is a party or by which it is
bound; (vi) any amendment or change to Acquiror's Articles of Incorporation or
Bylaws; or (vii) any negotiation or agreement by Acquiror to do any of the
things described in the preceding clauses (i) through (vi) (other than
negotiations with Target and its representatives regarding the transactions
contemplated by this Agreement).

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3.6 Absence of Undisclosed Liabilities. Acquiror has no
material obligations or liabilities of any nature (matured or unmatured, fixed
or contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet included in Acquiror's Quarterly Report on Form 10-Q for the
period ended June 30, 1996 (the "Acquiror Balance Sheet"), (ii) those incurred
in the ordinary course of business and not required to be set forth in the
Acquiror Balance Sheet under generally accepted accounting principles, and (iii)
those incurred in the ordinary course of business since the Acquiror Balance
Sheet Date and consistent with past practice.

3.7 Broker's and Finders' Fees. Acquiror has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or investment bankers' fees or any similar charges
in connection with this Agreement or any transaction contemplated hereby.

3.8 Registration Statement. The information supplied by
Acquiror and Merger Sub for inclusion in the Registration Statement shall not,
at the time the Registration Statement (including any amendments or supplements
thereto) is declared effective by the SEC, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The information supplied by Acquiror for inclusion in the
general solicitation of written consents of Target's Shareholders to obtain
their votes in favor of the Merger (the "Consent Solicitation") shall not, on
the date the Consent Solicitation is first mailed to Target's shareholders, and
at the Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which it is made, not false or misleading; or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of proxies for Target's Shareholders which has
become false or misleading. Notwithstanding the foregoing, Acquiror and Merger
Sub make no representation, warranty or covenant with respect to any information
supplied by Target which is contained in any of the foregoing documents.

3.9 Representations Complete. None of the representations or
warranties made by Acquiror or Merger Sub herein or in any Schedule hereto,
including the Acquiror Disclosure Schedule, or certificate furnished by Acquiror
or Merger Sub pursuant to this Agreement, or the Acquiror SEC Documents, or any
written statement furnished to Target pursuant hereto or in connection with the
transactions contemplated hereby, when all such documents are read together in
their entirety, contains or will contain at the Effective Time any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading; provided, however, that for purposes of this representation, any
document attached hereto and any document specifically referenced in the
Acquiror

24.

<PAGE> 30
Disclosure Schedule as a "Superseding Document" (even if not attached hereto)
that provides information inconsistent with or in addition to any other written
statement furnished to Target in connection with the transaction contemplated
hereby, shall be deemed to supersede any other document or written statement
furnished to Target with respect to such inconsistent or additional information.

ARTICLE IV

CONDUCT PRIOR TO THE EFFECTIVE TIME

4.1 Conduct of Business of Target and Acquiror. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, each of Target and Acquiror agrees
(except to the extent expressly contemplated by this Agreement or as consented
to in writing by the other), to carry on its business in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted, to pay
debts and Taxes when due (subject (i) to good faith disputes over such debts or
Taxes and (ii) in the case of Taxes of Target, to Acquiror's consent to the form
of Tax Returns), to pay or perform other obligations when due, and to use all
reasonable efforts consistent with past practice and policies to preserve intact
its present business organization, keep available the services of its present
officers and key employees and preserve its relationships with suppliers,
licensors, licensees, and others having business dealings with it, to the end
that its goodwill and ongoing businesses shall be unimpaired at the Effective
Time. Each of Target and Acquiror agrees to promptly notify the other of (x) any
event or occurrence not in the ordinary course of its business, and of any event
which could have a Material Adverse Effect and (y) any material change in its
capitalization as set forth in Sections 2.2 and 3.2, respectively. Without
limiting the foregoing, except as expressly contemplated by this Agreement or
the Target Disclosure Schedule or the Acquiror Disclosure Schedule, neither
Target nor Acquiror, respectively, shall do, cause or permit any of the
following, without the prior written consent of the other:

(a) Charter Documents. Cause or permit any amendments to its
Articles of Incorporation or Bylaws;

(b) Dividends; Changes in Capital Stock. Except as set forth in
the Acquiror Disclosure Schedule, declare or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any of
its capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, or repurchase or
otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service to it;

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<PAGE> 31
(c) Stock Option Plans, Etc. Accelerate, amend or change the
period of exercisability or vesting of options or other rights granted under its
stock plans or authorize cash payments in exchange for any options or other
rights granted under any of such plans (other than to accelerate on account of
this Merger the exercise or vesting schedule applicable to all options granted
under the Target Stock Option Plan and outstanding as of the Effective Time).

(d) Other. Take, or agree in writing or otherwise to take, any of
the actions described in Sections 4.1(a) through (c) above, or any action which
would cause a material breach of its representations or warranties contained in
this Agreement or prevent it from materially performing or cause it not to
materially perform its covenants hereunder.

4.2 Conduct of Business of Target. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, except as expressly contemplated by this
Agreement or the Target Disclosure Schedule, Target shall not do, cause or
permit any of the following, without the prior written consent of Acquiror:

(a) Material Contracts. Enter into any material contract or
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its material contracts, other than in the ordinary course of business
consistent with past practice;

(b) Issuance of Securities. Issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or propose the purchase
of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement;

(c) Intellectual Property. Transfer to any person or entity any
rights to its Intellectual Property other than in the ordinary course of
business consistent with past practice;

(d) Exclusive Rights. Enter into or amend any agreements pursuant
to which any other party is granted exclusive marketing or other exclusive
rights of any type or scope with respect to any of its products or technology;

(e) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material, individually or in
the aggregate, to its business, except in the ordinary course of business
consistent with past practice;

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<PAGE> 32
(f) Indebtedness. Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;

(g) Leases. Enter into any operating lease in excess of $10,000;

(h) Payment of Obligations. Pay, discharge or satisfy in an amount
in excess of $10,000 in any one case or $20,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise) arising other than in the ordinary course of business, other than
the payment, discharge or satisfaction of liabilities reflected or reserved
against in the Target Financial Statements;

(i) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements except in the ordinary course of business and
consistent with past practice;

(j) Insurance. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies;

(k) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;

(l) Employee Benefit Plans; New Hires; Pay Increases. Adopt or
amend any employee benefit or stock purchase or option plan, or hire any new
officer level employee, pay any special bonus or special remuneration to any
employee or director (except payments made pursuant to written agreements
outstanding on the date hereof), or increase the salaries or wage rates of its
employees except in the ordinary course of business in accordance with its
standard past practice;

(m) Severance Arrangements. Grant any severance or termination pay
(i) to any director or officer or (ii) to any other employee except (A) payments
made pursuant to written agreements outstanding on the date hereof or (B) grants
which are made in the ordinary course of business in accordance with its
standard past practice;

(n) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith determines that
failure to commence suit would result in the material impairment of a valuable
aspect of its business, provided that it consults with Acquiror prior to the
filing of such a suit, or (iii) for a breach of this Agreement;

(o) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other

27.

<PAGE> 33
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to its
business;

(p) Taxes. Other than in the ordinary course of business, make or
change any material election in respect of Taxes, adopt or change any accounting
method in respect of Taxes, file any material Tax Return or any amendment to a
material Tax Return, enter into any closing agreement, settle any material claim
or assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any material claim or assessment in respect of
Taxes;

(q) Notices. Target shall give all notices and other information
required to be given to the employees of Target, any collective bargaining unit
representing any group of employees of Target, and any applicable government
authority under the WARN Act, the National Labor Relations Act, the Internal
Revenue Code, the Consolidated Omnibus Budget Reconciliation Act, and other
applicable law in connection with the transactions provided for in this
Agreement;

(r) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; or

(s) Other. Take or agree in writing or otherwise to take, any of
the actions described in Sections 4.2(a) through (r) above, or any action which
would cause a material breach of its representations or warranties contained in
this Agreement or prevent it from materially performing or cause it not to
materially perform its covenants hereunder.

4.3 No Negotiation or Solicitation. Target and the officers,
directors, employees or other agents of Target will not, directly or indirectly,
(a) take any action to solicit, initiate or encourage any Takeover Proposal
(defined below) or (b) subject to the terms of the immediately following
sentence, engage in negotiations with, or disclose any nonpublic information
relating to Target to, or afford access to the properties, books or records of
Target to, any person that has advised Target that it may be considering making,
or that has made, a Takeover Proposal. Target will promptly notify Acquiror
after receipt of any Takeover Proposal or any notice that any person is
considering making a Takeover Proposal or any request for nonpublic information
relating to Target or for access to the properties, books or records of Target
by any person that has advised Target that it may be considering making, or that
has made, a Takeover Proposal and will keep Acquiror fully informed of the
status and details of any such Takeover Proposal notice or request. For purposes
of this Agreement, "Takeover Proposal" means any offer or proposal for, or any
indication of interest in, a merger or other business combination involving
Target or the acquisition of any significant equity interest in, or a

28.

<PAGE> 34
significant portion of the assets of, Target, other than the transactions
contemplated by this Agreement.

ARTICLE V

ADDITIONAL AGREEMENTS

5.1 Consent Solicitation. As soon as practicable after the execution of
this Agreement, Target shall prepare, with the cooperation of Acquiror, the
Consent Solicitation for the shareholders of Target to approve this Agreement,
the Certificate of Merger and the transactions contemplated hereby and thereby.
The Consent Solicitation shall constitute a disclosure document for the offer
and issuance of the shares of Acquiror Common Stock to be received by the
holders of Target Capital Stock in the Merger. Target shall use reasonable
commercial efforts to cause the Consent Solicitation to comply with applicable
federal and state securities laws requirements. Each of Acquiror and Target
agrees to provide promptly to the other such information concerning its business
and financial statements and affairs as, in the reasonable judgment of the
providing party or its counsel, may be required or appropriate for inclusion in
the Consent Solicitation, or in any amendments or supplements thereto, and to
cause its counsel and auditors to cooperate with the other's counsel and
auditors in the preparation of the Consent Solicitation. Target will promptly
advise Acquiror, and Acquiror will promptly advise Target, in writing if at any
time prior to the Effective Time either Target or Acquiror shall obtain
knowledge of any facts that might make it necessary or appropriate to amend or
supplement the Consent Solicitation in order to make the statements contained or
incorporated by reference therein not misleading or to comply with applicable
law. The Consent Solicitation shall contain the recommendation of the Board of
Directors of Target that the Target shareholders approve the Merger and this
Agreement and the conclusion of the Board of Directors that the terms and
conditions of the Merger are fair and reasonable to the shareholders of Target;
provided that such recommendation may not be included or may be withdrawn if
previously included if Target's Board of Directors believes in good faith that a
superior proposal has been made and, upon written advice of its outside legal
counsel, shall determine that to include such recommendation or not withdraw
such recommendation if previously included would constitute a breach of the
Board's fiduciary duty under applicable law. Anything to the contrary contained
herein notwithstanding, Target shall not include in the Consent Solicitation any
information with respect to Acquiror or its affiliates or associates, the form
and content of which information shall not have been approved by Acquiror prior
to such inclusion.

5.2 Stockholders Consents/Proxies. Target shall use its best efforts,
promptly after the date hereof, to take all action necessary in accordance with
California law, its Articles of Incorporation and Bylaws and otherwise to obtain
the written consents of its Shareholders in favor of the Merger that are
distributed in the Consent Solicitation. Target shall use its best efforts to
solicit from shareholders of Target proxies in favor of the Merger and shall
take all other action necessary or advisable to secure the vote or consent of
shareholders required to effect the Merger.

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<PAGE> 35
5.3 Access to Information.

(a) Target shall afford Acquiror and its accountants, counsel and
other representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of Target's properties, books,
contracts, commitments and records, and (ii) all other information concerning
the business, properties and personnel of Target as Acquiror may reasonably
request. Target agrees to provide to Acquiror and its accountants, counsel and
other representatives copies of internal financial statements promptly upon
request. Acquiror shall afford Target and its accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of Acquiror's properties, books,
contracts, commitments and records, and (ii) all other information concerning
the business, properties and personnel of Acquiror as Target may reasonably
request. Acquiror agrees to provide to Target and its accountants, counsel and
other representatives copies of internal financial statements promptly upon
request.

(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Acquiror and Target shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.

(c) Each party hereto agrees to notify the other parties hereto in
writing prior to the Closing if it has information or knowledge prior to the
Closing of any breach of any representation or warranty of the other parties.
Any breach of any representation or warranty by a party under this Agreement
which is actually known by the other party prior to the Closing shall
automatically be deemed to have been waived for all purposes by the party with
such knowledge if such party elects to proceed with the Closing; provided, that,
each party retains all of its legal rights absent such election to proceed with
the Closing.

5.4 Confidentiality. The parties acknowledge that Acquiror and Target
have previously executed a non-disclosure agreement dated as of September 30,
1996 (the "Confidentiality Agreement"), which Confidentiality Agreement shall
continue in full force and effect in accordance with its terms.

5.5 Public Disclosure. Unless otherwise permitted by this Agreement,
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
the NASD.

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5.6 Consents; Cooperation. Each of Acquiror and Target shall promptly
apply for or otherwise seek, and use reasonable best efforts to obtain, all
consents and approvals required to be obtained by it for the consummation of the
Merger and shall use reasonable best efforts to obtain all necessary consents,
waivers and approvals under any of its material contracts in connection with the
Merger for the assignment thereof or otherwise.

5.7 Affiliate and Shareholder Agreements. Schedule 5.7 sets forth
those persons who are, in Target's reasonable judgment, "Affiliates" of Target
within the meaning of Rule 145 promulgated under the Securities Act ("Rule
145"). Target shall provide Acquiror such information and documents as Acquiror
shall reasonably request for purposes of reviewing such list. Target shall use
its best efforts to deliver or cause to be delivered to Acquiror, on or before
the Effective Time) from each of the Affiliates of Target, an executed Affiliate
and Shareholder Agreement in the form attached hereto as Exhibit B. Acquiror and
Merger Sub shall be entitled to place appropriate legends on the certificates
evidencing any Acquiror Common Stock to be received by such affiliates of Target
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for Acquiror Common Stock, consistent with
the terms of such Affiliate and Shareholder Agreement.

5.8 Irrevocable Proxies. Target shall use its best efforts, on behalf
of Acquiror and pursuant to the request of Acquiror, to cause holders of all
shares of Target Capital Stock issued and outstanding to execute and deliver to
Acquiror an Irrevocable Proxy substantially in the form of Exhibit C attached
hereto concurrently with the execution and delivery of written consents that are
obtained pursuant to the Consent Solicitation.

5.9 FIRPTA. Target shall, prior to the Closing Date, provide Acquiror
with a properly executed Foreign Investment and Real Property Tax Act of 1980
("FIRPTA") Notification Letter, substantially in the form of Exhibit D attached
hereto, which states that shares of capital stock of Target do not constitute
"United States real property interests" under Code section 897(c), for purposes
of satisfying Acquiror's obligations under Treasury Regulation section
1.1445-2(c)(3). In addition, simultaneously with delivery of such Notification
Letter, Target shall have provided to Acquiror, as agent for Target, a form of
notice to the Internal Revenue Service in accordance with the requirements of
Treasury Regulation section 1.897-2(h)(2) and substantially in the form of
Exhibit D attached hereto along with written authorization for Acquiror to
deliver such notice form to the Internal Revenue Service on behalf of Target
upon the Closing of the Merger.

5.10 Legal Requirements. Each of Acquiror, Merger Sub and Target will
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement and will promptly cooperate with
and furnish information to any party hereto necessary in connection with any
such requirements imposed upon such other party in connection with the
consummation of the transactions contemplated by this Agreement and

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will take all reasonable actions necessary to obtain (and will cooperate with
the other parties hereto in obtaining) any consent, approval, order or
authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this Agreement.

5.11 Blue Sky Laws. Acquiror shall take such steps as may be necessary
to comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Acquiror Common Stock in connection with the
Merger. Target shall use its best efforts to assist Acquiror as may be necessary
to comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Acquiror Common Stock in
connection with the Merger.

5.12 Employee Benefit Plans. At the Effective Time, the Target Stock
Option Plan and each outstanding option to purchase shares of Target Common
Stock under the Target Stock Option Plan, whether vested or unvested, will be
assumed by Acquiror. Schedule 5.12 hereto sets forth a true and complete list as
of the date hereof of all holders of outstanding options under the Target Stock
Option Plan including the number of shares of Target Common Stock subject to
each such option, the exercise or vesting schedule (which schedule will
accelerate by reason of the Merger), the exercise price per share and the term
of each such option. On the Closing Date, Target shall deliver to Acquiror an
updated Schedule 5.12 hereto current as of such date. Each such option so
assumed by Acquiror under this Agreement shall continue to have, and be subject
to, the same terms and conditions set forth in the Target Stock Option Plan
immediately prior to the Effective Time, except that (i) such option will be
exercisable for that number of whole shares of Acquiror Common Stock equal to
the product of the number of shares of Target Common Stock that were issuable
upon exercise of such option immediately prior to the Effective Time multiplied
by the Exchange Ratio and rounded down to the nearest whole number of shares of
Acquiror Common Stock, and (ii) the per share exercise price for the shares of
Acquiror Common Stock issuable upon exercise of such assumed option will be
equal to the quotient determined by dividing the exercise price per share of
Target Common Stock at which such option was exercisable immediately prior to
the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
Consistent with the terms of the Target Stock Option Plan and the documents
governing the outstanding options under such Plans, the Merger will not
terminate any of the outstanding options under the Target Stock Option Plan but
will accelerate the exercise or vesting schedule applicable to such options. It
is the intention of the parties that the options so assumed by Acquiror qualify
following the Effective Time as incentive stock options as defined in Code
section 422 to the extent such options qualified as incentive stock options
prior to the Effective Time. Within 10 business days after the Effective Time,
Acquiror will issue to each person who, immediately prior to the Effective Time
was a holder of an outstanding option under the Target Stock Option Plan a
document in form and substance satisfactory to Target evidencing the foregoing
assumption of such option by Acquiror.

