CARDIOVASCULAR DYNAMICS INC, S-1/A, 1996-06-19

CARDIOVASCULAR DYNAMICS INC
S-1/A, 1996-06-19
SURGICAL & MEDICAL INSTRUMENTS & APPARATUS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1996.

REGISTRATION NO. 333-4560
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3

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

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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:

<TABLE>
<S> <C>
EDWARD M. LEONARD, ESQ. ALAN K. AUSTIN, ESQ.
BROBECK, PHLEGER & HARRISON LLP DAVID J. SEGRE, ESQ.
TWO EMBARCADERO PLACE WILSON, SONSINI, GOODRICH & ROSATI
2200 GENG ROAD PROFESSIONAL CORPORATION
PALO ALTO, CALIFORNIA 94303 650 PAGE MILL ROAD
(415) 424-0160 PALO ALTO, CALIFORNIA 94306
(415) 493-9300
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable 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. / /

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

CARDIOVASCULAR DYNAMICS, INC.

CROSS REFERENCE SHEET

PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF PART I ITEMS OF FORM S-1

<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN FORM S-1 REGISTRATION
STATEMENT LOCATION IN PROSPECTUS
--------------------------------------------------- ----------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page; Outside
Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.......................... Prospectus Summary; Risk Factors;
The Company
4. Use of Proceeds.................................... Use of Proceeds
5. Determination of Offering Price.................... Underwriting
6. Dilution........................................... Dilution
7. Selling Security Holders........................... Inapplicable
8. Plan of Distribution............................... Outside and Inside Front Cover
Pages; Underwriting
9. Description of Securities to be Registered......... Description of Capital Stock
10. Interests of Named Experts and Counsel............. Legal Matters
11. Information with Respect to the Registrant......... Inside and Outside Front Cover
Pages; Prospectus Summary; Risk
Factors; The Company; Use of
Proceeds; Dividend Policy;
Capitalization; Dilution; Selected
Financial Data; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Certain Transactions; Principal
Stockholders; Description of
Capital Stock; Shares Eligible for
Future Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities..... Inapplicable
</TABLE>
<PAGE> 3

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 JUNE 19, 1996

3,400,000 SHARES

LOGO

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

All of the shares of Common Stock offered hereby are being offered by
CardioVascular Dynamics, Inc. ("CVD" or the "Company"). Prior to this offering,
there has been no public market for the Common Stock of the Company. It is
currently anticipated that the initial public offering price of the Common Stock
will be between $11.00 and $13.00 per share. See "Underwriting" for a discussion
of factors considered in determining the initial public offering price. Upon
completion of this offering, and assuming no exercise of the Underwriters'
over-allotment option, EndoSonics Corporation ("EndoSonics") will own
approximately 49% of the Company's outstanding Common Stock, and will be able to
effectively control those matters requiring stockholder approval. See "Certain
Transactions." The Company's Common Stock has been approved for quotation on the
Nasdaq National Market under the symbol "CCVD."

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

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.

SEE "RISK FACTORS" ON PAGES 6-13.

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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.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share................................ $ $ $
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Total(3)................................. $ $ $
</TABLE>

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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses, payable by the Company, estimated at $770,000.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
510,000 additional shares of Common Stock on the same terms and conditions
as set forth above solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
the certificates for the shares of Common Stock will be available for delivery
at the offices of Volpe, Welty & Company, One Maritime Plaza, San Francisco,
California, on or about , 1996.
VOLPE, WELTY & COMPANY
WESSELS, ARNOLD & HENDERSON
VECTOR SECURITIES INTERNATIONAL, INC.

The date of this Prospectus is , 1996
<PAGE> 4

[PICTURE]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

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.
<PAGE> 5

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 set forth under the heading "Risk
Factors" in addition to the other information contained in this Prospectus
before purchasing the Common Stock offered hereby. Except as set forth in the
financial statements or as otherwise specified herein, all information in this
Prospectus (i) assumes no exercise of the Underwriters' over-allotment option,
(ii) reflects the conversion of the convertible obligation and all of the
Company's outstanding shares of Preferred Stock into shares of Common Stock as a
consequence of the offering made hereby, and (iii) reflects a 2-for-1 split of
the Common Stock, effected May 2, 1996. See "Underwriting" and "Description of
Capital Stock."

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 five issued and four allowed U.S. patents covering
certain aspects of its catheter technologies. Since commencing commercial sales
in 1994, the Company has sold more than 12,000 catheters.

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

3
<PAGE> 6

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company................. 3,400,000 shares
Common Stock to be outstanding after the offering... 8,262,500 shares(1)
Use of proceeds..................................... Product development, capital
expenditures, clinical trials and
studies, working capital, direct sales
and marketing and repayment of amounts
owed to EndoSonics.
Nasdaq National Market symbol....................... CCVD
</TABLE>

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.

4
<PAGE> 7

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

<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS
MARCH 16, 1992 ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------------------- ----------------
1992(2) 1993(2) 1994 1995 1995 1996
-------------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................... $ -- $ 126 $ 2,389 $ 4,103 $ 409 $2,033
Charge for acquired in-process
research and development(3)... -- (2,001) -- (488) -- --
Loss from operations............ (323) (2,878) (1,022) (2,976) (664) (404)
Net loss........................ $ (313) $(2,849) $ (971) $(2,874) $ (625) $ (377)
Pro forma net loss per
share(4)...................... $ (0.25) $ (0.65) $(0.14) $(0.08)
Shares used in computing pro
forma net loss per share(4)... 3,876 4,441 4,405 4,485
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(5)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash............................................................... $ 8,655 $ 45,829
Working capital.................................................... 6,748 43,922
Total assets....................................................... 11,770 48,944
Convertible obligation............................................. 750 --
Accumulated deficit................................................ (6,802) (6,802)
Total stockholders' equity......................................... 6,551 44,475
</TABLE>

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(1) Based on shares outstanding at March 31, 1996. Includes the Common Stock to
be outstanding upon conversion of the convertible obligation at an assumed
initial public offering price of $12.00 (the "Convertible Obligation"). Does
not include 977,000 shares reserved for issuance under options outstanding
at March 31, 1996 at a weighted average price per share of $1.21, and
223,000 shares reserved for grant of future options under the Company's 1996
Stock Option/Stock Issuance Plan. Also excludes 80,000 common shares
issuable upon exercise of a warrant outstanding at March 31, 1996 at an
exercise price of $3.29 per share and 40,000 common shares issuable upon
exercise of a warrant issued subsequent to March 31, 1996 at an exercise
price of $3.29 per share. See Notes 2, 9 and 11 of Notes to Financial
Statements.

(2) 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.

(3) 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.