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5.13 Escrow Agreement. On or before the Effective Time, the Escrow
Agent and the Shareholders' Agent (as defined in Article VIII hereto) will
execute the Escrow Agreement contemplated by Article VIII in the form attached
hereto as Exhibit E ("Escrow Agreement").

5.14 Registration Rights. Subject to the provisions of the Declaration
of Registration Rights in substantially the form attached hereto as Exhibit F,
Acquiror agrees to file with the SEC, no later than 45 days after the Closing, a
registration statement or statements on such Form or Forms as it deems
appropriate covering the shares of Acquiror Common Stock issuable pursuant to
this Agreement (including for shares issued upon the exercise of outstanding
options under the Target Stock Option Plan assumed by Acquiror). Target shall
cooperate with and assist Acquiror in the preparation of any such registration
statements.

5.15 Shareholder Agreements. Target will use its best efforts to cause
all Target shareholders to execute and deliver to Acquiror an Affiliate and
Shareholder Agreement attached as Exhibit B.

5.16 Listing of Additional Shares. Prior to the Effective Time,
Acquiror shall file with the Nasdaq National Market a Notification Form for
Listing of Additional Shares with respect to the shares of Acquiror Common Stock
issuable upon conversion of the Target Common Stock in the Merger and upon
exercise of the options under the Target Stock Option plan assumed by Acquiror.

5.17 Employee. Acquiror will make an offer to Edward A. McDonald to
enter into an Employment and Non-Competition Agreement substantially in the form
attached hereto as Exhibit I. Target shall cooperate with Acquiror to assist
Acquiror in employing Edward A. McDonald.

5.18 Reorganization. Acquiror and Target shall each use its best
efforts to cause the business combination to be effected by the Merger to be
qualified as a "reorganization" described in Code section 368(a).

5.19 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement, the Certificate of Merger
and the transactions contemplated hereby and thereby shall be paid by the party
incurring such expense; provided, however, that any out-of-pocket fees or
expenses incurred by Target, to the extent that they exceed the amount
specified in Section 2.31, shall be an obligation of Target's shareholders and
be paid from the Escrow Fund.

5.20 Intentionally Omitted.

5.21 Reasonable Commercial Efforts and Further Assurances. Each of the
parties to this Agreement shall use reasonable commercial efforts to effectuate
the transactions

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contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing under this Agreement. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby. In addition, Target shall use its best efforts to effect
the transfer of its technology to Surviving Corporation as soon as possible
following the Closing.

5.22 Purchase Price Adjustment. In the event that the Adjustment Date
Value (as defined below) for shares of Acquiror Common Stock is less than the
Adjustment Threshold Price (as defined below), Acquiror shall issue additional
shares of Acquiror Common Stock to Target's shareholders. The number of shares
to be issued pursuant to this Section 5.22 (the "Additional Shares") shall be
determined in accordance with the following formula: A = ((B - C) divided by
C) x D, where A equals the Additional Shares, B equals the Adjustment
Threshold Price, C equals the Adjustment Date Value and D equals the total
number of shares issuable pursuant to Section 1.6(a); provided, however, that
in no event shall the number of Additional Shares exceed the number of shares
of Acquiror Common Stock issued pursuant to Section 1.6(a). Additional Shares
shall be issued to Target's shareholders in the same proportion (i.e., pro rata
based on the percentage of Target Capital Stock owned by each such shareholder
relative to all issued and outstanding shares of Target Capital Stock) that
Target's shareholders are entitled to receive shares of Acquiror Common Stock
pursuant to Section 1.6(a) and shall be delivered to Target's shareholders
promptly after the earlier to occur of (i) the third anniversary of the
Effective Time or (ii) the date 5 business days after a new registration
statement for such shares (on a form to be determined by Acquiror) is declared
effective by the SEC (which registration statement shall be filed by Acquiror
with the SEC no later than 30 days after a determination has been made that
Additional Shares are to be issued). The Shareholders' Agent shall notify
Target's shareholders if Additional Shares are to be issued pursuant to this
Section 5.22 and of the details of such issuance. The Adjustment Date Value is
the closing price of Acquiror Common Stock, as reported by the National
Association of Securities Dealers through the Nasdaq National Market System on
the Trading Day immediately preceding the Adjustment Date (as defined below).
The Adjustment Threshold Price is an amount equal to 80 percent of the Closing
Price per share. The Adjustment Date is the earlier to occur of (i) the third
anniversary of the Effective Time or (ii) the date 5 business days after the
date the initial registration statement filed on Form S-1 by Acquiror with
respect to the Acquiror Common Stock issuable pursuant to Section 1.6(a) is
declared effective by the SEC.

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ARTICLE VI

CONDITIONS TO THE MERGER

6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:

(a) Shareholder Approval. This Agreement and the Merger shall have
been approved and adopted by the holders of not less than sixty-six and
two-thirds percent (66 2/3%) of all of the outstanding shares of Target Common
Stock and Target Preferred Stock.

(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be and remain in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending, which would have a Material
Adverse Effect on such party. Nor shall there be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger illegal. In
the event an injunction or other order shall have been issued, each party agrees
to use its reasonable diligent efforts to have such injunction or other order
lifted.

(c) Governmental Approval. Acquiror, Target and Merger Sub shall
have timely obtained from each Governmental Entity all approvals, waivers and
consents, if any, necessary for consummation of or in connection with the Merger
and the several transactions contemplated hereby, including such approvals,
waivers and consents as may be required under the Securities Act and under state
Blue Sky laws, and other than filings and approvals relating to the Merger or
affecting Acquiror's ownership of Target or any of its properties if failure to
obtain such approval, waiver or consent would not have a Material Adverse Effect
to either party.

(d) Escrow Agreement. Acquiror, Target, Escrow Agent and the
Shareholder's Agent (as defined in Article VIII hereto) shall have entered into
an Escrow Agreement substantially in the form attached hereto as Exhibit E.

6.2 Tax Opinion. Target shall have received a written opinion from its
counsel to the effect that the Merger will constitute a reorganization within
the meaning of Code section 368(a), which opinion shall be in form and substance
reasonably satisfactory to

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Target. In rendering such opinion, Target's counsel shall be entitled to rely
upon representations of Acquiror, Merger Sub and Target and certain shareholders
of Target.

6.3 Additional Conditions to Obligations of Target. The obligations of
Target to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing, by
Target:

(a) Representations, Warranties and Covenants. (i) The
representations and warranties of Acquiror and Merger Sub in this Agreement
shall be true and correct in all material respects (except for such
representations and warranties that are qualified by their terms by a reference
to materiality which representations and warranties as so qualified shall be
true in all respects) on and as of the Effective Time as though such
representations and warranties were made on and as of such time and (ii)
Acquiror and Merger Sub shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them as of the Effective Time.

(b) Certificate of Acquiror. Target shall have been provided with a
certificate executed on behalf of Acquiror by its President and its Chief
Financial Officer to the effect that, as of the Effective Time:

(i) all representations and warranties made by Acquiror and
Merger Sub under this Agreement are true and complete in all material respects
(except for such representations and warranties that are qualified by their
terms by a reference to materiality which representations and warranties as so
qualified shall be true in all respects); and

(ii) all covenants, obligations and conditions of this
Agreement to be performed by Acquiror and Merger Sub on or before such date have
been so performed in all material respects.

(c) Corporate Legal Opinion. Target shall have received a legal
opinion from Acquiror's legal counsel substantially in the form of Exhibit G
hereto.

6.4 Additional Conditions to the Obligations of Acquiror and Merger
Sub. The obligations of Acquiror and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Acquiror:

(a) Representations, Warranties and Covenants. (i) Except as
disclosed in Schedule 6.4(a), the representations and warranties of Target in
this Agreement shall be true and correct in all material respects (except for
such representations and

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<PAGE> 42
warranties that are qualified by their terms by a reference to materiality which
representations and warranties as so qualified shall be true in all respects) on
and as of the Effective Time as though such representations and warranties were
made on and as of such time and (ii) Target shall have performed and complied in
all material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the Effective
Time.

(b) Certificate of Target. Acquiror shall have been provided with a
certificate executed on behalf of Target by its President and Chief Financial
Officer to the effect that, as of the Effective Time:

(i) all representations and warranties made by Target under
this Agreement are true and complete in all material respects (except for such
representations and warranties that are qualified by their terms by a reference
to materiality which representations and warranties as so qualified shall be
true in all respects); and

(ii) all covenants, obligations and conditions of this
Agreement to be performed by Target on or before such date have been so
performed in all material respects.

(c) Third Party Consents. Acquiror shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Merger under the
contracts of Target set forth on Schedule 6.4(c) hereto.

(d) Injunctions or Restraints on Conduct of Business. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint
provision limiting or restricting Acquiror's conduct or operation of the
business of Target, following the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be pending.

(e) Corporate Legal Opinion. Acquiror shall have received a legal
opinion from Target's legal counsel, in substantially the form of Exhibit H.

(f) No Material Adverse Changes. There shall not have occurred any
material adverse change in the financial condition, properties, assets
(including intangible assets), liabilities, business, operations or results of
operations of Target, taken as a whole.

(g) Affiliate and Shareholder Agreements. Acquiror shall have
received from each of the Affiliates of Target an executed Affiliate and
Shareholder Agreement in substantially the form attached hereto as Exhibit B.

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<PAGE> 43
(h) FIRPTA Certificate. Target shall, prior to the Closing Date,
provide Acquiror with a properly executed FIRPTA Notification Letter,
substantially in the form of Exhibit D attached hereto, which states that shares
of capital stock of Target do not constitute "United States real property
interests" under Code section 897(c), for purposes of satisfying Acquiror's
obligations under Treasury Regulation section 1.1445-2(c)(3). In addition,
simultaneously with delivery of such Notification Letter, Target shall have
provided to Acquiror, as agent for Target, a form of notice to the Internal
Revenue Service in accordance with the requirements of Treasury Regulation
section 1.897-2(h)(2) and substantially in the form of Exhibit D attached hereto
along with written authorization for Acquiror to deliver such notice form to the
Internal Revenue Service on behalf of Target upon the Closing of the Merger.

(i) Resignation of Directors. The directors of Target in office
immediately prior to the Effective Time shall have resigned as directors of the
Surviving Corporation effective as of the Effective Time.

(j) Employment and Non-Competition Agreement. Edward A. McDonald
shall have accepted employment with Acquiror and shall have entered into an
Employment and Non-Competition Agreement substantially in the form attached
hereto as Exhibit I.

(k) Expense Statement. Acquiror shall have received from Target a
statement of all out-of-pocket expenses incurred by Target which are subject to
the limitation described in Section 5.19 hereto.

(i) Transfer of Intellectual Property. Target shall have delivered
to Acquiror evidence satisfactory to Acquiror that all patents applications
noted in Schedule 6.4(a) have been assigned to Target.

ARTICLE VII

TERMINATION, AMENDMENT AND WAIVER

7.1 Termination. At any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the shareholders of Target, this Agreement may be terminated:

(a) by mutual consent of the Board of Directors of Acquiror and
Target;

(b) by either Acquiror or Target, if, without fault of the
terminating party, the Closing shall not have occurred on or before October 16,
1996 (or such later date as may be agreed upon in writing by the parties
hereto);

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(c) by Acquiror (provided Acquiror is not otherwise in breach), if
(i) Target shall materially breach any of its representations, warranties or
obligations hereunder and such breach shall not have been cured within ten
business days of receipt by Target of written notice of such breach, (ii) the
Board of Directors of Target shall have withdrawn or modified its recommendation
of this Agreement or the Merger in a manner adverse to Acquiror or shall have
resolved to do any of the foregoing, or (iii) at least 66 2/3% of holders of
Target Capital Stock have not voted in favor of the Merger by October 16, 1996;
provided, however, that if such vote shall not have occurred by such date
because either of the conditions set forth in Sections 6.1(c) (other than the
consent to be obtained by Acquiror from Volpe, Welty & Company) shall not have
been met, such date shall be extended to October 31, 1996;

(d) by Target (provided Target is not otherwise in breach), if
Acquiror shall materially breach any of its representations, warranties or
obligations hereunder and such breach shall not have been cured within ten days
following receipt by Acquiror of written notice of such breach; or

(e) by either Acquiror or Target if (i) any permanent injunction or
other order of a court or other competent authority preventing the consummation
of the Merger shall have become final and nonappealable or (ii) if any required
approval of the shareholders of Target shall not have been obtained by reason of
the failure to obtain the required vote upon a vote held at a duly held meeting
of shareholders or at any adjournment thereof or by written consent.

7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Acquiror, Merger
Sub or Target or their respective officers, directors, shareholders or
affiliates, except to the extent that such termination results from the breach
by a party hereto of any of its representations, warranties or covenants set
forth in this Agreement; provided that, the provisions of Section 5.4
(Confidentiality), Section 7.3 (Expenses and Termination Fees) and this Section
7.2 shall remain in full force and effect and survive any termination of this
Agreement.

7.3 Expenses and Termination Fees.

(a) Subject to subsections (b), (c) and (d) of this Section 7.3,
whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, the fees and expenses of its advisers,
accountants and legal counsel) shall be paid by the party incurring such
expense.

(b) In the event that (i) Acquiror shall terminate this Agreement
pursuant to Section 7.1(c) or (ii) Acquiror shall terminate this Agreement
pursuant to Section

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<PAGE> 45
7.1(e)(ii), Target shall promptly reimburse Acquiror for all of the
out-of-pocket costs and expenses incurred by Acquiror in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisors, accountants and legal
counsel); provided, that Target's liability hereunder shall not exceed $20,000.

(c) In the event that Target shall terminate this Agreement
pursuant to Section 7.1(d) Acquiror shall promptly reimburse Target for all of
the out-of-pocket costs and expenses incurred by Target in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisors, accountants and legal
counsel).

7.4 Amendment. The boards of directors of the parties hereto may cause
this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to adoption of the Agreement by the shareholders of
Target or Merger Sub shall not (i) alter or change the amount or kind of
consideration to be received on conversion of the Target Capital Stock, (ii)
alter or change any term of the Articles of Incorporation of the Surviving
Corporation to be effected by the Merger, or (iii) alter or change any of the
terms and conditions of the Agreement if such alteration or change would
materially adversely affect the holders of Target Common Stock or Merger Sub
Common Stock.

7.5 Extension; Waiver. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Except as provided in Section 5.3(c), any agreement
on the part of a party hereto to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party.

ARTICLE VIII

ESCROW AND INDEMNIFICATION

8.1 Escrow Fund. As soon as practicable after the Effective Time,
shares of Acquiror Common Stock with an aggregate value of $100,000 as of the
Closing Date (based on the Closing Price) together with 7.14% of the total
number of shares of Acquiror Common Stock issued to Target's Shareholders
pursuant to Sections 5.22 (the "Escrow Shares") shall be registered in the name
of, and be deposited with, U.S. Trust Company of California, N.A. (or other
institution selected by Acquiror and reasonably acceptable to the Shareholders'
Agent) as escrow agent (the "Escrow Agent"), such deposit to constitute the
Escrow Fund and to be governed by the terms set forth herein and in the Escrow
Agreement attached hereto

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Exhibit E. The Escrow Fund shall be available to compensate Acquiror pursuant to
the indemnification obligations of the shareholders of Target.

8.2 Indemnification.

(a) Subject to the limitations set forth in this Article VIII and
the occurrence of the Closing, the shareholders of Target severally, but not
jointly and severally, will indemnify and hold harmless Acquiror and the
Surviving Corporation and their respective officers, directors, agents and
employees, and each person, if any, who controls or may control Acquiror or the
Surviving Corporation within the meaning of the Securities Act (hereinafter
referred to individually as an "Acquiror Related Indemnified Person" and
collectively as "Acquiror Related Indemnified Persons") from and against such
shareholder's proportionate share of any and all losses, costs, damages,
liabilities, Taxes and expenses arising from claims, demands, actions, causes of
action, including, without limitation, reasonable legal fees, net of any
recoveries under existing insurance policies, tax benefit received by Acquiror
or its affiliates as a result of such damages, indemnities from third parties or
in the case of third party claims, by any amount actually recovered by Acquiror
or its affiliates pursuant to counterclaims made by any of them directly
relating to the facts giving rise to such third party claims (collectively,
"Acquiror Related Damages"), arising out of (i) any misrepresentation or breach
of or default in connection with any of the representations, warranties,
covenants and agreements given or made by Target in this Agreement, the Target
Disclosure Schedules or any exhibit or schedule to this Agreement and (ii) any
claim by any person that the Merger does not qualify as a reorganization under
the provisions of Sections 368(a)(2)(A) and 368(a)(2)(D). Acquiror and its
affiliates shall act in good faith and in a commercially reasonable manner to
mitigate any Acquiror Related Damages they may suffer.