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

(5) Adjusted to give effect to the conversion of the Convertible Obligation and
the sale of 3,400,000 shares of Common Stock by the Company in the offering
made hereby at an assumed initial public offering price of $12.00 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."

5
<PAGE> 8

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 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 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 in 1995 was $2.9 million. The
Company's accumulated deficit at March 31, 1996 was $6.8 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, including the net
proceeds from this offering and the interest earned thereon, 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 additional
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 "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

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 thirty-two products, only eight 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 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."

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

6
<PAGE> 9

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."

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. 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 market 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. The Company has ceased using this term and is
negotiating to resolve this dispute. 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."

7
<PAGE> 10

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
compete or will compete with catheters 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. Accordingly, the Company has very
limited experience in manufacturing its products. In addition, the Company
currently intends to introduce a significant number of new products in 1996. 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 to perform certain activities on its behalf, including
manufacturing, financial, regulatory and 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

8
<PAGE> 11

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 headcount. 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.

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. 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 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, and intends
to use a portion of the net proceeds from this offering to fund this 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."

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.

9
<PAGE> 12

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.

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.

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."

10
<PAGE> 13

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.

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."

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 three months ended March 31, 1996, the Company's
international sales were $2.1 million and $1.1 million, respectively, or 59% and
64%, 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."

Control by Existing Stockholder; Limitations on Pooling-of-Interests
Accounting in Merger Transactions. After this offering, EndoSonics will own
approximately 49% of the Company's outstanding Common Stock. EndoSonics will be
able to elect at least two members to the Company's five person board of
directors and will have 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

11
<PAGE> 14

of the Company. In accordance with applicable accounting standards, the Company
would be prohibited from accounting for a merger transaction, of or by the
Company, as a pooling-of-interests for a period of two years following the date
on which EndoSonics controls less than 50% of the outstanding voting Common
Stock of the Company. As a result, any business combination consummated during
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 will hold on consummation of this offering. While EndoSonics indicated
that it may so distribute or transfer up to a majority of the shares it will
hold, 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 will hold upon
completion of this offering. 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 EndoSonics' product liability insurance
policy with coverage limits of $2.0 million per occurrence and $2.0 million per
year in the aggregate. However, this coverage will terminate when the Company
ceases to be a majority-owned subsidiary of EndoSonics. Accordingly, following
this offering, the Company expects to obtain product liability insurance with
similar coverage limits. 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.

No Prior Public Market; Possible Volatility of Stock Price. Prior to this
offering, there has been no public market for the Common Stock, and there can be
no assurance that an active trading market will develop or be sustained. The
initial public offering price will be determined by negotiation between the
Company and the Representatives of the Underwriters based upon several factors,
and may not be indicative of the market price of the Common Stock after this
offering. The trading price of the Common Stock could also be subject to
significant fluctuations in response to 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. See "Underwriting."

12
<PAGE> 15

Shares Eligible for Future Sale; Potential Adverse Effect on Market
Price. Sales of Common Stock in the public market after this offering could
adversely affect the market price of the Common Stock. The 3,400,000 shares sold
in this offering will be freely tradable without restriction. Beginning 180 days
following the date of this offering (or earlier with the consent of Volpe, Welty
& Company), approximately 4,000,000 shares will be eligible for sale,
representing 3,240,000 shares held by EndoSonics and 760,000 shares held by
SCIMED. Sales of any such shares in the public market after this offering could
adversely affect the market price of the Common Stock. The Company also intends
to register approximately 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 soon as practicable
following the date of this Prospectus. As of March 31, 1996, there were
outstanding options under the Company's stock option plans to acquire 977,000
shares, all of which are subject to 180-day lock-up agreements with the
Underwriters. After the expiration of the 180-day 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; Dilution. 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" and "Dilution."

13
<PAGE> 16

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 net proceeds from the sale of the 3,400,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $12.00 per share
are estimated to be $37,174,000 ($42,866,000 if the Underwriters' over-allotment
option is exercised in full) after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company.

The Company anticipates that approximately $12 million of the net proceeds
will be used in continuing product development and that approximately $5 million
will be used for capital expenditures. The Company also intends to pay the $2.6
million payable to EndoSonics from the net proceeds of this offering. A portion
of the net proceeds will be used to fund the expansion of the Company's sales
and marketing capabilities and the balance will be used for working capital and
other general corporate purposes. The Company may also spend a portion of the
proceeds to license or acquire products or technologies complementary to its
business and to conduct additional research and development programs. Pending
such uses, the Company intends to invest the net proceeds in short-term,
interest-bearing, investment grade securities.

The exact allocation of the proceeds for the purposes set forth above and
timing of the expenditures may vary significantly depending upon numerous
factors, including 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 of manufacturing capacity or third-party manufacturing
arrangements, the establishment of sales and marketing capabilities, the
establishment of collaborative relationships with other parties, and the costs
of manufacturing scale-up. There can be no assurance that the proceeds of this
offering, after deducting cash used in the Company's operations will be adequate
to fund these activities. 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.

The Company anticipates that its existing capital resources, including the
net proceeds of this offering and the interest earned thereon will be sufficient
to fund its operations through 1997. However, there can be no assurance that the
Company will not be required to seek additional financing sooner or that such
financing, if required, will be available on terms satisfactory to the Company.
See "Risk Factors -- History of Operating Losses; Anticipated Future Losses;
Future Capital Requirements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

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.

14
<PAGE> 17

CAPITALIZATION

The following table sets forth the actual capitalization of the Company as
of March 31, 1996 and the capitalization as adjusted to reflect the receipt of
the estimated net proceeds from the sale of 3,400,000 shares of Common Stock at
an assumed initial public offering price of $12.00 pursuant to this offering and
the conversion of all outstanding shares of Preferred Stock into Common Stock
upon the closing of this offering:

<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
Convertible obligation................................................ $ 750 $ --
Stockholders' equity:
Preferred Stock: $.001 par value, 7,560,000 shares authorized
actual;
5,000,000 authorized as adjusted; 2,400,000 shares issued and
outstanding actual; none issued and outstanding as adjusted...... 2 --
Common Stock: $.001 par value, 30,000,000 shares authorized;
no shares issued and outstanding actual; 8,262,500 shares
issued and outstanding as adjusted(1)............................ -- 8
Additional paid-in capital.......................................... 13,820 51,738
Deferred compensation............................................... (469) (469)
Accumulated deficit................................................. (6,802) (6,802)
---- ----
Total stockholders' equity....................................... 6,551 44,475
---- ----
Total capitalization........................................... $ 7,301 $44,475
==== ====
</TABLE>

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

(1) Includes the Common Stock to be outstanding upon conversion of the
Convertible Obligation. Excludes 977,000 shares of Common Stock issuable
upon exercise of stock options outstanding as of March 31, 1996 at a
weighted average exercise price of $1.21 per share, 223,000 shares of Common
Stock reserved for grant of future options under the Company's 1996 Stock
Option/Stock Issuance Plan. Also excludes 80,000 shares of Common Stock
issuable upon exercise of a warrant outstanding as of March 31, 1996 at an
exercise price of $3.29 per share and 40,000 common shares issuable upon
exercise of a warrant issued subsequent to March 31, 1996 at an exercise
price of $3.29 per share. See "Management -- 1996 Stock Option/Stock
Issuance Plan," and Notes 2, 9 and 11 of Notes to Financial Statements.