(b) Nothing in this Agreement shall limit the liability (i) of
Target for any breach of any representation, warranty or covenant if the Merger
does not close, or (ii) of any Target shareholder in connection with any breach
by such shareholder of the Affiliate and Shareholder Agreement, Irrevocable
Proxy or continuity of interest certificate(s) delivered in connection with the
tax opinion to be rendered pursuant to Section 6.2(g). Resort to the Escrow Fund
shall be the exclusive remedy of each Acquiror Related Person for any such
breaches and misrepresentations noted in Section 8.2(a)(i) following the
Effective Time of the Merger. The Escrow Fund may be used for Acquiror Related
Damages that result pursuant to Section 8.2(a)(ii) but shall not be the
exclusive remedy of each Acquiror Related Person.

(c) Subject to the occurrence of the Closing, Acquiror will
indemnify and hold harmless Target's shareholders (hereinafter referred to
individually as a "Target Related Indemnified Person" and collectively as
"Target Related Indemnified Persons") from and against any and all losses,
costs, damages, liabilities and expenses arising from claims, demands, actions,
causes of action, including, without limitation, reasonable legal

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<PAGE> 47
fees, net of any recoveries under existing insurance policies, tax benefit
received by any Target Related Indemnified Person or their affiliates as a
result of such damages, indemnities from third parties or in the case of third
party claims, by any amount actually recovered by any Target Related Indemnified
Person or their affiliates pursuant to counterclaims made by any of them
directly relating to the facts giving rise to such third party claims
(collectively, "Target Related Damages") arising out of any misrepresentation or
breach of or default in connection with any of the representations, warranties,
covenants and agreements given or made by Acquiror or Merger Sub in this
Agreement, the Acquiror Disclosure Schedules or any exhibit or schedule to this
Agreement. Target Related Indemnified Persons and their affiliates shall act in
good faith and in a commercially reasonable manner to mitigate any Target
Related Damages they may suffer. Notwithstanding anything to the contrary in
this Agreement, none of the Target Related Indemnified Persons shall be entitled
to any reimbursement for Target Related Damages to the extent any such Target
Related Damages exceed in the aggregate the value of the Acquiror's Common Stock
in the Escrow Fund (as such value is determined pursuant to Section 8.5(b)). All
claims made hereunder shall be made by the Shareholders' Agent on behalf of the
Target Related Indemnified Persons and any payments to such Target Related
Persons shall be made to the Shareholders' Agent provided that no
indemnification payments shall be due unless the aggregate amount of Target
Related Damages exceeds $5,000 and, in each instance, unless the Shareholders'
Agent delivers to Acquiror a certificate to such effect that also provides
reasonable detail of the individual items of Target Related Damages included in
the claim being made.

8.3 Damage Threshold. Notwithstanding Section 8.2, Acquiror may not
receive any shares from the Escrow Fund with respect to the indemnification
obligations of the shareholders of Target set forth in Section 8.2(a) unless and
until an Officer's Certificate or Certificates (as defined in Section 8.5 below)
satisfying the requirements of Section 8.5(a)(ii) and identifying Acquiror
Related Damages has been delivered to the Escrow Agent as provided in Section
8.5 below and such amount is determined pursuant to this Article VIII to be
payable, in which case Acquiror shall receive shares equal in value to the full
amount of the Acquiror Related Damages (such shares to be valued at the price
set forth in Section 8.5(b)). Acquiror shall not make a request for
reimbursement from any shares from the Escrow Fund, nor shall Acquiror be
entitled to indemnification with respect to the foregoing indemnification
obligations, until the amount of Acquiror Related Damages incurred exceeds
$5,000, as determined by Acquiror.

8.4 Escrow Period. The Escrow Period shall terminate with respect to
all of the Escrow Shares upon the expiration of six months from the Effective
Time; provided, however, that a portion of the Escrow Shares, which, in the
reasonable judgment of Acquiror, subject to the objection of the Shareholders'
Agent and the subsequent arbitration of the matter in the manner provided in
Section 8.7 hereof, are necessary to satisfy any unsatisfied claims specified in
any Officer's Certificate theretofore delivered to the Escrow Agent prior to
termination of the Escrow Period with respect to facts and circumstances
existing prior to

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<PAGE> 48
expiration of the Escrow Period, shall remain in the Escrow Fund until such
claims have been resolved.

8.5 Claims upon Escrow Fund.

(a) Upon receipt by the Escrow Agent on or before the last day of
the Escrow Period of a certificate signed by any officer of Acquiror (an
"Officer's Certificate"):

(i) stating that, with respect to the indemnification
obligations of the shareholders of Target set forth in Section
8.2(a), Acquiror Related Damages exist, and

(ii) specifying in reasonable detail the individual
items of such Acquiror Related Damages included in the amount
so stated, the date each such item was paid, or properly
accrued or arose, the nature of the misrepresentation, breach
of warranty or claim to which such item is related,

the Escrow Agent shall, subject to the provisions of this Article VIII, deliver
to Acquiror out of the Escrow Fund, as promptly as practicable, Acquiror Common
Stock or other assets held in the Escrow Fund having a value equal to such
Acquiror Related Damages.

(b) For the purpose of compensating Acquiror for its Acquiror
Related Damages pursuant to this Agreement, the Acquiror Common Stock in the
Escrow Fund shall be valued at the lower of the Closing Price or the Adjustment
Date Value.

8.6 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Shareholders' Agent (defined in Section 8.8 below) and
for a period of forty-five (45) days after such delivery, the Escrow Agent shall
make no delivery of Acquiror Common Stock or other property pursuant to Section
8.5 hereof unless the Escrow Agent shall have received written authorization
from the Shareholders' Agent to make such delivery. After the expiration of such
forty-five (45) day period, the Escrow Agent shall make delivery of the Acquiror
Common Stock or other property in the Escrow Fund in accordance with Section 8.5
hereof, provided that no such payment or delivery may be made if the
Shareholders' Agent shall object in a written statement to the claim made in the
Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent and to Acquiror prior to the expiration of such forty-five (45) day
period.

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8.7 Resolution of Conflicts; Arbitration.

(a) In case the Shareholders' Agent shall so object in writing to
any claim or claims by Acquiror made in any Officer's Certificate, Acquiror
shall have thirty (30) days to respond in a written statement to the objection
of the Shareholders' Agent. If after such thirty (30) day period there remains a
dispute as to any claims, the Shareholders' Agent and Acquiror shall attempt in
good faith for sixty (60) days to agree upon the rights of the respective
parties with respect to each of such claims. If the Shareholders' Agent and
Acquiror should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and shall
distribute the Acquiror Common Stock or other property from the Escrow Fund in
accordance with the terms thereof.

(b) If no such agreement can be reached after good faith
negotiation, either Acquiror or the Shareholders' Agent may, by written notice
to the other, demand arbitration of the matter unless the amount of the damage
or loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by three arbitrators. Within fifteen (15) days
after such written notice is sent, Acquiror and the Shareholders' Agent shall
each select one arbitrator, and the two arbitrators so selected shall select a
third arbitrator. The decision of the arbitrators as to the validity and amount
of any claim in such Officer's Certificate shall be binding and conclusive upon
the parties to this Agreement, and notwithstanding anything in Section 8.6
hereof, the Escrow Agent shall be entitled to act in accordance with such
decision and make or withhold payments out of the Escrow Fund in accordance
therewith.

(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Orange County, California under the commercial rules then in effect of the
American Arbitration Association. For purposes of this Section 8.7(c), in any
arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is at issue, Acquiror shall be deemed to be the
Non-Prevailing Party unless the arbitrators award Acquiror more than one-half
(1/2) of the amount in dispute, plus any amounts not in dispute; otherwise, the
Target shareholders for whom shares of Target Common Stock otherwise issuable to
them have been deposited in the Escrow Fund shall be deemed to be the
Non-Prevailing Party. The Non- Prevailing Party to an arbitration shall pay its
own expenses, the fees of each arbitrator, the administrative fee of the
American Arbitration Association, and the expenses, including without
limitation, attorneys' fees and costs, reasonably incurred by the other party to
the arbitration.

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8.8 Shareholders' Agent.

(a) Edward A. McDonald shall be constituted and appointed as agent
("Shareholders' Agent") for and on behalf of the Target shareholders to (i) give
and receive notices and communications, to authorize delivery to Acquiror of the
Acquiror Common Stock or other property from the Escrow Fund in satisfaction of
claims by Acquiror, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of the Shareholders'
Agent for the accomplishment of the foregoing and (ii) give and receive notice
and take all other actions necessary or desirable to receive and distribute
shares of Acquiror Common Stock for the benefit of Target's Shareholders as set
forth in, or pursuant to, this Agreement. Such agency may be changed by the
holders of a majority in interest of the Escrow Fund from time to time upon not
less than 10 days prior written notice to Acquiror. No bond shall be required of
the Shareholders' Agent, and the Shareholders' Agent shall receive no
compensation for services rendered. Notices or communications to or from the
Shareholders' Agent shall constitute notice to or from each of the Target
shareholders.

(b) The Shareholders' Agent shall not be liable for any act done or
omitted hereunder as Shareholders' Agent while acting in good faith and in the
exercise of reasonable judgment, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The Target
shareholders shall severally indemnify the Shareholders' Agent and hold him
harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Shareholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder.

(c) The Shareholders' Agent shall have reasonable access to
information about Target and the reasonable assistance of Target's officers and
employees for purposes of performing its duties and exercising its rights
hereunder, provided that the Shareholders' Agent shall treat confidentially and
not disclose any nonpublic information from or about Target to anyone (except
on a need to know basis to individuals who agree to treat such information
confidentially).

8.9 Actions of the Shareholders' Agent. A decision, act, consent or
instruction of the Shareholders' Agent shall constitute a decision of all Target
shareholders for whom shares of Acquiror Common Stock otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each such Target shareholder, and the Escrow Agent and Acquiror may rely upon
any decision, act, consent or instruction of the Shareholders' Agent as being
the decision, act, consent or instruction of each and every such Target
shareholder. The Escrow Agent and Acquiror are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Shareholders' Agent.

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8.10 Third-Party Claims. In the event Acquiror becomes aware of a
third-party claim which Acquiror believes may result in a demand against the
Escrow Fund, Acquiror shall notify the Shareholders' Agent of such claim, and
the Shareholders' Agent shall be entitled, at such Shareholders' Agent's
expense, to control the defense of any such claim provided that such
Shareholders' Agent defends such claim with counsel reasonably satisfactory to
Acquiror. Shareholders' Agent shall have the right to settle any such claim;
provided, however, that Shareholders' Agent may not affect the settlement of any
such claim without the consent of Acquiror, which consent shall not be
unreasonably withheld. In the event that the Shareholders' Agent has consented
to any such settlement, the Shareholders' Agent shall have no power or authority
to object under Section 8.6 or any other provision of this Article VIII to the
amount of any claim by Acquiror against the Escrow Fund for indemnity with
respect to such settlement to the extent that it exceeds the $5,000 "basket"
referred to in Section 8.3.

ARTICLE IX

GENERAL PROVISIONS

9.1 Non-Survival at Effective Time. The representations, warranties and
agreements set forth in this Agreement shall terminate at the Effective Time,
except that the agreements set forth in Article I, Section 5.4
(Confidentiality), 5.7 (Affiliate and Shareholder Agreement), 5.9 (FIRPTA), 5.12
(Employee Benefit Plans), 5.14 (Form S-8), 5.15 (Shareholder Agreements), 5.18
(Reorganization), 5.21 (Reasonable Commercial Efforts and Further Assurances),
5.22 (Purchase Price Adjustment), 7.3 (Expenses and Termination Fees), 7.4
(Amendment), Article VIII and this Article IX shall survive the Effective Time.
Notwithstanding the foregoing, Acquiror's obligations under Section 8.2(c) shall
only survive six months after the Effective Time.

9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):

(a) if to Acquiror or Merger Sub, to:

CardioVascular Dynamics, Inc.
13900 Alton Parkway, Suite 122
Irvine, CA 92618
Attention: Michael Henson
Fax: (714) 581-4761
Tel: (714) 457-9546

46.

<PAGE> 52
with a copy to:

Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Edward Leonard
Fax: (415) 496-2885
Tel: (415) 424-0160

(b) if to Target, to:

Intraluminal Devices, Inc.
38 Nighthawk
Irvine, CA 92604
Attention: Edward McDonald
Fax: (714) 262-9322
Tel: (714) 262-9322

with a copy to:

Higham, McConnell & Dunning
28202 Cabot Road, Suite 450
Laguna Niguel, CA 92677
Attention: Scott McConnell
Fax: (714) 365-5522
Tel: (714) 365-5515

9.3 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement," "the date hereof," and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to October 2, 1996. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.

In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the financial
condition, properties, assets (including intangible assets), liabilities,
business, operations or results of operations of such entity or group of
entities. In this Agreement, any reference to a "Material Adverse Effect" with
respect to any entity or group of entities means any event, change or effect
that is materially adverse to the

47.

<PAGE> 53
financial condition, properties, assets, liabilities, business, operations or
results of operations of such entity and its subsidiaries, taken as a whole.

In this Agreement, any reference to a party's "knowledge" means such
party's actual knowledge after due and diligent inquiry of officers, directors
and other employees of such party reasonably believed to have knowledge of such
matters.

9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.

9.5 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Target Disclosure Schedule and the Acquiror Disclosure
Schedule (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms; (b) are not intended to confer upon any
other person any rights or remedies hereunder, except as set forth in Sections
1.6(a)-(d) and (f), 1.7-1.9, 5.12, 5.14 and 5.22 and Articles VII and VIII; and
(c) shall not be assigned by operation of law or otherwise except as otherwise
specifically provided.

9.6 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.

9.7 Remedies Cumulative. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.

9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of California that might otherwise govern under
applicable principles of conflicts of law. Each of the parties hereto
irrevocably consents to the exclusive jurisdiction of any court located within
Orange County, State of California, in connection with

48.

<PAGE> 54
any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of California for such persons and waives
and covenants not to assert or plead any objection which they might otherwise
have to such jurisdiction and such process.

9.9 Rules of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation, preparation and
execution of this Agreement and, therefore, waive the application of any law,
regulation, holding or rule of construction providing that ambiguities in an
agreement or other document will be construed against the party drafting such
agreement or document.

9.10 Attorneys' Fees. Except as set forth in this Agreement,
or the other documents executed in connection therewith, in the event of any
litigation between the parties hereto, the prevailing party or parties shall be
entitled to payment of their fees and expenses of its or their attorneys.

49.

<PAGE> 55
IN WITNESS WHEREOF, Target, Acquiror and Merger Sub have
caused this Agreement to be executed and delivered by their respective officers
thereunto duly authorized, all as of the date first written above.

INTRALUMINAL DEVICES, INC.

By: /s/ Edward A. McDonald
-----------------------------------

CARDIOVASCULAR DYNAMICS, INC.

By: /s/ Michael R. Henson
-----------------------------------

IDI ACQUISITION CORPORATION

By: /s/ Dana P. Nickell
-----------------------------------

50.

<PAGE> 56
SCHEDULE 2.10

INTRALUMINAL DEVICES, INC.
REAL PROPERTY

1. Intraluminal Devices, Inc. has no real property.

<PAGE> 57
SCHEDULE 2.11

INTRALUMINAL DEVICES, INC.
INTELLECTUAL PROPERTY

1. Ultrasonic U.S. Patent No. 5,306,294 "Stent Construction and Placement
Methods"

2. Ultrasonic U.S. Patent No. 5,366,473 "Method and Apparatus for Applying
Vascular Grafts"

3. Ultrasonic U.S. Patent No. 5,411,551 "Stent Assembly with Sensor"

4. Ultrasonic U.S. Patent Application No. 128345 "Vascular Graft Bypass
Apparatus"

5. Ultrasonic U.S. Patent Application No. 305060 "Expandable Graft
Assembly and Method of Use"

6. IDI Patent Application Docket No. 9410.01 "Bifurcated Intraluminal
Graft for Repair of Aneurysm"

7. IDI Patent Application Docket No. 9410.02 "Expandable Intraluminal
Stent with Overlapping Layers and Porous Slot Pattern" (in process -
not filed)

8. License Agreement dated June 16, 1995 between Intraluminal Devices,
Inc. and Ultrasonic Sensing and Monitoring Systems.

9. Sub-license Agreement dated July 1995 between Intraluminal Devices,
Inc. and MicroTherapeutics, Inc.

<PAGE> 58
SCHEDULE 2.14

INTRALUMINAL DEVICES, INC.
EMPLOYEE BENEFIT PLANS

1. Intraluminal Devices, Inc. 1995 Incentive Stock Option,
Nonqualified Stock Option and Restricted Stock Purchase Plan,
under which options to purchase an aggregate of 95,000 shares
of common stock are outstanding.