15
<PAGE> 18

DILUTION

The net tangible book value of the Company's Common Stock as of March 31,
1996 was $6,551,000, or approximately $1.35 per share. Net tangible book value
per share represents the amount of the Company's stockholders' equity, less
intangible assets, divided by 4,862,500 shares of Common Stock outstanding after
giving effect to the conversion of the Convertible Obligation and all
outstanding shares of Preferred Stock into Common Stock upon completion of this
offering. After giving effect to the sale of 3,400,000 shares of Common Stock in
this offering at an assumed initial public offering price of $12.00 and the
application of the estimated net proceeds therefrom, the net tangible book value
of the Company as of March 31, 1996 would have been $44,475,000 or $5.38 per
share. This represents an immediate increase in net tangible book value of $4.03
per share to existing stockholders and an immediate dilution in net tangible
book value of $6.62 per share to purchasers of Common Stock in this offering.
Investors participating in this offering will incur immediate, substantial
dilution. This is illustrated in the following table:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $12.00
Net tangible book value per share as of March 31, 1996........... $ 1.35
Increase per share attributable to new investors................. 4.03
-----
Net tangible book value per share after the offering............... 5.38
------
Dilution per share to new investors................................ $ 6.62
======
</TABLE>

As of March 31, 1996, there were options outstanding to purchase a total of
977,000 shares of Common Stock at a weighted average exercise price of $1.21 per
share under the Company's 1995 Stock Option Plan and a warrant outstanding to
purchase a total of 80,000 shares of Common Stock at an exercise price of $3.29
per share. Subsequent to March 31, 1996 the Company issued an additional warrant
to purchase a total of 40,000 shares of Common Stock at an exercise price of
$3.29 per share. To the extent outstanding options and warrants are exercised,
there will be further dilution to new investors.

The following table sets forth as of March 31, 1996, after giving effect to
the conversion of the Convertible Obligation and all outstanding shares of
Preferred Stock into Common Stock upon the closing of this offering, the
difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
existing stockholders and by the new investors purchasing shares in this
offering at an assumed initial public offering price of $12.00 per share and
before deducting underwriting discounts and estimated offering expenses payable
by the Company:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 4,862,500 58.8% $11,250,000 21.9% $ 2.31
New stockholders.............. 3,400,000 41.2 40,800,000 78.1 12.00
--------- ----- ----------- -----
Total....................... 8,262,500 100.0% $51,300,000 100.0%
========= ===== =========== =====
</TABLE>

16
<PAGE> 19

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 the financial statements which 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 three month periods
ended March 31, 1995 and 1996, and the balance sheet data at March 31, 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 three month period ended March 31, 1996 are not
necessarily indicative of the results to be obtained in any future period.

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 16,
1992
(DATE OF THREE MONTHS
INCEPTION) ENDED
TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------------------- ----------------
1992(1) 1993(1) 1994 1995 1995 1996
------------ ------- ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Sales............................................... $ -- $ 126 $ 1,169 $ 3,462 $ 199 $1,783
License fee and other from related party............ -- -- 1,220 641 210 100
Contract............................................ -- -- -- -- -- 150
------ ------- ------- ------- ------ ------
Total revenue......................................... -- 126 2,389 4,103 409 2,033
Costs and expenses:
Cost of sales....................................... -- 79 848 2,051 118 942
Charge for acquired in-process research and
development(2).................................... -- 2,001 -- 488 -- --
Research and development............................ 294 734 1,228 1,683 432 627
Marketing and sales................................. -- 94 748 1,526 255 577
General and administrative.......................... 29 96 587 1,331 268 291
------ ------- ------- ------- ------ ------
Total operating costs and expenses.................... 323 3,004 3,411 7,079 1,073 2,437
------ ------- ------- ------- ------ ------
Loss from operations.................................. (323) (2,878) (1,022) (2,976) (664) (404)
Other income.......................................... 10 29 51 102 39 27
------ ------- ------- ------- ------ ------
Net loss.............................................. $ (313) $(2,849) $ (971) $(2,874) $ (625) $ (377)
============ ======== ======== ======== ====== ======
Pro forma net loss per share(3)....................... $ (0.25) $ (0.65) $(0.14) $(0.08)
======== ======== ====== ======
Shares used in computing pro forma net loss per
share(3)............................................ 3,876 4,441 4,405 4,485
======== ======== ====== ======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996
------- ------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................................... $ 650 $ 547 $ 3,379 $ 1,568 $ 8,655
Working capital (deficit).......................... 583 (75) 1,366 (774) 6,748
Total assets....................................... 678 690 4,340 4,002 11,770
Convertible obligation............................. -- -- -- 750 750
Accumulated deficit................................ (313) (2,580) (3,551) (6,425) (6,802)
Total stockholders' equity (net capital
deficiency)...................................... 607 (241) 1,288 (1,098) 6,551
</TABLE>

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

(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.

17
<PAGE> 20

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
addition, EndoSonics recently purchased 400,000 shares of CVD's Series B
Preferred Stock for a purchase price of $8.0 million, which will convert into
800,000 shares of Common Stock upon the consummation of this 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 March 31, 1996 the
Company had received in the aggregate approximately $2.0 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 March 31, 1996 the Company
had received approximately $0.2 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 18 companies covering 35 countries outside the
United States and Japan. See "Business -- Strategic Relationships."

18
<PAGE> 21

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 M3 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 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.

19
<PAGE> 22

Three Months Ended March 31, 1995 and March 31, 1996

Sales Revenue. Sales revenue increased to $1.8 million in the three months
ended March 31, 1996 from $0.2 million in the three months ended March 31, 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 22% of
the Company's revenue in the three months ended March 31, 1996.

License Fees and Other Revenue. License fees and other revenue from SCIMED
decreased to $0.1 million in the three months ended March 31, 1996 from $0.2
million in the three months ended March 31, 1995 due to scheduled payment
reductions in accordance with the provisions of the licensing agreement with
SCIMED.