<PAGE> 59
SCHEDULE 2.21

INTRALUMINAL DEVICES, INC.
MATERIAL CONTRACTS AND AGREEMENTS

1. Confidentiality agreements in favor of Intraluminal Devices, Inc. have
been signed by the following individuals or entities. These agreements
have varying expiration dates.

- CardioVascular Dynamics - Annette Klassen
- Bio-Vascular, Inc. - Robert Rosenbluth
- Interventional Products Corp. - Novel Biomedical
- Victor White International - Dick Allen
- M.H.D. Technologies - Vaughn Whalen
- Brentwood Associates - John Stevens
- Crosspoint Ventures - Charles Semba, M.D.
- James Benenati, M.D. - Barry Katzen, M.D.
- Jay Lenker, Ph.D. - Hal Heitzmann, Ph.D.
- Mayfield Fund - Douglas Hansmann, Ph.D.
- Tech-Etch, Inc. - John Gehrich, Ph.D.
- Bart Dolmatch, M.D. - Rodney Brenneman
- Ulrich Blum, M.D. - Edward McDonald
- Robert Booty

2. IDI has a signed license agreement with Ultrasonic Sensing and
Monitoring Systems for rights to certain patents referenced in Schedule
2.11.

3. IDI has a signed sub-license agreement with MicroTherapeutics, Inc. for
rights associates with certain Ultrasonic Sensing and Monitoring System
patents referenced in Schedule 2.11.

4. IDI has a signed agreement with the Law firm Higham, McConnell &
Dunning.

5. IDI has a signed agreement with the Law firm of Stradling, Yocca
Carlson and Rauth.

6. IDI has a signed agreement with the Patent Attorney firm of Joseph
Breimayer.

7. IDI has a signed agreement with the Patent Attorney firm of Knobbe,
Martens, Olson and Bear.

8. IDI has a technology development agreement signed by Robert Rosenbluth.

<PAGE> 60
9. IDI has a technology development agreement signed by Rodney Brenneman.

10. IDI has a "Finders" agreement with Victor White Agency.

11. IDI has a Medical Advisory Board Agreement with Ulrich Blum, M.D.

12. IDI has a Medical Advisory Board Agreement with Thomas Winston, M.D.

13. Nonqualified Stock Option Agreements between IDI and each of Thomas
Winston, M.D. and Dick Allen.

14. Incentive Stock Option Agreement between IDI and Edward A. McDonald.

15. Shareholders Agreement among IDI and its founders.

16. Letter agreements between IDI and each of its "Seed" investors executed
at the time of funding the "Seed" investment.

17. Letter agreements between IDI and each of its "Seed" investors
concerning the conversion of the "Seed" investment into Series A
Preferred Stock.

<PAGE> 61
SCHEDULE 2.31

INTRALUMINAL DEVICES, INC.
ASSUMED LIABILITIES

1. Robert Rosenbluth claims that he has some residual expenses associated
with the period of time he was consulting with IDI which will not
exceed $3,000 in aggregate. To date, he has not submitted any claim for
these expenses.

<PAGE> 62
SCHEDULE 5.7
INTRALUMINAL DEVICES, INC.
AFFILIATES

1. IDI's officers, directors and principal shareholders may be deemed to
be affiliates of IDI.

<PAGE> 63
SCHEDULE 5.12

INTRALUMINAL DEVICES, INC.
HOLDERS OF OUTSTANDING OPTIONS

<TABLE>
<CAPTION>
NAME OPTION SHARES ORIGINAL VESTING SCHEDULE GRANT DATE TERM
(EXERCISE PRICE
PER SHARE)
<S> <C> <C> <C> <C> <C>
Edward McDonald ISO 75,000 50,000 Shares on August 9th, 1996, 8/9/96 Six years
thereafter 12,500 Shares on each of minus one day
August 31, 1996 and September 30, from date of
1996 ($0.05) grant.

Dick Allen NQSO 10,000 1250 Shares on May 2, 1996, thereafter 11/02/95 Six years
208.33 Shares per month commencing minus one day
June 2, 1966, until fully vested as of from date of
November 2, 2000 when 222 Shares ($0.05) grant.
Vest

Thomas Winston, MD NQSO 10,000 1,666 Shares on March 11, 1997 and 9/11/96 Six years
thereafter 277.8 Shares per month minus one day
commencing April 11, 1997 and from date of
continuing until fully vested as of ($0.10) grant.
September 11, 2000
</TABLE>

<PAGE> 64
SCHEDULE 6.4(a)

INTRALUMINAL DEVICES, INC.
DISCLOSURE SCHEDULE

DISCLOSURE ITEMS ARE NOTED BELOW WITH RESPECT TO A PARTICULAR SECTION OF THE
AGREEMENT AND PLAN OF REORGANIZATION FOR CONVENIENCE ONLY, AND MAY BE APPLICABLE
TO OTHER SECTIONS AS WELL; PROVIDED HOWEVER THAT THE FOLLOWING SHALL NOT BE
DEEMED TO MODIFY THE REPRESENTATIONS AND WARRANTIES CONTAINED IN SECTION 2.31
NOTWITHSTANDING THE OPERATION OF SECTION 5.3(c).

1. SECTION 2.11(c) (INTELLECTUAL PROPERTY)
a. IDI has indemnification obligations under the
Sub-license Agreement dated July 1995 between IDI and
MicroTherapeutics, Inc.

2. SECTION 2.11(f) (INTELLECTUAL PROPERTY)
a. McDonald patent application (bifurcation application)
has not yet been assigned
b. McDonald/Rosenbluth patent application (microporous
application) has not been filed and has not yet been
assigned

3. SECTION 2.13 (TAXES)
a. IDI has filed timely tax returns with the exception
of one late annual State Corporation tax payment
which has been paid with penalty and one late monthly
withholding payment which has been sent in but no
penalty statement has been received.

4. SECTION 2.17 (INTERESTED PARTY TRANSACTIONS)
a. Bruce Feuchter is Secretary of the Corporation and a
business attorney for Stradling Yocca Carlson and
Rauth. IDI owes money to Stradling Yocca Carlson and
Rauth for services rendered.

5. SECTION 2.2 (CAPITAL STRUCTURE)
a. IDI's outstanding Stock Option Agreements and Stock
Option Plan are unclear as to the effect of the
merger on outstanding stock options. The consummation
of the merger may result in acceleration of the
vesting of outstanding stock options.

6. SECTION 2.22 (BROKERS' AND FINDERS' FEES)
a. IDI has a signed "finders" agreement with Victor
White agency. Victor White Agency stated in one or
two phone calls to IDI that it was representing the
interest of a Mike Henson (no company name was given)
with regard to interest in a stent company.

7. SECTION 2.4 (FINANCIAL STATEMENTS)
a. IDI's accounting system consists solely of
Quick-Books. Financial statements may or may not
comply with generally

<PAGE> 65
accepted accounting principles.

8. SECTION 2.5 (ABSENCE OF CERTAIN CHANGES)
a. On September 21, 1996, IDI's Articles of
Incorporation were amended and restated.

9. SECTION 2.6 (ABSENCE OF UNDISCLOSED LIABILITIES)
a. IDI owes money to Stradling, Yocca, Carlson & Rauth
for services rendered
b. Robert Rosenbluth may have claims to un-reimbursed
expenses
c. IDI has an ongoing relationship with Joe Breimayer
(patent attorney) and incurs expenses on an ongoing
basis. Breimayer is paid through 9/24/96
d. IDI has an ongoing relationship with Knobbe Martens
Olson & Bear and incurs expenses on an ongoing basis.
KMOB is paid through 9/17/96

10. SECTION 2.8 (RESTRICTIONS ON BUSINESS ACTIVITIES)
a. IDI has issued an exclusive sub-license to Micro
Therapeutics, Inc. for certain purposes, for all of
the Ultrasonic Patents represented by the License
Agreement between IDI and Ultrasonic Sensing and
Monitoring Corp.

<PAGE> 66
EXHIBIT A

CERTIFICATE OF MERGER

MERGING

INTRALUMINAL DEVICES, INC.

WITH AND INTO

IDI ACQUISITION CORPORATION

-------------------------------

Pursuant to Section 252 of the General Corporation Law of
the State of Delaware
-----------------------------

IDI ACQUISITION CORPORATION, a Delaware corporation ("Merger Sub"), and
INTRALUMINAL DEVICES, INC., a California corporation ("Target"), DO HEREBY
CERTIFY AS FOLLOWS:

FIRST: That Merger Sub was incorporated in Delaware on September 20,
1996, pursuant to the Delaware General Corporation Law (the "Delaware Law"), and
that Target was incorporated in California on February 8, 1995, pursuant to the
California General Corporation Law (the "California Law").

SECOND: That an Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated as of September 30, 1996, among
CardioVascular Dynamics, Inc., a Delaware corporation ("Acquiror"), Merger Sub
and Target, setting forth the terms and conditions of the merger of Target with
and into Merger Sub (the "Merger"), has been approved, adopted, certified,
executed and acknowledged by each of Acquiror, Merger Sub and Target in
accordance with Section 252 of the Delaware Law.

THIRD: That the name of the surviving corporation (the "Surviving
Corporation") shall be M(3) Corp.

FOURTH: That pursuant to the Reorganization Agreement, the Certificate
of Incorporation of the Surviving Corporation shall be the Certificate of
Incorporation of IDI Acquisition Corporation.

<PAGE> 67
FIFTH: That an executed copy of the Reorganization Agreement is on file
at the principal place of business of the Surviving Corporation at the following
address:

M(3) Corp.
38 Nighthawk
Irvine, California 92604

SIXTH: That a copy of the Reorganization Agreement will be furnished by
the Surviving Corporation, on request and without cost, to any stockholder of
Merger Sub or Target.

SEVENTH: That the authorized capital stock of Target is five million
four hundred eighty-seven thousand five hundred (5,487,500) shares, which
consists of five million (5,000,000) shares of Common Stock and four hundred
eighty-seven thousand five hundred (487,500) shares of Preferred Stock.

EIGHTH: That the Merger shall become effective upon the filing of this
Certificate of Merger with the Secretary of State of the State of Delaware.

IN WITNESS WHEREOF, each of Merger Sub and Target has caused this
Certificate of Merger to be executed in its corporate name this ___ day of
October 1996.

IDI ACQUISITION CORPORATION

By:______________________________________
President and Chief Executive Officer
ATTEST:

__________________________________
Secretary
INTRALUMINAL DEVICES, INC.

By:______________________________________
President and Chief Executive Officer
ATTEST:

__________________________________
Secretary

<PAGE> 68
EXHIBIT B

AFFILIATE AND SHAREHOLDER AGREEMENT

THIS AFFILIATE AND SHAREHOLDER AGREEMENT (the "Affiliate and
Shareholder Agreement") is entered into as of the ___ day of _____________, 1996
between CARDIOVASCULAR DYNAMICS, INC., a Delaware corporation ("Acquiror"), and
the undersigned shareholder (the "Shareholder") of INTRALUMINAL DEVICES, INC., a
California corporation ("Target").

RECITALS

A. Target, Acquiror and IDI Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Acquiror ("Merger Sub"), have
entered into an Agreement and Plan of Reorganization, dated as of October 2,
1996 (the "Reorganization Agreement"), pursuant to which Target will be merged
with and into Merger Sub (the "Merger"), and Target will become a wholly-owned
subsidiary of Acquiror.

B. Upon the consummation of the Merger and in connection therewith, the
undersigned Shareholder will become the owner of shares of Common Stock of
Acquiror (the "Acquiror Common Stock").

C. The parties to the Reorganization Agreement intend to adopt a plan
of reorganization that will qualify as a "reorganization" under the provisions
of Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Internal Revenue Code of
1986, as amended (the "Code").

NOW, THEREFORE, in consideration of the premises and the mutual
agreements, provisions and covenants set forth in the Reorganization Agreement
and in this Affiliate and Shareholder Agreement, it is hereby agreed as follows:

1. The undersigned Shareholder hereby agrees that:

(a) The undersigned Shareholder has, and as of the Effective Time
of the Merger will have, no present plan or intent (a "Plan") to engage in a
sale, exchange, transfer, pledge, disposition or any other transaction
(including a distribution by a partnership to its partners or by a corporation
to its shareholders) that results in a reduction in the risk of ownership
(collectively, a "Sale") of the shares of Acquiror Common Stock to be acquired
by the undersigned Shareholder upon consummation of the Merger such that the
aggregate fair market value, as of the Effective Time of the Merger, of the
shares subject to such Sales would exceed fifty percent (50%) of the

<PAGE> 69
aggregate fair market value of the shares of outstanding Target Common Stock
owned by the Shareholder immediately prior to the Merger. A sale of Acquiror
Common Stock shall be considered to have occurred pursuant to a Plan if such
Sale occurs in a transaction that is in contemplation of, or related or pursuant
to, the Reorganization Agreement (a "Related Transaction"). In addition, shares
of Target Capital Stock (as defined below) (i) exchanged for cash in lieu of
fractional shares of Acquiror Common Stock and (ii) with respect to which a Sale
occurred in a Related Transaction prior to the Merger shall be considered to
have been shares of outstanding Target Common Stock that were exchanged for
Acquiror Common Stock in the Merger and then disposed of pursuant to a Plan. If
any of the undersigned Shareholder's representations in this subsection (b)
ceases to be true at any time prior to the Effective Time of the Merger, the
undersigned Shareholder shall deliver to each of Target and Acquiror, prior to
the Effective Time of the Merger, a written statement to that effect. Except as
otherwise set forth in Appendix A, the undersigned Shareholder has not engaged
in a sale of any shares of Target Common Stock since July 1, 1996.

The undersigned Shareholder is currently the owner of that number
of shares of, or options to purchase, Target Common and Preferred Stock (the
"Target Capital Stock") set forth on the signature page hereto and, except as
otherwise set forth on the signature page hereto, (i) has held such Target
Capital Stock at all times since ____________, and (ii) did not acquire any
shares of Target Capital Stock in contemplation of the Merger. These securities
constitute the undersigned's entire interest in the outstanding capital stock of
Target. No other person or entity not a signatory to this Agreement has a
beneficial interest in or a right to acquire such shares of Target Capital Stock
or any portion of such shares of Target Capital Stock (except, with respect to
shareholders which are partnerships, partners of such shareholders). The
Undersigned's principal residence or place of business is set forth on the
signature page hereto.

The undersigned Shareholder shall pay its own expenses, if any,
incurred in connection with the Merger. The undersigned Shareholder understands
and acknowledges that Target, Acquiror and their respective shareholders, as
well as legal counsel to Target and Acquiror, are entitled to rely on (i) the
truth and accuracy of the undersigned Shareholder's representations contained
herein and (ii) the undersigned Shareholder's performance of the obligations set
forth herein.

(b) Subject to paragraph (a) of this Section 1, the undersigned
Shareholder agrees not to offer, sell, exchange, transfer, pledge or otherwise
dispose of any of the Acquiror Shares unless at that time either:

(i) such transaction is permitted pursuant to the provisions
of Rule 145(d) under the Securities Act;

<PAGE> 70
(ii) counsel representing the undersigned Shareholder,
satisfactory to Acquiror, shall have advised Acquiror in a written opinion
letter satisfactory to Acquiror and Acquiror's counsel, and upon which Acquiror
and its counsel may rely, that no registration under the Securities Act is
required in connection with the proposed sale, transfer or other disposition;

(iii) a registration statement under the Securities Act covering
the Acquiror Shares proposed to be sold, transferred or otherwise disposed of,
describing the manner and terms of the proposed sale, transfer or other
disposition, and containing a current prospectus, is filed with the SEC and made
effective under the Securities Act; or

(iv) an authorized representative of the SEC shall have rendered
written advice to the undersigned Shareholder (sought by the undersigned
Shareholder or counsel to the undersigned Shareholder, with a copy thereof and
of all other related communications delivered to Acquiror) to the effect that
the SEC will take no action, or that the staff of the SEC will not recommend
that the SEC take action, with respect to the proposed offer, sale, exchange,
transfer, pledge or other disposition if consummated.

(c) All certificates representing Acquiror Shares deliverable to a
Shareholder (provided such Shareholder is deemed to be an Affiliate of Target
at the time the Merger was submitted for vote or consent) pursuant to the
Reorganization Agreement and in connection with the Merger and any certificates
subsequently issued with respect thereto or in substitution therefor shall bear
a legend that such shares of Acquiror Common Stock may only be sold or disposed
of in accordance with (i) the provisions of Rule 145 under the Securities Act,
(ii) pursuant to a Registration Statement effective under the Securities Act or
(iii) pursuant to an exemption provided by the Securities Act, and the
conditions specified in this Shareholder and Affiliate Agreement. Acquiror, at
its discretion, may cause stop transfer orders to be placed with its transfer
agent with respect to the certificates for such Acquiror Shares but not as to
the certificates for any part of the Acquiror Shares as to which said legend is
no longer appropriate.