Contract Revenue. Contract revenue was $0.2 million in the three months
ended March 31, 1996 and results from amounts earned under the ACS Agreements.
The Company had no such revenues in 1995.

Cost of Sales. Cost of sales increased to $0.9 million in the three months
ended March 31, 1996 from $0.1 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 $0.6
million in the three months ended March 31, 1996 compared to $0.4 million in the
three months ended March 31, 1995, representing an increase of 45%. This
increase resulted primarily from expenditures on the development of Focus
technology and vascular access 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 $0.6
million in the three months ended March 31, 1996 from $0.3 million in the
comparable period in 1995, representing an increase of 126%. 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 $0.3 million in both the three months ended March 31,
1996 and 1995.

Other Income. Other income, principally interest income, remained
unchanged in both the three months ended March 31, 1996 and 1995.

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 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.

20
<PAGE> 23

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. From
inception through March 31, 1996, the Company raised approximately $11.4 million
from the private sales of Preferred and Common Stock and $2.6 million in working
capital from EndoSonics. The Company intends to repay EndoSonics with a portion
of the proceeds from this offering. The Company has also received $0.2 million
and $2.0 million in licensing and contract revenue from ACS and SCIMED,
respectively, as well as $0.8 million from Fukuda in connection with an
exclusive distribution agreement. 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. The increase was primarily due to funding of
operating losses.

On March 31, 1996, the Company had cash, cash equivalents and short-term
investments of $8.7 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, together with the net proceeds from this offering and the interest
earned thereon, will be sufficient to fund its operations through 1997. The
Company's future capital requirements will depend on many factors, including its
funding requirements, 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.

21
<PAGE> 24

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 five issued and four allowed U.S. patents covering certain aspects
of its catheter technologies. Since commencing commercial sales in 1994, the
Company has sold more than 12,000 catheters.

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.

22
<PAGE> 25

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.

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 M3 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.

23
<PAGE> 26

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. 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 five issued and four
allowed 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 nine direct sales people who target the more
densely-populated regions of the United States, and plans to significantly
expand its direct sales force over the next eighteen months. CVD utilizes
independent distributors internationally and in selected U.S. markets.

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 three 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.

24
<PAGE> 27

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>
INTENDED U.S. FIRST
PRODUCTS APPLICATIONS REGULATORY STATUS COMMERCIAL SALE
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
FOCUS CATHETERS
CAT/CAT 15 PTCA or N/A1 Q1 1995
Rail design Stent Delivery2
FACT/FACT 15 PTCA or PMA Supplement Q1 1996
Over-the-wire design Stent Delivery2 Approved
Focus PTA 510(k) Clearance Q3 1995
Over-the-wire design
M(3) CATHETERS
Bullett Hi-Flo Total Occlusion 510(k) Clearance Q2 1996
Over-the-wire design Drug Delivery
(coronary)
Bullett F/X Total Occlusion 510(k) Clearance Q2 1996
Rail design Drug Delivery
(coronary)
Periflow Small-Vessel PTA/Drug Delivery 510(k) Clearance Q1 1996
Over-the-wire design
</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 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.

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<PAGE> 28

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.

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<PAGE> 29

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 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.

PRODUCTS INTENDED APPLICATIONS U.S. REGULATORY
STATUS
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
FOCUS CATHETERS
ARC PTCA PMA Supplement
Over-the-wire design Approved
ARC II PTCA or Development Stage
Over-the-wire design Stent Delivery
Lynx PTCA or Development Stage
Rail design Stent Delivery
Facilitated Force Controlled Plaque Incision and PTCA Development Stage
Angioplasty
FOCUSTENT Coronary Stent Development Stage
M3 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.

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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 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.

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. Accordingly, the Company has very limited experience in
manufacturing its products. In addition, the Company currently intends to
introduce a significant number of new products in 1996. 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

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<PAGE> 31

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."

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 18 companies covering 35 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 22% of the Company's revenue in 1995 and
the first three 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 three months of 1996, total export sales
were $101,000, $970,000, $2,054,000 and $1,138,000, respectively, or
approximately 80%, 83%, 59% and 64%, respectively, of total product sales. In
1993, 1994, 1995 and the first three months of 1996 sales to Europe accounted
for $101,000, $255,000, $1,179,000 and $411,000, respectively; sales to Japan
represented $0, $715,000, and $744,000 and $455,000, respectively; and sales to
Latin America represented $0, $0, $131,000 and $272,000, 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 two controlled, randomized, multicenter
clinical studies in the United States and overseas to continue to evaluate the
clinical and economic value of its core technologies. Data from these studies
are 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.

A second study is comparing the Focus PTCA catheter with conventional PTCA
catheters. The Focus Lesion Expansion Optimizes Results Study ("FLEXOR Study")
will evaluate the efficacy of Focus technology in improving clinical results
following angioplasty procedures. Success will be measured

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<PAGE> 32

based on the ability of Focus technology to improve the minimal lumen diameter
("MLD") of the arterial opening, to increase safety and to reduce the number of
catheters necessary for PTCA procedures. Results will be interpreted in light of
any procedure-related vascular complications, restenosis and occurrences of
other major clinical adverse cardiac events. MLD is a commonly-used measurement
of the ability of a therapeutic tool to open a blocked artery and reestablish
required blood flow. The FLEXOR Study protocol is being finalized and is
expected to begin during the third quarter of 1996. Completion is expected in
1997.

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 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

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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 grant Fukuda exclusive distribution rights to additional CVD
products. Under these amendments, the Company received a $750,000 investment
which is convertible by Fukuda into Common Stock upon the consummation of this
offering (the "Convertible Obligation").

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 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 such products, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, EndoSonics recently purchased 400,000 shares
of CVD's Series B Preferred Stock for a purchase price of $8,000,000, which will
convert into 800,000 shares of Common Stock upon the consummation of this
offering. See "Certain Transactions -- Relationship with EndoSonics
Corporation."

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 five issued and four allowed U.S. patents covering
certain aspects of its catheter technology and licenses additional patents
relating to the vascular access technology. Eleven additional patent
applications have been submitted to the U.S. Patent Office and additional patent
applications have been submitted to international agencies for review. No
assurance can be given that pending patent applications will be approved, or
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. The Company has ceased using this term and is negotiating to resolve
this dispute. 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

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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. 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
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

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profitable basis. 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 "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 FOCAL
technology, for coronary balloon angioplasty. These catheters are marketed
outside the United States for use in stent deployment.

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However, without specific FDA approval for stent deployment, these catheters may
not be marketed by the Company in the United States for such use.

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.

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 EndoSonics'
product liability insurance policy with coverage limits of $2.0 million per
occurrence and $2.0 million per year in the aggregate. However, this coverage
will terminate when the Company ceases to be a majority-owned subsidiary of
EndoSonics. Accordingly, following this offering, the Company expects to obtain
product liability insurance with similar coverage limits. 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 April 30, 1996, the Company had 92 employees, including 56 in
manufacturing, 12 in research, development and regulatory affairs, 15 in sales
and marketing, 5 in administration and 4 in quality assurance.

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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.

PROPERTIES

Currently, the Company leases facilities aggregating approximately 22,000
square feet in Irvine, California under lease agreements which expire beginning
in 1997. The Company believes that its facilities are adequate to meet its
requirements through 1997.

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<PAGE> 38

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The executive officers, directors and key employees of the Company, and
their ages as of April 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................... 46 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
Bart R. Navarro................... 50 Director of Manufacturing
Claire K. Walker.................. 49 Director of Clinical Affairs
George F. Kick.................... 50 Business Manager, Peripheral Products
Blair W. Breyne................... 37 Director of International Market
Development
Robert J. Imdieke................. 42 Manager, Quality Assurance
Mitchell Dann(1).................. 35 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.

36
<PAGE> 39

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.

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 a 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.

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.

37
<PAGE> 40

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 SALARY BONUS OPTIONS
- -------------------------------------------------------- -------- ------- -------------
<S> <C> <C> <C>
Michael R. Henson....................................... $189,850 $70,000 250,000
President and Chief Executive Officer
</TABLE>

38
<PAGE> 41

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>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PRICE APPRECIATION
UNDERLYING % OF TOTAL OPTIONS FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(4)
GRANTED EMPLOYEES IN PRICE EXPIRATION ---------------------
(#)(1) FISCAL YEAR(2) ($/SH)(3) DATE 5%($) 10%($)
---------- ------------------ ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Henson......... 200,000(5) 20.90% $1.00 05/14/2005 $125,779 $318,748
50,000(6) 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 option was granted on May 15, 1995 and has 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 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.

(6) The option was granted on December 19, 1995 and has 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 the grant date 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.

39
<PAGE> 42

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 IN-THE-MONEY OPTIONS AT
OPTIONS AT FY-END(#)(1) 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") is
intended to serve 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 will be incorporated into the 1996 Plan on the
Effective Date, and no further option grants will be 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

40
<PAGE> 43

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 individual serving as a
non-employee Board member on the date the Underwriting Agreement for this
offering is executed will receive an option grant on such date for 5,000 shares
of Common Stock, provided such individual has not otherwise been in the prior
employ of the Company. 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 held
after the date of this offering, 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.

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 will begin on the day the Underwriting Agreement is 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 of a duration of six months. However,

41
<PAGE> 44

the first purchase interval under the initial offering period may be of 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 full 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 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.

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<PAGE> 45

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 will convert into
800,000 shares of Common Stock upon the consummation of this 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 $48,000 for 1993, 1994, 1995 and the three months ended March 31,
1996, respectively. In addition, EndoSonics paid Mr. Henson's bonus for 1995.
See "Management -- Executive Compensation."

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
non-breaching party, subject to the breaching party's right to cure. In
addition, EndoSonics recently purchased 400,000 shares of CVD's Series B
Preferred Stock for a purchase price of $8,000,000, which will convert into
800,000 shares of Common Stock upon the consummation of this offering.

CVD and EndoSonics will enter 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
offering made hereby and will own approximately 49% of CVD's Common Stock after
the offering. Accordingly, these agreements are not the result of arm's-length
negotiations between independent parties.

Prior to the completion of this offering, CVD and EndoSonics will enter
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, as described below.

EndoSonics will agree 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 offering hereby 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 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 this 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

43
<PAGE> 46

certain unitary or combined returns for state tax purposes. To the extent this
occurs, this agreement generally will treat the Company as a separate taxpayer
and will charge the Company with its separate tax return liability.

EndoSonics and CVD will enter 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 become effective upon the consummation of the
offering made hereby 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 this offering, these warrants shall be 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 this Prospectus. See "Shares Eligible for Future Sale."

CVD intends to extend a loan in the amount of $150,000, to Jeffrey F.
O'Donnell, the Company's Vice President of Sales and Marketing. The note, which
will be secured by a second deed of trust on Mr. O'Donnell's home, will have 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.

44
<PAGE> 47

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and their
affiliates will 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, and will continue to be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.

45
<PAGE> 48

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1996 (after giving
effect to the conversion of all outstanding shares of the Company's Preferred
Stock into Common Stock upon the closing of this offering), and as adjusted to
reflect the 2-for-1 stock split of the Company's Common Stock immediately prior
to the effectiveness of this offering and the sale of the shares offered hereby
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) certain executive officers and (v) all
current officers and directors as a group.

<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
SHARES OWNED(1)(2)(3)
BENEFICIALLY ---------------------
OWNED(1)(2) BEFORE AFTER
NAME NUMBER OFFERING OFFERING
----------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
EndoSonics Corporation............................... 4,040,000 84.17% 48.90%
6616 Owens Drive
Pleasanton, CA 94588
SCIMED Life Systems, Inc.(4)......................... 880,000 17.89 10.65
One SCIMED Place
Maple Grove, MN 55311
Michael R. Henson(5)................................. 250,000 4.95 3.03
Mitchell Dann(6)..................................... -- -- --
William G. Davis(7).................................. 6,000 * *
Gerard von Hoffmann(8)............................... -- -- --
Edward M. Leonard(9)................................. -- -- --
Michael D. Crocker(10)............................... 100,000 2.08 1.21
Dana P. Nickell(11).................................. 56,000 1.17 *
Jeffrey F. O'Donnell(12)............................. 100,000 2.08 1.21
All directors and officers as a group (13
persons)(13)....................................... 658,000 12.06% 7.96%
</TABLE>

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

* Represents beneficial ownership of less than 1%.

(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.

(2) 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 March 31, 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.

(3) The number of shares of Common Stock outstanding after this offering
includes the 3,400,000 shares of Common Stock being offered for sale 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. The number of
shares of Common Stock outstanding after this offering assumes no exercise
of the Underwriters' over-allotment option. See "Underwriting."

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

(5) Includes options to purchase 250,000 shares of the Company's Common Stock.

(6) Mr. Dann will receive an option to purchase 5,000 shares of Common Stock on
the date the Underwriting Agreement for this offering is executed.

(7) Includes options to purchase 6,000 shares of the Company's Common Stock.
Mr. Davis will receive an option to purchase 5,000 shares of Common Stock
on the date the Underwriting Agreement for this offering is executed.

(8) Mr. von Hoffman will receive an option to purchase 5,000 shares of Common
Stock on the date the Underwriting Agreement for this offering is executed.