(d) The undersigned Shareholder will observe and comply with the
Securities Act and the General Rules and Regulations thereunder, as now in
effect and as from time to time amended and including those hereafter enacted or
promulgated, in connection with any offer, sale, exchange, transfer, pledge or
other disposition of the Acquiror Shares or any part thereof.

(e) The undersigned Shareholder undertakes and agrees to indemnify
and hold harmless Acquiror, Surviving Corporation, and each of their respective
current and future officers and directors and each person, if any, who now or
hereafter controls or may control Acquiror or Surviving Corporation within the
meaning of the Securities Act (an "Indemnified Person") from and against any and
all claims, demands, actions, causes of action, losses, costs, damages,
liabilities and expenses ("Claims") based upon,

<PAGE> 71
arising out of or resulting from any material breach or material nonfulfillment
of any undertaking, covenant or agreement made by the undersigned Shareholder in
subsection (a) or (b) of this Section 1, or caused by or attributable to the
undersigned Shareholder, or the undersigned Shareholder's agents or employees,
or representatives, brokers, dealers and/or underwriters insofar as they are
acting on behalf of and in accordance with the instruction of or with the
knowledge of the undersigned Shareholder, in connection with or relating to any
offer, sale, pledge, transfer or other disposition of any of the Acquiror Shares
by or on behalf of the undersigned Shareholder, which claim or claims result
from any material breach or material nonfulfillment as set forth above. The
indemnification set forth herein shall be in addition to any liability that the
undersigned Shareholder may otherwise have to the Indemnified Persons. After the
date of declared effectiveness by the SEC of the applicable registration
statement relating to all of the shares subject to this Agreement the indemnity
provisions of the Shareholder hereunder shall be superseded by those in the
registration rights agreement relating to the publicly traded shares.

(f) Promptly after receiving definitive notice of any Claim in respect
of which an Indemnified Person may seek indemnification under this Affiliate and
Shareholder Agreement, such Indemnified Person shall submit notice thereof to
the undersigned Shareholder. The omission by the Indemnified Person so to notify
the undersigned Shareholder of any such Claim shall not relieve the undersigned
Shareholder from any liability the undersigned Shareholder may have hereunder
except to the extent that (i) such liability was caused or increased by such
omission, or (ii) the ability of the undersigned Shareholder to reduce or defend
against such liability was adversely affected by such omission. The omission of
the Indemnified Person so to notify the undersigned Shareholder of any such
Claim shall not relieve the undersigned Shareholder from any liability the
undersigned Shareholder may have otherwise than hereunder. The Indemnified
Persons and the undersigned Shareholder shall cooperate with and assist one
another in the defense of any Claim and any action, suit or proceeding arising
in connection therewith. In addition, the Shareholders' Agent shall, at his
election, have the authority to control the defense of any Claim provided that
such Shareholders' Agent does so with counsel acceptable to Acquiror and does
not settle any such Claims without the prior written consent of Acquiror, which
consent shall not be unreasonably withheld.

2. The undersigned Shareholder agrees to maintain in strictest
confidence information about the Reorganization Agreement and the Merger,
including information about the existence of this agreement and such Merger, and
not to disclose any such information without prior written approval of the
Target and Acquiror.

3. The undersigned Shareholder will not, directly or indirectly, (i)
take any action to solicit, initiate or encourage any Takeover Proposal (defined
below) or (ii) subject to the terms of the immediately following sentence,
engage in negotiations with, or disclose any nonpublic information relating to
Target or any of it subsidiaries to, or

<PAGE> 72
afford access to the properties, books or records of Target or any of its
subsidiaries to, any person that has advised Target that it may be considering
making, or that has made, a Takeover Proposal. The undersigned Shareholder will
promptly notify Acquiror after receipt of any Takeover Proposal or any notice
that any person is considering making a Takeover Proposal or any request for
nonpublic information relating to Target or any of its subsidiaries or for
access to the properties, books or records of Target or any of its subsidiaries
by any person that has advised the undersigned Shareholder that it may be
considering making, or that has made, a Takeover Proposal and will keep Acquiror
fully informed of the status and details of any such Takeover Proposal notice or
request. For purposes of this Agreement, "Takeover Proposal" means any offer or
proposal for, or any indication of interest in, a merger or other business
combination involving Target or any of its subsidiaries or the acquisition of
any significant equity interest in, or a significant portion of the assets of,
Target or any of its subsidiaries, other than the transactions contemplated by
this Agreement.

4. From and after the Effective Time of the Merger and for so long as
necessary in order to permit the undersigned Shareholder to sell the Acquiror
Common Stock pursuant to Rule 145 and, to the extent applicable, Rule 144 under
the Securities Act, Acquiror will file on a timely basis all reports required to
be filed by it pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, referred to in paragraph (c)(1) of Rule 144 under the Securities Act (or,
if applicable, Acquiror will make publicly available the information regarding
itself referred to in paragraph (c)(2) of Rule 144), in order to permit the
undersigned Shareholder to sell, pursuant to the terms and conditions of Rule
145 and the applicable provisions of Rule 144, the Acquiror Common Stock.

5. No waiver by any party hereto of any condition or of any breach of
any provision of this Affiliate and Shareholder Agreement shall be effective
unless in writing.

6. All notices, requests, demands or other communications that are
required or may be given pursuant to the terms of this Affiliate and Shareholder
Agreement shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed by registered or certified mail, postage prepaid, as
follows:

(a) If to the Shareholder, at the address set forth below the
Shareholder's signature at the end hereof.

(b) If to Acquiror, Target or the other Indemnified Persons:

CardioVascular Dynamics, Inc.
13900 Alton Parkway, Suite 122
Irvine, CA 92618
Attention: Michael R. Henson

<PAGE> 73
Fax: (714) 581-4761
Tel: (714) 457-9546

with a copy (which shall not constitute notice) to:

Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94306
Attention: Edward M. Leonard
Fax: (415) 496-2885
Tel: (415) 424-0160

and

Intraluminal Devices, Inc.
38 Nighthawk
Irvine, CA 92604
Attention: President
Fax: (714) 262-9322
Tel: (714) 262-9322

with a copy (which shall not constitute notice) to:

Higham, McConnell & Dunning
28202 Cabot Road, Suite 450
Laguna Niguel, CA 92677
Attention: Scott McConnell
Fax: (714) 365-5522
Tel: (714) 365-5515

or to such other address as any party hereto or any Indemnified Person may
designate for itself by notice given as herein provided.

7. For the convenience of the parties hereto, this Affiliate and
Shareholder Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same document.

8. This Affiliate and Shareholder Agreement shall be enforceable by,
and shall inure to the benefit of and be binding upon, the parties hereto and
their respective successors and assigns. Moreover, this Affiliate and
Shareholder Agreement shall be enforceable by, and shall inure to the benefit
of, the Indemnified Persons and their respective successors and assigns. As used
herein, the term "successors and assigns"

<PAGE> 74
shall mean, where the context so permits, heirs, executors, administrators,
trustees and successor trustees, and personal and other representatives.

9. This Affiliate and Shareholder Agreement shall be governed by and
construed, interpreted and enforced in accordance with the laws of the State of
California.

10. If a court of competent jurisdiction determines that any provision
of this Affiliate and Shareholder Agreement is unenforceable or enforceable only
if limited in time and/or scope, this Affiliate and Shareholder Agreement shall
continue in full force and effect with such provision stricken or so limited.

11. All capitalized terms used herein shall have the meaning defined in
the Reorganization Agreement, unless otherwise defined herein.

<PAGE> 75
IN WITNESS WHEREOF, the parties have caused this Affiliate and
Shareholder Agreement to be executed as of the date first above written.

CARDIOVASCULAR DYNAMICS, INC. Shareholder

By:
(Signature)

Name:

Title:
(Print Name)

(Print Address)

(Print Telephone Number)

Total Number of Shares and Options to Purchase Target Capital Stock owned on the
date hereof:

Common Stock:
Preferred Stock:
Options to Purchase
Common Stock:

State of Residence:

[SIGNATURE PAGE TO AFFILIATE AND SHAREHOLDER AGREEMENT]

<PAGE> 76
EXHIBIT C

IRREVOCABLE PROXY

TO VOTE STOCK OF

INTRALUMINAL DEVICES, INC.

The undersigned shareholder of Intraluminal Devices, Inc., a California
corporation ("Target"), hereby irrevocably (to the fullest extent permitted by
the California General Corporation Law) appoints the members of the Board of
Directors of CARDIOVASCULAR DYNAMICS, INC., a Delaware corporation ("Acquiror"),
and each of them, as the sole and exclusive attorneys and proxies of the
undersigned, with full power of substitution and resubstitution, at any time
prior to the Expiration Date (as defined below) to vote and exercise all voting
and related voting rights (to the fullest voting extent that the undersigned is
entitled to do so) with respect to all of the shares of capital stock of Target
that now are or hereafter may be beneficially owned or owned of record by the
undersigned, and any and all other shares or securities of Target issued or
issuable in respect thereof on or after the date hereof (collectively, the
"Shares") in accordance with the terms of this Proxy. The Shares beneficially
owned by the undersigned shareholder of Target as of the date of this Proxy are
listed on the final page of this Proxy. Upon the undersigned's execution of this
Proxy, any and all prior proxies given by the undersigned with respect to any
Shares are hereby revoked and the undersigned agrees not to grant any subsequent
proxies with respect to the Shares until after the Expiration Date (as defined
below).

This Proxy is irrevocable until the Expiration Date (to the extent
provided under the California General Corporation Law), is granted in
consideration of Acquiror entering into that certain Agreement and Plan of
Reorganization, dated as of October 2, 1996, by and among Target, Acquiror and
IDI Acquisition Corporation, a Delaware corporation ("Merger Sub"), a Delaware
corporation ("Merger Sub") and wholly owned subsidiary of Acquiror (the
"Reorganization Agreement"). The Reorganization Agreement provides for the
merger of Target with and into Merger Sub (the "Merger"). As used herein, the
term "Expiration Date" shall mean the earlier to occur of (i) such date and time
as the Merger shall become effective in accordance with the terms and provisions
of the Reorganization Agreement or (ii) the date of termination of the
Reorganization Agreement.

The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting and other related voting rights of the undersigned with
respect to the Shares (including, without limitation, the power to execute and
deliver written consents and waivers,

<PAGE> 77
including but not limited to waiver of the notice required by Section 8(a) of
Article II of the Target's Bylaws, pursuant to the California General
Corporation Law), at every annual, special or adjourned meeting of the
shareholders of Target and in every written consent in lieu of such meeting (i)
in favor of approval of the Merger and the Reorganization Agreement and any
related corporate actions and (ii) against any proposal for any
recapitalization, merger, sale of assets or other business combination (other
than the Merger) between Target and any person or entity other than Acquiror or
any other action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of Target under
the Reorganization Agreement or which could result in any of the conditions to
Target's obligations under the Reorganization Agreement not being fulfilled. The
attorneys and proxies named above may not exercise this Proxy on any other
matter except as provided above. The undersigned shareholder may vote the Shares
on all other matters.

Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.

This Proxy shall be governed by, and construed in accordance with, the
laws of the State of California and is irrevocable.

Dated: ___________, 1996

______________________________
(Signature of Shareholder)

______________________________
(Print Name of Shareholder)

Shares beneficially owned:

_________ shares of Target Common Stock

_________ shares of Target Preferred Stock

[SIGNATURE PAGE TO PROXY]

<PAGE> 78
EXHIBIT D

NOTICE OF NON U.S. REAL PROPERTY HOLDING CORPORATION STATUS
PURSUANT TO TREASURY REGULATION SECTION 1.897-2(h) AND
CERTIFICATION OF NON-FOREIGN STATUS

Pursuant to an Agreement and Plan of Reorganization among
CARDIOVASCULAR DYNAMICS, INC. ("Acquiror"), its wholly-owned subsidiary, IDI
ACQUISITION CORPORATION ("Merger Sub"), and INTRALUMINAL DEVICES, INC.
("Target"), dated as of October 2, 1996, Target shall be merged with and into
Merger Sub, and Target will become a wholly-owned subsidiary of Acquiror. In
completing such merger, Acquiror and/or Merger Sub shall receive shares of
Target common stock ("Common Stock") in exchange for the merger consideration
provided for in such Agreement and Plan of Reorganization.

Section 1445 of the Internal Revenue Code of 1986, as amended (the
"Code"), provides that a transferee of a U.S. Real Property Interest must
withhold tax if the transferor is not a U.S. person. In order to confirm that
neither Acquiror nor Merger Sub, as transferees, are required to withhold tax
upon the receipt of Target Common Stock in exchange for the merger
consideration, the undersigned, in his capacity as President of Target, hereby
certifies as follows:

1. The Common Stock of Target to be received by Acquiror and/or Merger
Sub pursuant to the merger does not constitute a U.S Real Property Interest as
that term is defined in Section 897(c)(1)(A)(ii) of the Code;

2. The determination in Paragraph 1, above, is based on a determination
by Target that Target is not and has not been a U.S. Real Property Holding
Corporation as that term is defined in Section 897(c)(2) of the Code during the
five-year period preceding the date of this Notice, as indicated below;

3. Target is not a foreign corporation, foreign partnership, foreign
trust or foreign estate (as those terms are defined in the Code and the Income
Tax Regulations);

4. Target's U.S. employer identification number is TARGET EMPLOYER ID
NUMBER;

5. Target's office address is 38 Nighthawk, Irvine, California 92604;
and

<PAGE> 79
6. Target shall authorize Acquiror to file this notice in its behalf
with the Internal Revenue Service within thirty (30) days of the date this
notice is delivered to Acquiror and Merger Sub.

This Notice is made in accordance with the requirements of Treasury
Regulation section 1.897-2(h). Target understands that any false statement
contained herein could be punished by fine, imprisonment or both.

Under penalties of perjury I declare that I have examined this Notice
and to the best of my knowledge and belief it is true, correct and complete, and
I further declare that I have authority to sign this document on behalf of
Target.

INTRALUMINAL DEVICES, INC.

Dated: By:

Title:

[SIGNATURE PAGE TO FIRPTA CERTIFICATE]

<PAGE> 80
NOTICE TO THE INTERNAL REVENUE SERVICE

This Notice is being provided by INTRALUMINAL DEVICES, INC. ("Target")
pursuant to the requirements of Treasury Regulation section 1.897-2(h)(2).

Target is located at 38 Nighthawk, Irvine, California 92604. Target's
Taxpayer Identification Number is TARGET EMPLOYER ID NUMBER.

The attached Certificate of Non-U.S. Real Property Holding Corporation
Status was not requested by a foreign interest holder. Such Certificate was
requested by CARDIOVASCULAR DYNAMICS, INC. ("Acquiror") and IDI ACQUISITION
CORPORATION ("Merger Sub"), the transferees of the stock of Target. Acquiror and
Merger Sub, are located at 13900 Alton Parkway, Suite 122, Irvine, California
92618. Acquiror's Taxpayer Identification Number is _____________.

The interests in question, shares of Target common stock to be received
by Acquiror and Merger Sub, pursuant to an Agreement and Plan of Reorganization,
are not U.S. Real Property Interests.

Under penalties of perjury I declare that I have examined this Notice
and the attachment hereto and to the best of my knowledge and belief they are
true, correct and complete, and I further declare that I have authority to sign
this document on behalf of Target.

INTRALUMINAL DEVICES, INC.

Dated: By:

Title:

<PAGE> 81
EXHIBIT E

ESCROW AGREEMENT

This Escrow Agreement is made as of this 16th day of October
1996, by and among U.S. Trust Company of California, N.A. ("Escrow Agent"),
CardioVascular Dynamics, Inc., a Delaware corporation ("Acquiror"), and Edward
A. McDonald as agent ("Shareholders' Agent") of the former shareholders of
Intraluminal Devices, Inc., a California corporation ("Target"). Terms not
otherwise defined herein shall have the meaning set forth in the Reorganization
Agreement (as defined below).

WITNESSETH

WHEREAS, Acquiror, IDI Acquisition Corporation, a Delaware
corporation ("Merger Sub") and wholly owned subsidiary of Acquiror and Target
have entered into an Agreement and Plan of Reorganization (the "Reorganization
Agreement"), dated as of October 2, 1996, providing for the merger of Target
with and into Merger Sub (the "Merger"); and

WHEREAS, pursuant to Article VIII of the Reorganization
Agreement, a copy of which is attached hereto as Appendix A ("Article VIII"), an
escrow fund (the "Escrow Fund") will be established to compensate Acquiror for
certain Damages (as defined in Article VIII) arising out of any
misrepresentation or breach or default in connection with any of the
representations, warranties, covenants and agreements given or made by Target in
the Reorganization Agreement, the Target Disclosure Schedule or any exhibit or
schedule to the Reorganization Agreement; and

WHEREAS, the Shareholders' Agent has been constituted as agent
for and on behalf of the former shareholders of Target (individually a
"Shareholder" and collectively the "Shareholders") to undertake certain
obligations specified in Article VIII; and

WHEREAS, Article VIII provides for an Escrow Fund of a number
of shares of Acquiror Common Stock with an aggregate value of $100,000 as of the
Closing Date (based on the Closing Price) together with seven and fourteen
hundredths percent (7.14%) of all shares of Acquiror Common Stock issued
pursuant to Section 5.22 of the Reorganization Agreement upon the Merger, such
escrow to be held by the Escrow Agent; and

WHEREAS, the parties hereto desire to set forth further terms
and conditions in addition to those set forth in the Reorganization Agreement
relating to the operation of the Escrow Fund.

<PAGE> 82
NOW, THEREFORE, the parties hereto, in consideration of the
mutual covenants contained herein, and intending to be legally bound, hereby
agree as follows:

1. Escrow and Escrow Shares. Pursuant to the Reorganization
Agreement, Acquiror shall deposit in escrow with the Escrow Agent, as escrow
agent, as soon as practicable after the Effective Time (as defined in the
Reorganization Agreement) and in any event within five (5) business days of the
Effective Time (as defined in the Reorganization Agreement) of the Merger, a
stock certificate or certificates representing 6,169 shares of Acquiror Common
Stock (the "Escrow Shares") which shall be registered in the name of the Escrow
Agent, or its nominee, as nominee for the beneficial owners of such shares. The
Escrow Shares shall be held and distributed by the Escrow Agent in accordance
with the terms and conditions of the Reorganization Agreement and this
Agreement. The number of Escrow Shares beneficially owned by each Shareholder is
set forth in Appendix B attached hereto.

2. Rights and Obligations of the Parties. The Escrow Agent
shall be entitled to such rights and shall perform such duties of the escrow
agent as set forth herein and in Article VIII (collectively, the "Duties"), in
accordance with the terms and conditions of this Agreement and Article VIII.
Acquiror, Target and the Shareholders' Agent shall be entitled to their
respective rights and shall perform their respective duties and obligations as
set forth herein and in Article VIII, in accordance with the terms hereof and
thereof. In the event that the terms of this Agreement conflict in any way with
the provisions of Article VIII, Article VIII shall control.

3. Escrow Period. The Escrow Period shall terminate with
respect to the Escrow Shares upon the expiration of six (6) months from the
Effective Time; provided, however, that a portion of the Escrow Shares, which,
in the reasonable judgment of Acquiror, subject to the objection of the
Shareholders' Agent and the subsequent arbitration of the matter in the manner
provided in Section 8.7 of the Reorganization Agreement, are necessary to
satisfy any unsatisfied claims specified in any Officer's Certificate
theretofore delivered to the Escrow Agent prior to termination of the Escrow
Period with respect to facts and circumstances existing prior to expiration of
the Escrow Period, shall remain in the Escrow Fund until such claims have been
resolved.

4. Duties of Escrow Agent. In addition to the Duties set
forth in Article VIII, the Duties of the Escrow Agent shall include the
following:

(a) The Escrow Agent shall hold and safeguard the Escrow
Shares during the Escrow Period, shall treat such Escrow Fund in accordance with
the terms of this Agreement and Article VIII and not as the property of
Acquiror, and shall hold and dispose of the Escrow Shares only in accordance
with the terms hereof.

<PAGE> 83
(b) The Escrow Shares shall be voted by the Escrow Agent in
accordance with the instructions received by the Escrow Agent from the
beneficial owners of such Escrow Shares. If no instructions are received from
the beneficial owners, such shares shall not be voted by the Escrow Agent.

(c) Promptly following termination of the Escrow Period as
set forth in Section 3 hereof, the Escrow Agent shall requisition from the stock
transfer agent, if necessary, and deliver to the Shareholders the proper number
of Escrow Shares and other property in the Escrow Fund in excess of any amount
of such Escrow Shares or other property sufficient, in the reasonable judgment
of Acquiror, subject to the objection of the Shareholders' Agent and the
subsequent arbitration of the matter in the manner provided in Section 8.7 of
the Reorganization Agreement, to satisfy any unsatisfied claims specified in any
Officer's Certificate theretofore delivered to the Escrow Agent prior to
termination of the Escrow Period with respect to facts and circumstances
existing prior to expiration of the Escrow Period, and to pay expenses as
provided in Section 11(b) hereof. As soon as all such claims have been resolved,
the Escrow Agent shall requisition from the transfer agent, if necessary, and
deliver to such Shareholders all of the Escrow Shares and other property
remaining in the Escrow Fund and not required to satisfy such claims and
expenses. Each Shareholder shall receive that number of Escrow Shares which
bears the same relationship to the total number of Escrow Shares in the Escrow
Fund and available for distribution as the number of Escrow Shares set forth
opposite the name of each such Shareholder on Appendix B hereto.

(d) To the extent directed to do so by the Shareholders'
Agent and Acquiror, the Escrow Agent shall sell up to 1% of the shares of
Acquiror Common Stock held in the Escrow Fund and shall apply the proceeds of
such sale to pay expenses incurred by the Shareholders' Agent on behalf of the
Shareholders as provided in Section 11(b) hereof provided that Acquiror must
consent to the payment of such expenses (such consent not to be unreasonably
withheld).

5. Distributions; Tax Allocations. Any cash dividends,
dividends payable in securities or other distributions of any kind (but
excluding any shares of Acquiror capital stock received upon a stock split)
shall be promptly distributed by the Escrow Agent to, and for tax reporting
purposes shall be allocable to, the beneficial holder of the Escrow Shares to
which such distribution relates. Any shares of Acquiror Common Stock received by
the Escrow Agent upon a stock split made in respect of any securities in the
Escrow Fund shall be added to the Escrow Fund and become a part thereof. Any
provision hereof or of Article VIII shall be adjusted to appropriately reflect
any stock split or reverse stock split. For tax reporting purposes, all other
income received by the Escrow Agent and attributable to the Escrow Fund shall be
allocable to Acquiror.

<PAGE> 84
6. Exculpatory Provisions.

(a) The Escrow Agent shall be obligated only for the
performance of such Duties as are specifically set forth herein and in Article
VIII of the Reorganization Agreement and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for forgeries or false personations. The Escrow
Agent shall not be liable for any act done or omitted hereunder by it in good
faith as escrow agent except for any liability arising from its (i) own gross
negligence, bad faith, or willful misconduct or (ii) failure to comply with the
terms of this Agreement and Article VIII. The Escrow Agent shall, in no case or
event be liable for any representations or warranties of Target, Acquiror or
Merger Sub. Any act done or omitted pursuant to the advice or opinion of counsel
shall be conclusive evidence of the good faith of the Escrow Agent.

(b) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law or arbitrations
as provided in Section 8.7 of the Reorganization Agreement, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court or rulings of any arbitrators. In case the Escrow Agent obeys or complies
with any such order, judgment or decree of any court or such ruling of any
arbitrator, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person by reason of such compliance, notwithstanding any such
order, judgment, decree or arbitrators' ruling being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.

(c) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver the Agreement or any documents or
papers deposited or called for thereunder.

(d) The Escrow Agent shall not be liable for the outlawing
of any rights under any statute of limitations with respect to the Agreement or
any documents deposited with the Escrow Agent.

7. Alteration of Duties. The Duties may be altered, amended,
modified or revoked only by a writing signed by all of the parties hereto.

8. Resignation and Removal of the Escrow Agent. The Escrow
Agent or any Successor may resign as Escrow Agent at any time with or without
cause by giving at least thirty (30) days' prior written notice to each of
Acquiror and the Shareholders' Agent, such resignation to be effective thirty
(30) days following the date such notice is given. In addition, Acquiror and the
Shareholders' Agent may jointly remove the Escrow Agent as escrow agent at any
time with or without cause, by an instrument (which may

<PAGE> 85
be executed in counterparts) given to the Escrow Agent, which instrument shall
designate the effective date of such removal. In the event of any such
resignation or removal, a successor escrow agent which shall be a bank or trust
company organized under the laws of the United States of America or any state
thereof having a combined capital and surplus of not less than $100,000,000,
shall be appointed by the Shareholders' Agent with the approval of Acquiror,
which approval shall not be unreasonably withheld. Any such successor escrow
agent shall deliver to Acquiror and the Shareholders' Agent a written instrument
accepting such appointment, and thereupon it shall succeed to all the rights and
duties of the escrow agent hereunder and shall be entitled to receive the Escrow
Fund. In the event no successor escrow agent is appointed by the effective date
of such resignation or removal, the Escrow Agent, the Shareholders' Agent or the
Acquiror may apply to a court of competent jurisdiction (in which action the
other parties shall be afforded a reasonable opportunity to participate) for
such appointment.

9. Further Instruments. If the Escrow Agent reasonably requires other
or further instruments in connection with performance of the Duties, the
necessary parties hereto shall join in furnishing such instruments.

10. Disputes. It is understood and agreed that should any dispute arise
with respect to the delivery and/or ownership or right of possession of the
securities held by the Escrow Agent hereunder, the Escrow Agent is authorized
and directed to act in accordance with, and in reliance upon, the terms hereof
and of Article VIII.

11. Escrow Fees and Expenses.

(a) Acquiror shall pay the Escrow Agent such fees as are
established by the Fee Schedule attached hereto as Appendix C.

(b) Any out-of-pocket fees and expenses incurred by the
Shareholders' Agent shall be paid out of the Escrow Fund in preference to other
distributions from such Escrow Fund; provided that the aggregate amount of such
payments will not exceed the amount in Section 4(d) and provided, further, that
under no circumstances, will the Shareholders' Agent have personal liability for
any such fees and expenses.

12. Indemnification. In consideration of the Escrow Agent's acceptance
of this appointment, Acquiror and the shareholders of Target, agree to indemnify
and hold the Escrow Agent harmless as to any liability incurred by it to any
person, firm or corporation by reason of its having accepted such appointment or
in carrying out the terms hereof and Article VIII of the Reorganization
Agreement, and to reimburse the Escrow Agent for all its costs and expenses,
including, among other things, counsel fees and expenses, reasonably incurred by
reason of any matter as to which an indemnity is paid; provided, however, that
no indemnity need be paid in case of the Escrow Agent's gross negligence, bad
faith, willful misconduct or breach of this Agreement; and provided

<PAGE> 86
further, however, that the liability of each of the shareholders of Target under
this Section shall be limited to the shareholder's proportionate share, based on
the ratio which the shareholder's interest in the Escrow Fund bears to the
interests of all such shareholders. In no event shall the Escrow Agent be liable
for indirect, punitive, special or consequential damages.

13. General.

(a) Any notice given hereunder shall be in writing and shall be
deemed effective upon the earlier of personal delivery or the third day after
mailing by certified or registered mail, postage prepaid as follows:

To Acquiror:

CardioVascular Dynamics, Inc.
13900 Alton Parkway, Suite 122
Irvine, CA 92618
Attention: Michael R. Henson
Fax: (714) 581-4761
Tel: (714) 457-9546

With a copy to:

Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94306
Attention: Edward M. Leonard
Fax: (415) 496-2885
Tel: (415) 424-0160

To Shareholders' Agent:

Intraluminal Devices, Inc.
38 Nighthawk
Irvine, CA 92604
Attention: Edward A. McDonald
Fax: (714) 262-9322
Tel: (714) 262-9322

<PAGE> 87
With a copy to:

Higham, McConnell & Dunning
28202 Cabot Road, Suite 450
Laguna Niguel, CA 92677
Attention: Scott McConnell
Fax: (714) 365-5522
Tel: (714) 365-5515

To the Escrow Agent:

U.S. Trust Company of California, N.A.
515 South Flower Street
Los Angeles, CA
Attention: Corporate Trust Department
Fax: (213) 488-1370
Tel: (213) 861-5051

or to such other address as any party may have furnished in writing to the other
parties in the manner provided above.

(b) The Officer's Certificate as defined in Article VIII may be
signed by the President, Vice President or Chief Financial Officer of Acquiror.

(c) The captions in this Escrow Agreement are for convenience only
and shall not be considered a part of or affect the construction or
interpretation of any provision of this Escrow Agreement.

(d) This Escrow Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an original copy
hereof, but all of which together shall constitute one agreement.

(e) No party may, without the prior express written consent of each
other party, assign this Escrow Agreement in whole or in part. This Escrow
Agreement shall be binding upon and inure to the benefit of the respective
successors and assigns of the parties hereto.

(f) This Escrow Agreement shall be governed by and construed in
accordance with the laws of the State of California as applied to contracts made
and to be performed entirely within the State of California. The parties to this
Escrow Agreement hereby agree to submit to personal jurisdiction in the State of
California.

<PAGE> 88
(g) Any term of this Escrow Agreement may be amended or modified
only with the consent of all parties hereto. Any amendment or modification
effected in accordance with this paragraph shall be binding upon each party
hereto.

IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first above written.

U.S. TRUST COMPANY OF CALIFORNIA,
N.A., as Escrow Agent

By
Name:
Title:

CARDIOVASCULAR DYNAMICS, INC.

By
Name:
Title:

SHAREHOLDERS' AGENT

[SIGNATURE PAGE TO ESCROW AGREEMENT]

<PAGE> 89
APPENDIX A

ARTICLE VIII OF THE REORGANIZATION AGREEMENT

<PAGE> 90
APPENDIX B

LISTS OF SHAREHOLDERS AND THEIR RESPECTIVE ESCROW AMOUNTS

<PAGE> 91
APPENDIX C

FEE SCHEDULE

<PAGE> 92
EXHIBIT F

DECLARATION OF REGISTRATION RIGHTS

This Declaration of Registration Rights ("Declaration") is made as of
October 16, 1996, by CardioVascular Dynamics, Inc., a Delaware corporation
("CVD"), for the benefit of certain shareholders of Intraluminal Devices, Inc.,
a California corporation ("IDI") acquiring shares of the Common Stock of CVD,
pursuant to that Agreement and Plan of Reorganization by and among CVD, IDI and
IDI Acquisition Corporation, dated as of October 2, 1996, (the "Merger
Agreement"), and in consideration of IDI entering into the Merger Agreement and
the transactions contemplated thereby.

1. Definitions. As used in this Declaration:

a. "1934 Act" means the Securities Act of 1934, as amended.

b. "Act" means the Securities Act of 1933, as amended.

c. "Holder" means: (i) a shareholder of IDI to whom shares of
Common of CVD are issued pursuant to the Merger Agreement, (ii) the Escrow Agent
(as defined in the Merger Agreement), or (iii) a transferee of a Holder to whom
registration rights granted under this Declaration are granted pursuant to
Section 10 of this Declaration.

d. "Registrable Securities" means for each Holder the number of
shares of CVD Common Stock issued to such Holder pursuant to the Merger
Agreement (including shares issued to the Escrow Agent pursuant to Article VIII
thereof and all Additional Shares, if any, issued pursuant to Section 5.22 of
the Agreement), in each case rounded to the nearest integral amount, and for all
Holders the sum of the Registrable Securities held by them, together with all
securities which may hereafter be issued with respect thereto as the result of
stock split, stock dividend or otherwise.

e. "SEC" means the Securities and Exchange Commission.

Terms not otherwise defined herein have the meanings given to them in
the Merger Agreement.

2. Registration. CVD shall use its best efforts to cause the
Registrable Securities held by each Holder to be registered under the Act so as
to permit the sale thereof, and in connection therewith shall prepare and file
with the SEC within forty-five (45) days following the Effective Time of the
Merger a registration statement in such

<PAGE> 93
form as is then available under the Act covering the Registrable Securities (it
being understood that the timing of any registration of shares pursuant to
Section 5.22 of the Merger Agreement shall be determined solely as set forth in
the Merger Agreement); provided, however, that each Holder shall provide all
such information and materials by each Holder and take all such action as may be
required in order to permit CVD to comply with all applicable requirements of
the SEC and to obtain any desired acceleration of the effective date of such
registration statement, such provision of information and materials by each
Holder to be a condition precedent to the obligations of CVD pursuant to this
Declaration with respect to such Holder. CVD shall not be required to effect
more than two registrations under this Declaration (unless no rights to
Additional Shares vest in any Holder pursuant to Section 5.22 of the Merger
Agreement, in which case only one registration shall be required). The offerings
made pursuant to such registrations shall not be underwritten, unless
specifically requested in writing by the holders of at least ninety percent
(90%) of the Registrable Securities that are unregistered at the time of the
registration and agreed to be CVD.

3. Postponement of Registration. Notwithstanding Section 2 above, CVD
shall be entitled to postpone the declaration of effectiveness of the
registration statement prepared and filed pursuant to Section 2 for a reasonable
period of time, but not in excess of forty-five (45) calendar days, if the Board
of Directors of CVD, acting in good faith, determines that there exists material
non-public information about CVD.