(9) Mr. Leonard will receive an option to purchase 5,000 shares of Common Stock
on the date the Underwriting Agreement for this offering is executed.

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

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

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

(13) Includes options to purchase 658,000 shares of the Company's Common Stock.

46
<PAGE> 49

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, after giving effect to the amendment of the Company's Certificate of
Incorporation to delete references to Series A Preferred Stock and Series B
Preferred Stock following conversion of such Preferred Stock into Common Stock
upon the closing of this offering.

COMMON STOCK

As of March 31, 1996, there were 4,800,000 shares of Common Stock
outstanding that were held of record by 2 stockholders. There will be 8,262,500
shares of Common Stock outstanding (assuming no exercise of the Underwriters'
overallotment option and assuming no exercise of options after March 31, 1996)
after giving effect to the sale of the shares of Common Stock to the public
offered hereby and the conversion of the Convertible Obligation and the
Company's Series A Preferred Stock and Series B Preferred Stock into Common
Stock.

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 upon completion of this offering will be
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, effective upon the closing
of this offering, 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

47
<PAGE> 50

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 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 Chemical Mellon
Shareholder Services. Its address is 50 California Street, 10th Floor, San
Francisco, CA 94111, and its telephone number is (415) 954-9529.

48
<PAGE> 51

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have 8,262,500 shares of
Common Stock outstanding (assuming no exercise of options after March 31, 1996
and the conversion of the Convertible Obligation. Of these shares, the 3,400,000
shares sold in this offering will be freely tradeable without restriction or
further registration under the Securities Act, except that any shares purchased
by "affiliates" of the Company, as that term is defined under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations of
Rule 144 described below.

SALES OF RESTRICTED SHARES

The remaining 4,862,500 shares of Common Stock are deemed "Restricted
Shares" under Rule 144. The number of shares of Common Stock available for sale
in the public market is limited by restrictions under the Securities Act and
lock-up agreements under which the holders of such shares have agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the date of this Prospectus without the prior written consent of the
Representatives of the Underwriters. On the date of this Prospectus, no shares
other than the 3,400,000 shares offered hereby will be eligible for sale.
Beginning 180 days after the date of this Prospectus (or earlier with the
consent of the Representatives of the Underwriters), 4,000,000 Restricted Shares
will become available for sale in the public market subject to certain
limitations of Rule 144 of the Securities Act. In addition, the Company intends
to register on a registration statement on Form S-8, approximately 30 days after
the effective date of this offering, a total of 200,000 shares of Common Stock
reserved for issuance under the Company's Employee Stock Purchase Plan and a
total of 1,200,000 shares of Common Stock subject to outstanding options or
reserved for issuance under the Company's 1996 Stock Option/Stock Issuance Plan.
See "Certain Transactions -- Relationship with EndoSonics Corporation" and "Risk
Factors -- Control by Existing Stockholder; Limitations on Pooling-of-Interests
Accounting" for a discussion of possible distributions of CVD shares held by
EndoSonics to EndoSonics' stockholders.

In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this 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 (approximately 82,625 shares after giving effect to
this offering) 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 this 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.

Prior to this offering, there has been no public market for the Common
Stock of the Company and no predictions can be made of the effect, if any, that
the sale or availability for sale of shares of additional Common Stock will have
on the market price of the Common Stock. Nevertheless, sales of substantial
amounts of such shares in the public market, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.

OPTIONS

As of March 31, 1996, options to purchase a total of 977,000 shares of
Common Stock pursuant to the 1995 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 223,000 shares of Common
Stock were available as of May 1, 1996 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 9 and 11 of
Notes to Financial Statements.

49
<PAGE> 52

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 date of this Prospectus, subject
only 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. The Company intends to file one or
more registration statements 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. The Company expects to file the registration statements covering shares
issuable pursuant to the Employee Stock Purchase Plan and 1996 Stock
Option/Stock Issuance Plan approximately 30 days after the closing of this
offering. Such registration statements are expected to become effective upon
filing. Shares covered by these registration statements will thereupon be
eligible for sale in the public markets, subject to the Lock-up Agreements, if
applicable.

LOCK-UP AGREEMENTS

Each of the Company's directors and officers and each stockholder of the
Company has 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 for a period of 180 days from the
effective date of this offering. See "Underwriting."

REGISTRATION RIGHTS

After this offering, 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.

50
<PAGE> 53

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the underwriters named below (the
"Underwriters"), and each of such Underwriters, for whom Volpe, Welty & Company,
Wessels, Arnold & Henderson, L.L.C. and Vector Securities International, Inc.
(together, the "Representatives") are acting as representatives, has agreed
severally to purchase from the Company, the respective number of shares of
Common Stock set forth opposite its name below. The Underwriters are committed
to purchase and pay for all shares if any shares are purchased.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
---------------------------------------------------------------- ----------
<S> <C>
Volpe, Welty & Company..........................................
Wessels, Arnold & Henderson, L.L.C..............................
Vector Securities International, Inc............................

---------
Total................................................. 3,400,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligations is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession of not in excess of $ per share, of which $ may be
reallocated to other dealers. After the Offering, the public offering price,
concession and reallowance to dealers may be reduced by the Representatives. No
such reduction shall change the amount of proceeds to be received by the Company
as set forth on the cover page of this Prospectus.

The Company has granted the Underwriters an option for thirty days after
the date of this Prospectus to purchase, at the offering price, less the
underwriting discounts and commissions as set forth on the cover page of this
Prospectus, up to 510,000 additional shares of Common Stock at the same price
per share as the Company receives for the 3,400,000 shares of Common Stock
offered hereby, solely to cover over-allotments, if any. If the Underwriters
exercise their over-allotment option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares of Common Stock to be purchased by each of
them, as shown in the foregoing table, bears to the 3,400,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
the over-allotments in connection with the sale of the 3,400,000 shares of
Common Stock offered hereby.

Each of the Company's directors and officers and each stockholder of the
Company, has agreed not to offer, sell, contract to sell or otherwise dispose of
Common Stock or securities convertible into or exchangeable for, or any rights
to purchase or acquire, Common Stock for a period of 180 days following the
Effective Date, without the prior written consent of Volpe, Welty & Company. The
Company also has agreed not to offer, sell,

51
<PAGE> 54

contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for, or any rights to purchase or
acquire, Common Stock for a period of 180 days following the date of this
Prospectus without the prior written consent of Volpe, Welty & Company, except
for the granting of options or the sale of stock pursuant to the Company's
existing stock and option plans. Volpe, Welty & Company, in its discretion, may
waive the foregoing restrictions in whole or in part, with or without a public
announcement of such action.