4. Obligations of CVD. CVD shall (i) prepare and file with the SEC the
registration statement in accordance with Section (2) hereof with respect to the
shares of Registrable Securities and shall use its best efforts to cause such
registration statement to become effective as promptly as practicable after
filing and to keep such registration statement continuously effective until the
earlier to occur of two (2) years after the date the SEC has declared a
registration statement effective with respect to the initial issuance of shares
under Section 1.6 of the Merger Agreement and one year after the date the SEC
has declared a registration statement effective with respect to the initial
issuance of shares under Section 1.6 of the Merger Agreement in the event that
the Rule 144 holding period is shortened to one year (ii) prepare and file with
the SEC such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary and to comply with
the provisions of the Act with respect to the sale or other disposition of all
securities proposed to be registered in such registration statement until the
earlier to occur of two (2) years after the date the SEC has declared a
registration statement effective with respect to the initial issuance of shares
under Section 1.6 of the Merger Agreement and one year after the date the SEC
has declared a registration statement effective with respect to the initial
issuance of shares under Section 1.6 of the Merger Agreement in the event that
the Rule 144 holding period is shortened to one year; (iii) furnish to each
Holder such number of copies of any prospectus (including any preliminary
prospectus and any amended or supplemented prospectus) in conformity with the
requirements of the Act, and such other documents, as each Holder may reasonably
request in order to effect the

<PAGE> 94
offering and sale of the shares of the Registrable Securities to be offered and
sold, but only while CVD shall be required under the provisions hereof to cause
the registration statement to remain current; (iv) use its commercially
reasonable efforts to register or qualify the shares of the Registrable
Securities covered by such registration statement under the securities or blue
sky laws of such jurisdictions as each Holder shall reasonably request (provided
that CVD shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such jurisdiction where it has not been qualified), and do any and all other
acts or things which may be necessary or advisable to enable each Holder to
consummate the public sale or other disposition of such stock in such
jurisdictions; (v) notify each Holder upon the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing; (vi) so long
as the registration statement remains effective, promptly prepare, file and
furnish to each Holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of the Registrable Securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing; (vii) notify each
Holder, promptly after it shall receive notice thereof, of the date and time the
registration statement and each post-effective amendment thereto has become
effective or a supplement to any prospectus forming a part of such registration
statement has been filed; (viii) notify each Holder promptly of any request by
the SEC for the amending or supplementing of such registration statement or
prospectus or for additional information; and (ix) advise each Holder, promptly
after it shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the SEC suspending the effectiveness of the registration
statement or the initiation or threatening of any proceeding for that purpose
and promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal if such stop order should be issued. If requested by
the holders of at least ninety percent (90%) of the Registrable Securities that
are unregistered at the time of the registration, and provided that the
underwriter or underwriters selected by such holders are reasonably satisfactory
to CVD, CVD shall enter into and perform its obligations under an underwriting
agreement with a nationally recognized investment banking firm or firms
containing representations, warranties, indemnities and agreements then
customarily included by an issuer in underwriting agreements with respect to
secondary distributions; provided, however, that each Holder with shares of
Registrable Securities included in the offering shall also enter into and
perform its obligations under such an agreement. In connection with any offering
of shares of Registrable Securities registered pursuant to this Declaration, CVD
shall (x) furnish each Holder, at CVD's expense, with unlegended certificates
representing ownership of the shares of Registrable Securities being sold in
such denominations as each Holder shall request and (y) instruct the transfer
agent and

<PAGE> 95
registrar of the Registrable Securities to release any stop transfer orders with
respect to the shares of Registrable Securities being sold.

5. Expenses. CVD shall pay all of the out-of-pocket expenses incurred,
other than underwriting discounts and commissions, in connection with any
registration of Registrable Securities pursuant to this Declaration, including,
without limitation, all SEC, NYSE and blue sky registration and filing fees,
printing expenses, transfer agents' and registrars' fees, and the reasonable
fees and disbursements of CVD's outside counsel and independent accountants and
a single counsel for all of the Holders.

6. Indemnification. In the event of any offering registered pursuant to
this Declaration:

a. CVD will indemnify each Holder, each of its officers, directors
and partners and such Holder's legal counsel and independent accountants, and
each person controlling such Holder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification or compliance
has been effected pursuant to this Agreement, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages and liabilities
(or actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they are made, not misleading, or any violation by CVD of any rule or regulation
promulgated under the Securities Act, or state securities laws, or common law,
applicable to CVD in connection with any such registration, qualification or
compliance, and will reimburse each such Holder, each of its officers, directors
and partners and such Holder's legal counsel and independent accountants, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that CVD will not be liable
in any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or alleged
untrue statement or omission, made in reliance upon and in conformity with
written information furnished to CVD in an instrument duly executed by such
Holder or underwriter and stated to be specifically for use therein.

b. Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify CVD, each of its directors and officers
and its

<PAGE> 96
legal counsel and independent accountants, each underwriter, if any, of CVD's
securities covered by such a registration statement, each person who controls
CVD or such underwriter within the meaning of Section 15 of the Securities Act,
and each other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse CVD,
such Holders, such directors, officers, legal counsel, independent accountants,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to CVD by an instrument duly executed by such Holder and stated to be
specifically for use therein; provided, however, that the obligations of such
Holder hereunder shall be limited to an amount equal to the gross proceeds
before expenses and commissions to such Holder of Registrable Securities sold as
contemplated herein.

c. Each party entitled to indemnification under this Section 12
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has written notice of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation (unless the
Indemnified Party determines that a**, shall be approved by the Indemnified
Party (whose approval shall not be unreasonably withheld), and the Indemnified
Party may participate in such defense at such party's expense, and provided
further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Agreement, except to the extent, but only to the extent, that the Indemnifying
Party's ability to defend against such claim or litigation is impaired as a
result of such failure to give notice. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.

d. If the indemnification provided for in this Section 6 is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party due
to operation of law with respect to any loss, liability, claim, damage, or
expense referred to

<PAGE> 97
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact of the
omission to sate a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.

e. The obligations of CVD and each Holder under this Section 8
shall survive the completion of any offering of stock in a registration
statement under this Declaration and otherwise.

7. Reports Under Securities Merger Act of 1934. CVD agrees to:

a. use its commercially reasonable efforts to file with the SEC in
a timely manner all reports and other documents required of CVD under the Act
and the 1934 Act; and

b. furnish to each Holder, forthwith upon request (i) a written
statement by CVD that it has complied with the reporting requirements of the Act
and the 1934 Act, or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of CVD and (iii) such other
information as may be reasonably requested in availing each Holder of any rule
or regulation of the SEC which permits the selling of any such securities
pursuant to SEC Rule 144 and/or Rule 145.

8. Assignment of Registration Rights. The rights to cause CVD to
register Registrable Securities pursuant to this Declaration may be assigned by
a Holder to a transferee of Registrable Securities only if CVD is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee and the Registrable Securities with respect to
which such registration rights are being assigned and a copy of a duly executed
written instrument in form reasonably satisfactory to CVD by which such
transferee assumes all of the obligations and liabilities of its transferor
hereunder and agrees itself to be bound hereby.

9. Amendment of Registration Rights. Holders of a majority of the
Registrable Securities may, with the consent of CVD, amend the registration
rights granted hereunder.

<PAGE> 98
10. Termination. The registration rights set forth in this Declaration
shall terminate with respect to a Holder at such time as all of the Registrable
Securities then held by such Holder can be sold by such Holder in a 3-month
period in accordance with Rule 144 under the Act.

11. Third Party Beneficiaries. It is intended that the shareholders of
IDI be third party beneficiaries to this Declaration of Registration Rights.

CARDIOVASCULAR DYNAMICS, INC.

By:

Title:

<PAGE> 99
EXHIBIT G

October 16, 1996

Intraluminal Devices, Inc.
38 Nighthawk
Irvine, CA 92604

Ladies and Gentlemen:

We have acted as counsel for CardioVascular Dynamics, Inc., a
Delaware corporation ("Acquiror"), and IDI Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of Acquiror ("Merger Sub"), in
connection with the merger (the "Merger") of Intraluminal Devices, Inc., a
California corporation ("Target") with and into Merger Sub, pursuant to the
Agreement and Plan of Reorganization by and among Acquiror, Target and Merger
Sub, dated as of October 2, 1996 (the "Reorganization Agreement"), and the
Certificate of Merger between Target and Merger Sub, dated as of October 16,
1996 (the "Merger Agreement"). This opinion is rendered to you pursuant to
Section 6.3(c) of the Reorganization Agreement. Capitalized terms used herein
and not otherwise defined shall have the same meaning given to such terms in the
Reorganization Agreement.

In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of such
documents, corporate records, certificates, including certificates of public
officials and other instruments as we have deemed necessary or advisable for
purposes of this opinion, including the Certificate of Incorporation, as
amended, and the Amended and Restated Bylaws of Acquiror, the Certificate of
Incorporation and the Bylaws of Merger Sub and the records of the respective
Boards of Directors of Acquiror and Merger Sub relating to the Merger. In
addition, in connection with the Merger, we have reviewed the Reorganization
Agreement, the Merger Agreement, the Escrow Agreement, the Affiliate and
Shareholder Agreements, and the Registration Rights Agreement.

In such examination and review we have assumed the genuineness
of all signatures, the legal capacity of natural persons, the authenticity of
all documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such copies; and that there are no extrinsic
agreements or understandings among the

<PAGE> 100
Intraluminal Devices, Inc. October 16, 1996
Page 2

parties to the Reorganization Agreement and the Merger Agreement that would
modify or interpret the terms of the Reorganization Agreement and the Merger
Agreement or the respective rights or obligations of the parties thereunder. As
to any facts material to the opinions hereinafter expressed which we did not
independently establish or verify, we have relied without investigation upon
certificates, statements and representations of representatives of Acquiror.
During the course of our discussion with such officers and representatives and
our review of the documents described above in connection with the preparation
of these opinions, no facts were disclosed to us that caused us to conclude that
any such certificate, statement or representation is untrue. In making our
examination of the documents executed by entities other than Acquiror and Merger
Sub, we have assumed that each such other entity had the power to enter into and
perform all its obligations thereunder and the due authorization, execution and
delivery of such documents by each such entity.

The opinions hereinafter expressed are qualified to the extent that (a)
the validity or enforceability of any of the agreements, documents or
obligations referred to herein may be subject to or affected by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting the rights and remedies of creditors generally, and (b) the
enforceability of such agreements, documents or obligations may be limited by
general principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, and public policy,
whether applied by a court of law or equity. We do not express any opinion
herein as to the availability of any equitable or other specific remedy upon
breach of any of the agreements, documents or obligations referred to herein. We
render or imply no opinion with respect to compliance with applicable anti-fraud
statutes, rules or regulations of applicable state or federal law.

Based upon and subject to the foregoing, and subject to the further
assumptions, limitations, qualifications and exceptions set forth herein, we are
of the opinion that:

1. Acquiror is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, has the corporate power
and authority to own, operate and lease its properties and carry on its business
as now conducted;

<PAGE> 101
Intraluminal Devices, Inc. October 16, 1996
Page 3

2. The authorized capital stock of Acquiror consists of 30,000,000
shares of Common Stock, $.001 par value, and 5,000,000 shares of Preferred
Stock, $.001 par value. At the close of business on October 9, 1996, no shares
of Preferred Stock were issued and outstanding. At the close of business on
October 15, 1996, 8,776,000 shares of Common Stock were issued and outstanding,
all of which have been duly authorized and are validly issued, fully paid and
nonassessable. On the close of business on October 9, 1996, 1,006,000 shares of
Common Stock were subject to issuance upon exercise of outstanding options;

3. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware; all of the outstanding
shares of capital stock of Merger Sub are validly issued, fully paid and
nonassessable and registered in the name of Acquiror;

4. The Reorganization Agreement and the Merger Agreement have been
approved and adopted by the sole stockholder of Merger Sub; each of Acquiror and
Merger Sub has full corporate power and authority to execute, deliver, and
perform its obligations under the Reorganization Agreement, the Merger
Agreement, the Escrow Agreement and the Registration Rights Agreement (in each
case to the extent Acquiror or Merger Sub is a party to each such document);
each of Acquiror and Merger Sub has taken all requisite corporate action to
approve and adopt the Reorganization Agreement, the Merger Agreement, the Escrow
Agreement and the Registration Rights Agreement and to approve and to authorize
the carrying out of the transactions contemplated thereunder (in each case to
the extent Acquiror or Merger Sub is a party to each such document); and the
Reorganization Agreement, Merger Agreement, the Escrow Agreement and the
Registration Rights Agreement have been duly executed and delivered by each of
Acquiror and Merger Sub and constitute legal, valid and binding obligations of
each of Acquiror and Merger Sub enforceable in accordance with their terms (in
each case to the extent Acquiror or Merger Sub is a party to each such
document); provided, that enforceability of the indemnity obligations contained
in such agreements may be limited by public policy;

5. The approval of the stockholders of Acquiror is not required for the
consummation of the transactions contemplated by the Reorganization Agreement
and the Merger Agreement; the shares of Acquiror Common Stock to be delivered in
exchange for shares of Target Common Stock will, when issued as contemplated by
the Reorganization Agreement and the Merger Agreement, be validly issued, fully
paid and nonassessable; and a sufficient number of shares of Acquiror Common
Stock have been duly and validly reserved for issuance upon exercise of options
to acquire Target Common Stock being assumed by Acquiror pursuant to the
Reorganization Agreement

<PAGE> 102
Intraluminal Devices, Inc. October 16, 1996
Page 4

and such reserved shares, when issued in accordance with the terms of such
options, will be validly issued, fully paid and nonassessable;

6. The execution, delivery and performance of the Reorganization
Agreement, the Escrow Agreement and the Registration Rights Agreement (in each
case to the extent Acquiror or Merger Sub is a party to each such document) by
Acquiror and Merger Sub, and the carrying out of the transactions contemplated
thereby to be carried out by Acquiror and Merger Sub did not and will not
conflict with or constitute a violation under the charter documents of Acquiror
or Merger Sub;

7. To our knowledge, no suit, action or legal, administrative,
arbitration or other proceeding or governmental investigation is pending or
threatened to which Acquiror or Merger Sub or any of their assets or properties
is a party which seeks to prohibit, restrain or enjoin the transactions
contemplated by the Reorganization Agreement or the Merger Agreement;

8. There is no consent, approval, authorization, order, registration,
qualification or filing of or with any court or any regulatory authority or
other governmental body (either foreign or domestic) required by Acquiror or
Merger Sub or with respect to its assets or properties or otherwise for the
consummation of the transactions contemplated by the Reorganization Agreement,
the Merger Agreement, the Escrow Agreement and the Registration Rights Agreement
(in each case to the extent Acquiror or Merger Sub is a party to each such
document) that has not been obtained, except for (i) such consents, approvals,
authorizations, registration or qualifications as may be required under state
securities or Blue Sky laws in connection with the offer and sale of Acquiror
Common Stock pursuant to the Merger, (ii) acceptance for filing of the Merger
Agreement together with any appropriate tax clearance certificate by the
California Secretary of State. Our opinion herein, however, is subject to the
timely and proper completion of all filings and other actions contemplated above
in this paragraph 8, where such filings and actions are to be undertaken on or
after the date hereof, (iii) acceptance for filing of the Merger Agreement with
the Delaware Secretary of State and (iv) the consents and filings noted in the
Reorganization Agreement and related documents.

9. Based in part upon the representations made in the Affiliate and
Shareholder Agreements, the shares of Acquiror Common Stock to be issued and
delivered in exchange for shares of Target Common Stock pursuant to the
Reorganization Agreement and the Merger Agreement will, when issued, be exempt
from registration under Section 5 of the Securities Act of 1933, as amended (the
"Act"), pursuant to Section 4(2) of the Act.

<PAGE> 103
Intraluminal Devices, Inc. October 16, 1996
Page 5

Whenever our opinion herein with respect to the existence or
absence of facts is indicated to be based upon our knowledge, such expression
means that in the course of our representation of Acquiror in connection with
the Merger nothing has come to our attention that would give us actual knowledge
of the existence or absence of such facts. We have undertaken no independent
factual investigation to determine the existence or absence of such facts.

With respect to the opinions set forth in the second, third
and fourth sentences of paragraph (2) as to the number of issued and outstanding
shares of Preferred Stock and Common Stock and that such shares have been
validly issued and are fully paid and nonassessable, and as to the number of
shares of Common Stock subject to outstanding options, we have: (i) relied,
without independent verification, on a certificate of the transfer agent and
registrar of Acquiror ("Transfer Agent") dated as of October 15, 1996 as to the
matters set forth therein, (ii) relied, without independent verification, on a
certificate of an officer of Acquiror, dated as of October 15, 1996 with respect
to certain of the factual matters set forth therein and (iii) reviewed
procedures used by Acquiror and the Transfer Agent when issuing or authorizing
the issuance of shares. We note, however, that we have not (x) reviewed
Acquiror's stock records, (y) verified procedures used by or obtained records
from Acquiror's Transfer Agent or (z) independently verified that each issued
and outstanding share of Common Stock has been fully paid.

This opinion relates solely to the laws of the State of
California and applicable federal laws of the United States, and we express no
opinion with respect to the effect or applicability of the laws of other
jurisdictions.

The opinions expressed herein are solely for your benefit in
connection with the above transactions and may not be relied upon in any manner
or for any purpose by any other person.