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

Prior to this offering, there has been no public market for the Company's
Common Stock. The initial public offering price of the Common Stock will be
determined by negotiations between the Company and the Representatives. Among
the factors considered in determining the initial public offering price of the
Common Stock, in addition to prevailing market conditions will be the Company's
historical performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuations of companies
in related business.

The Company has agreed to indemnify the Underwriters against certain
liabilities that may be incurred in connection with this offering, including
liabilities under the Securities Act, or to contribute payments that the
Underwriters may be required to make in respect thereof.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Brobeck, Phleger & Harrison LLP, Palo
Alto, California. As of the date of this Prospectus, Edward M. Leonard, a member
of the firm of Brobeck, Phleger & Harrison LLP is a director of the Company and
will receive an option to purchase 5,000 shares of Common Stock on the date the
Underwriting Agreement for this offering is executed. Certain legal matters in
connection with this offering will be passed upon for the Underwriters by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, 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.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-1 under 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
and the exhibits and schedules to the Registration Statement. For further
information with respect to the Company and such Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed as a part of the Registration Statement. Statements contained in this
Prospectus concerning the contents of any contract or any other document
referred to are not necessarily complete; reference is made in each instance to
the copy of such contract or document filed as an exhibit to the Registration
Statement. Each such statement is qualified in all respects by such reference to
such exhibit. The Registration Statement, including exhibits and schedules
thereto, may be inspected without charge at the Securities and Exchange
Commission's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from such office after payment of fees prescribed by the
Securities and Exchange Commission.

52
<PAGE> 55

CARDIOVASCULAR DYNAMICS, INC.

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> 56

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> 57

CARDIOVASCULAR DYNAMICS, INC.

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

<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
------------------ MARCH 31, EQUITY
1994 1995 1996 MARCH 31,
------ ------- ----------- 1996
(UNAUDITED) -----------
(UNAUDITED)
(NOTE 11)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash............................................... $3,379 $ 1,568 $ 8,655
Accounts receivable, net of allowance for doubtful
accounts of $85, $180 and $180, respectively.... 727 1,117 1,584
Accounts receivable from related parties........... 125 -- 100
Inventories........................................ 50 754 752
Other current assets............................... 4 58 59
------ ------- -----------
Total current assets................................. 4,285 3,497 11,150
Furniture and equipment.............................. 87 357 459
Leasehold improvements............................... 1 174 218
------ ------- -----------
88 531 677
Less accumulated depreciation and amortization....... (33) (107) (152)
------ ------- -----------
Furniture, fixtures and equipment, net............... 55 424 525
Other assets......................................... -- 81 95
------ ------- -----------
Total assets......................................... $4,340 $ 4,002 $11,770
====== ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY)
Current liabilities:
Accounts payable and accrued expenses.............. $ 315 $ 1,684 $ 1,769
Payable to Parent.................................. 2,554 2,537 2,583
Deferred distributorship fee revenue, current
portion......................................... 50 50 50
------ ------- -----------
Total current liabilities............................ 2,919 4,271 4,402
Deferred distributorship fee revenue................. 133 79 67
Convertible obligation............................... -- 750 750
Commitments
Stockholders' equity (net capital deficiency):
Convertible Preferred Stock, $.001 par value;
7,560,000 shares authorized, 2,000,000 and
2,400,000 shares issued and outstanding as of
December 31, 1995 and March 31, 1996,
respectively; none issued and outstanding at
December 31, 1994 and pro forma; aggregate
liquidation preference of $13,160,000 and
$21,160,000 as of December 31, 1995 and March
31, 1996, respectively.......................... -- 2 2 $ --
Common Stock, $.001 par value; 30,000,000 shares
authorized, 4,000,000 shares issued and
outstanding at December 31, 1994; no shares
issued or outstanding at December 31, 1995 or at
March 31, 1996; 4,862,500 shares issued and
outstanding pro forma........................... 4 -- -- 5
Additional paid-in capital......................... 4,835 5,670 13,820 14,567
Deferred compensation.............................. -- (345) (469) (469)
Accumulated deficit................................ (3,551) (6,425) (6,802) (6,802)
------ ------- ----------- -----------
Total stockholders' equity (net capital
deficiency)........................................ 1,288 (1,098) 6,551 $ 7,301
=========
------ ------- -----------
Total liabilities and stockholders' equity (net
capital deficiency)................................ $4,340 $ 4,002 $11,770
====== ======= =========
</TABLE>

See accompanying notes.

F-3
<PAGE> 58

CARDIOVASCULAR DYNAMICS, INC.

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

<TABLE>
<CAPTION>
PREDECESSOR ENTITY
------------------
JANUARY 1,
1993 JUNE 10, 1993 YEAR ENDED THREE-MONTH PERIOD
THROUGH THROUGH DECEMBER 31, ENDED MARCH 31,
JUNE 9, DECEMBER 31, ------------------ ------------------
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 $ 199 $ 1,783
License fee and other from related
party............................ -- -- 1,220 641 210 100
Contract........................... -- -- -- -- -- 150
------ ------------- ------- ------- ------- -------
Total revenue........................ -- 126 2,389 4,103 409 2,033
Operating costs and expenses:
Cost of sales...................... -- 79 848 2,051 118 942
Charge for acquired in-process
research and development......... -- 2,001 -- 488 -- --
Research and development (including
$99 for the period from June 10,
1993 through December 31, 1993
and $73 in 1994 paid to
Parent).......................... 245 489 1,228 1,683 432 627
Marketing and sales -- 94 748 1,526 255 577
General and administrative
(including $62 for the period
from June 10, 1993 through
December 31, 1993, and $227,
$340, $54 and $48 for the years
ended December 31, 1994 and 1995
and the three-month periods ended
March 31, 1995 and 1996,
respectively, paid to Parent).... 34 62 587 1,331 268 291
------ ------------- ------- ------- ------- -------
Total operating costs and expenses... 279 2,725 3,411 7,079 1,073 2,437
------ ------------- ------- ------- ------- -------
Loss from operations (279) (2,599) (1,022) (2,976) (664) (404)
Other income:
Interest income.................... 6 6 -- 42 22 11
Distributorship fees and other
income........................... 4 13 51 60 17 16
------ ------------- ------- ------- ------- -------
Total other income................... 10 19 51 102 39 27
------ ------------- ------- ------- ------- -------
Net loss............................. $ (269) $(2,580) $ (971) $(2,874) $ (625) $ (377)
============== =========== ======== ======== ======== ========
Pro forma net loss per share......... $ (.25) $ (.65) $ (.14) $ (.08)
======== ======== ======== ========
Shares used in computing pro forma
net loss per share................. 3,876 4,441 4,405 4,485
======== ======== ======== ========
</TABLE>

See accompanying notes.