Very truly yours,

BROBECK, PHLEGER & HARRISON LLP

<PAGE> 104
Intraluminal Devices, Inc. October 16, 1996
Page 6

Brobeck, Phleger & Harrison LLP Opinion
Doc. #0191699.02
Review Partner:

<PAGE> 105
EXHIBIT H

TARGET'S LEGAL OPINION

_____________, 1996

CardioVascular Dynamics, Inc.
13900 Alton Parkway, Suite 122
Irvine, CA 92618

Ladies and Gentlemen:

We have acted as counsel for Intraluminal Devices, Inc., a California
corporation ("Target"), in connection with the merger (the"Merger") of Target
with and into IDI Acquisition Corporation, a Delaware corporation ("Merger Sub")
and wholly-owned subsidiary of CardioVascular Dynamics, Inc., a Delaware
corporation ("Acquiror"), pursuant to the Agreement and Plan of Reorganization
by and among Acquiror, Target and Merger Sub, dated as of October 2, 1996 (the
"Reorganization Agreement"), and the Agreement of Merger between Acquiror,
Target and Merger Sub, dated as of ____________, 1996 (the "Merger Agreement").
This opinion is rendered to you pursuant to Section 6.4(e) of the Reorganization
Agreement. Capitalized terms used herein and not otherwise defined shall have
the same meaning given to such terms in the Reorganization Agreement.

We are of the opinion that:

1. Target is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, has the corporate power and
authority to own, operate and lease its properties and carry on its business as
now conducted, is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which it owns or leases real property
or in which the conduct of its business makes such qualification necessary and
in which the failure to so qualify would have a material adverse effect upon the
business, condition or properties of the Company;

2. The authorized capital stock of Target consists of ______________
shares of Common Stock, ___ par value, and _____________ shares of Preferred
Stock. At the close of business on __________ __, 1996, ___________ shares of
Common Stock were

<PAGE> 106
CardioVascular Dynamics, Inc. ____________, 1996
Page 2

issued and outstanding, all of which have been duly authorized and are validly
issued, fully paid and nonassessable. On the close of business on ________ __,
1996, __________ shares of Common Stock were subject to issuance upon exercise
of outstanding options;

3. The Reorganization Agreement and the Merger Agreement have been
approved and adopted by the shareholders of Target; Target has full corporate
power and authority to execute, deliver, and perform its obligations under the
Reorganization Agreement and the Merger Agreement; Target has taken all
requisite corporate action to approve and adopt the Reorganization Agreement and
the Merger Agreement and to approve and to authorize the carrying out of the
transactions contemplated thereunder; and the Reorganization Agreement and the
Merger Agreement have been duly executed and delivered by Target and constitute
legal, valid and binding obligations of Target enforceable in accordance with
their terms; provided that enforceability of the indemnity obligations contained
in such agreements may be limited by public policy;

4. The execution, delivery and performance of the Reorganization
Agreement by Target, the execution and delivery of the Merger Agreement by
Target and the carrying out of the transactions contemplated by the
Reorganization Agreement and by the Merger Agreement to be carried out by Target
did not and will not conflict with or constitute a violation under the charter
documents of Target;

5. To our knowledge, no suit, action or legal, administrative,
arbitration or other proceeding or governmental investigation is pending or
threatened to which Target or any of its assets or properties is a party which
seeks to prohibit, restrain or enjoin the transactions contemplated by the
Reorganization Agreement or the Merger Agreement; and

6. There is no consent, approval, authorization, order, registration,
qualification or filing of or with any court or any regulatory authority or
other governmental body (either foreign or domestic) required by Target or with
respect to its assets or properties or otherwise for the consummation of the
transactions contemplated by the Reorganization Agreement and the Merger
Agreement that has not been obtained, except for (i) such consents, approvals,
authorizations, registration or qualifications as may be required under state
securities or Blue Sky laws in connection with the offer and sale of Acquiror
Common Stock pursuant to the Merger, (ii) acceptance for filing of the Merger
Agreement together with any appropriate tax clearance certificate by the
California Secretary of State, (iii) acceptance for filing of the Merger
Agreement with the Delaware Secretary of State and (iv) the consents and filings
noted in the Reorganization Agreement and related documents.

<PAGE> 107
CardioVascular Dynamics, Inc. ____________, 1996
Page 3

This opinion relates solely to the laws of the State of
California and applicable Federal laws of the United States, and we express no
opinion with respect to the effect or applicability of the laws of other
jurisdictions.

The opinions expressed herein are solely for your benefit in
connection with the above transactions and may not be relied upon in any manner
or for any purpose by any other person.

Sincerely,

HIGHAM, MCCONNELL & DUNNING

<PAGE> 108
EXHIBIT I

EMPLOYMENT AND NON-COMPETITION AGREEMENT

This Agreement dated as of October 16, 1996 is entered into by and
between CardioVascular Dynamics, Inc. ("CVD") and Intraluminal Devices, Inc.
("IDI") (collectively referred to as the "Employer"), on the one hand, and
Edward McDonald ("Employee"), on the other hand.

ARTICLE I

Employment

1.1 Period. The Employer shall employ Employee and Employee shall
perform services for and continue in the employment of the Employer for the
period commencing on the date of the closing (the "Closing Date") of the merger
of CVD and IDI as defined in Section 1.2 of the Agreement and Plan of
Reorganization by and among CVD, IDI and IDI Acquisition Corporation, dated as
of October 2, 1996 and ending one (1) year after the Closing Date (the
"Employment Period") subject, however, to prior termination of employment by
Employer as set forth in Article III herein.

If the Closing Date of the acquisition by CVD of the stock of IDI does
not occur by on or before October 30, 1996, then this Agreement will be rendered
null and void.

1.2 Services.

(a) During such Employment Period, Employee shall serve as (i)
Project Consultant or (ii) in such other reasonable position as designated by
Employer. Employee shall perform all reasonable duties assigned by the Employer
relating to the commercialization of IDI's products (provided, that Employee
shall not be required to relocate his residence to perform such duties).

(b) Employee shall devote his entire attention and energies and his
best efforts, on a full-time basis, to the business and affairs of the Employer
and to the discharge of his duties, functions and responsibilities hereunder,
and will use his best efforts to promote the interests of the Employer.

(c) Nothing in this Section 1.2 shall be construed as preventing
Employee from investing his assets in such form or manner as is not prohibited
by Section 2.1 of this Agreement and as will not require: (1) any participation
on

<PAGE> 109
Employee's part in the operation or the affairs of the enterprise or enterprises
in which such investments are made (other than serving as a non-employee
director) or (2) the rendering of any services by Employee to any such
enterprise (other than serving as a non-employee director). Employee shall
comply with all of the Employer's rules and regulations applicable to the
employees of the Employer and with all of the Employer's policies established by
its management and Board of Directors.

1.3 Compensation. During such Employment Period, the Employer will pay
to Employee a salary at the rate of $10,000.00 per month ("Base Pay"). The
Employer shall also provide to Employee such employee benefits provided to the
Employer's other employees.

ARTICLE II

Non-Competition

2.1 Non-Competition.

(a) The parties understand and agree that this Agreement is entered
into in connection with the acquisition by CVD of all of the outstanding stock
interest of IDI. The parties further understand and agree that Employee was a
substantial shareholder of IDI; a key and significant member of the management
of that Company; and that CVD paid Employee substantial consideration in order
to purchase Employee's stock interest in IDI. In addition, the parties agree
that prior to acquisition by CVD of the stock of IDI, that IDI was engaged in
its business in each of the fifty states of the United States. (This shall
hereafter be referred to as the "Geographic Scope of IDI's business.") The
parties further agree that CVD and IDI following the acquisition by CVD of the
stock of IDI will continue conducting such business in all parts of the
Geographic Scope of IDI's Business. As a result of the foregoing, the parties
expressly understand and agree that the non-competition provisions contained in
this Agreement are permissible and enforceable pursuant to the provisions of
California Business and Professions Code Section 16601.

(b) Employee agrees that during the term of his/her employment
pursuant to this Agreement, Employee will not engage in any other employment,
business, or activity unless Employee receives the Employer's prior written
approval to hold such outside employment or engage in such business or activity;
provided, however such written approval will not be required if such outside
employment, business, or activity would not in any way be competitive with the
business or proposed business of the Employer or otherwise conflict with or
adversely effect in any way Employee's performance of his or her employment
obligation to the Employer.

<PAGE> 110
(c) Commencing on the Closing Date and continuing until three years
after the Closing Date, Employee will not, as a principal or corporate officer
of any corporation, partnership or other entity:

(i) participate or engage in the business of developing
vascular and/or non-vascular stents or stent-graft devices (the
"Business") in the United States;

(ii) induce or attempt to induce any person who at the time of
such inducement is an employee of CVD to perform work or services
for any other person or entity other than Employer;

(iii) permit the name of Employee to be used in connection with
a competitive business as reasonably determined by CVD.

Notwithstanding the foregoing, Employee may own, directly or
indirectly, solely as an investment, up to one percent (1%) of any class of
"publicly traded securities" of any person or entity which owns a competitive
Business. For the purposes of this Section 2.1, the term "publicly traded
securities" shall mean securities that are traded on a national securities
exchange or listed on the National Association of Securities Dealers Automated
Quotation System.

2.2 Savings Clause. If any restriction set forth in Section 2.1 above
is held to be unreasonable, then Employee agrees, and hereby submits, to the
reduction and limitation of such prohibition to such area or period as shall be
deemed reasonable.

ARTICLE III

Termination of Employment

3.1 Death. In the event of Employee's death during the term of this
Agreement, the Employer shall pay to Employee's estate any salary accrued but
unpaid as of the date of death. Upon payment of the aforementioned sum, the
Employer's obligations to make further salary payments or provide further
employee benefits shall terminate. This provision shall not be construed to
negate any rights Employee may have to death benefits under any employee benefit
or welfare plan of the Employer in which Employee may from time to time be a
participant or under any other written agreement with the Employer which
specifically provides for such death benefits.

3.2 Other Termination. Employee's employment hereunder may be
terminated by Employer at any time for any reason, with or without cause or
advance notice by delivering to Employee written notice of such termination. If
such written notice is given within one year of the Closing Date and is a
termination without "Cause",

<PAGE> 111
as that term is defined below, then the notice must be signed and approved by
Michael R. Henson, or his successor. Any notice of termination in any other
circumstances need only be signed by CVD's Vice President of Human Resources or
any other company Vice President.

(a) If Employer terminates Employee's employment without Cause within
one year of the Closing Date, then Employer will continue to pay Employee's Base
Salary, less all applicable deductions, on a monthly basis until twelve (12)
months following the Closing Date and; (ii) continue medical insurance coverage
pursuant to COBRA for such period of time. Except as provided herein, all other
benefits, including vesting of stock, will terminate with the effective date of
termination of Employee's employment.

(b) The Employer's obligation to pay salary, benefits, and other
compensation to Employee shall terminate on the effective date of any
termination of Employee's employment for Cause. For the purposes of this
Agreement, "Cause" shall mean (i) the Employee's failure to perform his duties
within 30 days after receipt of a written warning; (ii) the Employee's engaging
in misconduct; (iii) the Employee's being convicted of a felony; (iv) the
Employee's committing an act of fraud against, or the misappropriation of
property belonging to, the Employer; or (v) the Employee's breach of this
Employment Agreement or any confidentiality or proprietary information agreement
between the Employee and the Employer. In such circumstances, Employer will not
be obligated to pay any severance.

(c) Except as provided in Section 3.2(a), the Employer's obligation to
pay salary, benefits, and other compensation to Employee shall terminate on the
termination of the Employment Period. In such circumstances, Employer will not
be obligated to pay any severance.

(d) Employee acknowledges that the services that he will provide to
Employer under this Agreement are unique and that irreparable harm will be
suffered by the Employer in the event of the breach by Employee of any of his or
her obligations under this Paragraph and Paragraph 2.1, and that the Employer
will be entitled, in addition to its other rights, to enforce by an injunction
or decree of specific performance the obligations set forth in said Paragraphs.
Any claims asserted by Employee against the Employer shall not constitute a
defense in any injunction action brought by the Employer to obtain specific
enforcement of said Paragraphs. In lieu of any other claims for damages that may
be asserted by Employer hereunder with respect to Employee's resignation prior
to the one year period noted in Section 1.1, Employee agrees to pay $20,000 as
liquidated damages to Employer if he resigns within 120 days of the date the
Employment Period commences (it being understood by the parties hereto that such
resignation would deprive Employer of the benefit of its bargain and would cause
it irreparable harm). After the 120 day period noted in the preceding sentence,
Employee may resign without reimbursing CVD for any damages incurred with
respect to

<PAGE> 112
Employee's resignation prior to the one year period noted in Section 1.1,
provided, that, upon the effective date of such resignation, Employee shall be
entitled to no further salary or benefits from CVD irrespective of whether
payment of such benefits may otherwise be required pursuant to applicable law
and Employee waives all claims to such further salary or benefits and will
execute such documents as are reasonably required by CVD to effectuate such
waiver.

ARTICLE IV

Miscellaneous

4.1 Successors, Assigns, Merger. This Agreement shall be binding upon
and shall inure to the benefit of the Employer and its successors and assigns.
This Agreement shall be binding upon Employee and shall inure to his benefit and
to the benefit of his heirs, executors, administrators and legal
representatives, but shall not be assignable by Employee.

4.2 Entire Agreement. This Agreement constitutes the entire agreement
between the Employer and Employee relating to his employment and the additional
matters herein provided for. This Agreement supersedes and replaces any prior
verbal or written agreements between the parties except for provided herein.
This Agreement may be amended or altered only in a writing signed by the
President of CVD and Employee.

4.3 Applicable Law; Severability. This Agreement is executed by both
parties in the State of California and shall be construed and interpreted in
accordance with the laws of that state. Each provision of this Agreement is
severable from the others, and if any provision hereof shall be to any extent
unenforceable it and the other provisions hereof shall continue to be
enforceable to the full extent allowable, as if such offending provision had not
been a part of this Agreement.

4.4 Survival. In the event of termination of Employee's employment
hereunder for Cause, the obligations contained in Article II of this Agreement
shall survive the termination of Employee's employment under this Agreement as
contemplated herein.

4.5 Arbitration. Employee agrees that any and all disputes that
Employee has with the Employer or any of its employees, which arise out of
Employee's employment, the termination of employment, or otherwise under the
terms of this Agreement, (except for any claim arising out of or relating to
Paragraph 2.1 of this Agreement or the breach of that Paragraph for which the
Employer may pursue injunctive relief in state or federal court located in
Orange County), shall be resolved through final and binding arbitration. This
shall include, without limitation, disputes

5.
<PAGE> 113
relating to this Agreement, any disputes regarding Employee's employment by the
Employer or the termination thereof, claims for breach of contract or breach of
the covenant of good faith and fair dealing, and any claims of discrimination or
other claims under any federal, state or local law or regulation now in
existence or hereinafter enacted and as amended from time to time concerning in
any way the subject of Employee's employment with the Employer or its
termination. The only claims not covered by this Section 4.5 are claims for
benefits under the workers' compensation laws or unemployment insurance laws or
claims under paragraph 2.1 of this Agreement. Binding arbitration will be
conducted in Orange County, California in accordance with the rules and
regulations of the American Arbitration Association. Each party will split the
cost of the arbitration filing and hearing fees, and the cost of the arbitrator;
each side will bear its own attorneys' fees, unless otherwise decided by the
arbitrator. Employee understands and agrees that the arbitration shall be
instead of any civil litigation, that he or she will not be entitled to a jury
trial in any such providing, and that the arbitrator's decision shall be final
and binding to the fullest extent permitted by law and enforceable by any court
having jurisdiction thereof.

Dated: ________ __, 1996. CARDIOVASCULAR DYNAMICS, INC.

By:

Its:

Dated: ________ __, 1996. INTRALUMINAL DEVICES, INC.

By:

Its:

Dated: ________ __, 1996. EMPLOYEE

<PAGE> 1
November 8, 1996

CardioVascular Dynamics, Inc.
13900 Alton Parkway
Suite 122
Irvine, CA 92718

Re: Registration Statement on Form S-1

Ladies and Gentlemen:

We have examined the Registration Statement on Form S-1
originally filed by CardioVascular Dynamics, Inc. (the "Company") with the
Securities and Exchange Commission (the "Commission") on November 8, 1996, as
thereafter amended or supplemented (the "Registration Statement"), in connection
with the registration under the Securities Act of 1933, as amended, of 148,858
shares of the Company's Common Stock (the "Shares"). As your counsel in
connection with this transaction, we have examined the proceedings taken in
connection with the sale and issuance of the Shares.

It is our opinion that the Shares are validly issued, fully
paid and nonassessable.

We consent to the use of this Opinion as an exhibit to said
Registration Statement, and further consent to the use of our name wherever
appearing in said Registration Statement, including the prospectus constituting
a part thereof, and in any amendment thereto.

Very truly yours,

/s/ Brobeck, Phleger & Harrison LLP
Brobeck, Phleger & Harrison LLP

<PAGE> 1
EXHIBIT 23.1

Consent of Ernst & Young LLP, Independent Auditors

We consent to the reference to our firm under the caption "Selected Financial
Data" and "Experts" and to the use of our report dated March 15, 1996, except
for Note 11, as to which the date is May 13, 1996 in the Registration Statement
(Form S-1) and the related Prospectus of CardioVascular Dynamics, Inc. for the
registration of 148,858 shares of its Common Stock.

Our audits also included the financial statement schedule of CardioVascular
Dynamics, Inc. listed in Item 16(b). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Orange County, California
November 7, 1996

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