F-4
<PAGE> 59

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
Parent (unaudited)....... 400,000 -- -- -- 8,000 -- -- 8,000
Deferred compensation
resulting from grant of
options (unaudited)...... -- -- -- -- 150 (150) -- --
Amortization of deferred
compensation
(unaudited).............. -- -- -- -- -- 26 -- 26
Net loss (unaudited)....... -- -- -- -- -- -- (377) (377)
---------- ----- ---------- --- ------- ----- ------- -------
Balance at March 31, 1996
(unaudited)................ 2,400,000 $ 2 -- $ -- $ 13,820 $ (469) $(6,802) $ 6,551
========== ===== ========== === ======= ===== ======= =======
</TABLE>

See accompanying notes.

F-5
<PAGE> 60

CARDIOVASCULAR DYNAMICS, INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PREDECESSOR ENTITY
------------------ THREE-MONTH
JANUARY 1, JUNE 10, 1993 YEAR ENDED PERIOD
1993 THROUGH DECEMBER 31, ENDED MARCH 31,
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) $ (625) $ (377)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization... 7 6 18 74 18 45
Amortization of deferred
compensation................. -- -- -- -- -- 26
Charge for acquired in-process
research and development..... -- 2,001 -- 488 -- --
Net changes in:
Trade accounts receivable,
net........................ -- (65) (662) (390) 329 (467)
Receivable from related
parties.................... -- -- (125) 125 99 (100)
Inventories.................. -- (36) (14) (704) (96) 2
Other assets................. -- -- -- (135) (68) (15)
Accounts payable and accrued
expenses................... 12 (41) 273 1,369 81 85
Deferred distributor fee
revenue.................... 246 (13) (50) (54) (16) (12)
----- ------- ------- ------- ------- -------
Net cash used in operating
activities...................... (4) (728) (1,531) (2,101) (278) (813)
INVESTING ACTIVITIES
Capital expenditures for
furniture, fixtures and
equipment....................... (17) (10) (35) (443) (122) (146)
----- ------- ------- ------- ------- -------
Net cash used in investing
activities...................... (17) (10) (35) (443) (122) (146)
FINANCING ACTIVITIES
Proceeds from issuance of
convertible obligation.......... -- -- -- 750 -- --
Proceeds from sale of Common
Stock........................... -- -- 2,500 -- -- --
Proceeds from sale of Preferred
Stock to Parent................. -- -- -- -- -- 8,000
Payable to Parent, net............ -- 656 1,898 (17) (212) 46
----- ------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities............ -- 656 4,398 733 (212) 8,046
----- ------- ------- ------- ------- -------
Net increase (decrease) in cash... (21) (82) 2,832 (1,811) (612) 7,087
Cash, beginning of period......... 650 629 547 3,379 3,379 1,568
----- ------- ------- ------- ------- -------
Cash, end of period............... $ 629 $ 547 $ 3,379 $ 1,568 $ 2,767 $8,655
===== ======= ======= ======= ======= =======
</TABLE>

See accompanying notes.

F-6
<PAGE> 61

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 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" or "Parent") 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 March 31, 1996 and the statements of
operations, stockholders' equity and cash flows for the three months ended March
31, 1995 and 1996 are unaudited. In the opinion of

F-7
<PAGE> 62

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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 in deposit accounts at 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>
PERIOD FROM
JUNE 10,
1993 YEAR ENDED THREE-MONTH
TO DECEMBER 31, PERIOD ENDED
DECEMBER 31, --------------- MARCH 31,
1993 1994 1995 1996
------------ ---- ------ -------------
<S> <C> <C> <C> <C>
Europe.................................. $101 $255 $1,179 $ 411
Japan................................... -- 715 744 455
Latin America........................... -- -- 131 272
---- ---- ------ -------
$101 $970 $2,054 $ 1,138
==== ==== ====== =======
</TABLE>
F-8
<PAGE> 63

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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

F-9
<PAGE> 64

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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.

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 $100 at
March 31, 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
$48 for the years ended December 31, 1994 and 1995 and for the
three-month periods ended March 31, 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>
PERIOD FROM
JUNE 10, THREE-MONTH
1993 YEAR ENDED PERIOD ENDED
TO DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------- -----------------
1993 1994 1995 1995 1996
------------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Beginning balance................. $ -- $ 656 $2,554 $2,554 $2,537
Inventory purchases............... 105 843 172 166 --
Corporate cost allocations........ 161 300 340 54 48
Cash disbursements made by
EndoSonics on behalf of CVD..... 430 1,730 312 82 --
Cash collections made by
EndoSonics on behalf of CVD..... (39) (318) (700) (524) --
Cash payments to EndoSonics....... -- (549) -- -- --
Cash disbursements made by CVD on
behalf of EndoSonics and
other........................... (1) (108) (141) 10 (2)
---- ------ ------ ------ ------
Ending balance.................... $656 $2,554 $2,537 $2,342 $2,583
==== ====== ====== ====== ======
Average balance during period..... $280 $1,750 $2,551 $2,448 $2,566
==== ====== ====== ====== ======
</TABLE>

(See Notes 5 and 11)

F-10
<PAGE> 65

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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.

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 which is convertible into Common Stock upon
the consummation of this 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
three-months ended March 31, 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 consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1994 1995 1996
---- ---- -----------
<S> <C> <C> <C>
Raw materials.......................................... $ -- $162 $ 274
Work in process........................................ -- 330 223
Finished goods......................................... 50 262 255
---- ---- ----
$ 50 $754 $ 752
==== ==== ====
</TABLE>

F-11
<PAGE> 66

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
---- ------ -----------
<S> <C> <C> <C>
Accounts payable..................................... $122 $ 962 $ 967
Accrued payroll and related expenses................. 86 352 344
Accrued warranty..................................... 20 113 113
Other accrued expenses............................... 87 257 345
---- ------ ------
$315 $1,684 $ 1,769
==== ====== ======
</TABLE>

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.

F-12
<PAGE> 67

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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.

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 20,000 options were granted during the three-month period ended
March 31, 1996 at an exercise price of $2.50 per share. No options have been
exercised and 125,000 options were exercisable at December 31, 1995 (184,458 at
March 31, 1996).

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 three-month
period ended March 31, 1996. Deferred compensation is being amortized over the
vesting period of the related options.

F-13
<PAGE> 68

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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.

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

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 (the
"offering"). If the offering is consummated under the terms presently
anticipated, each share of convertible Preferred Stock outstanding will convert
into two shares of Common Stock and the Convertible Obligation will convert 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

F-14
<PAGE> 69

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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 will enter 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.

EndoSonics and CVD will also enter 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 provisions of this agreement will become effective
upon the consummation of the offering and will 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.

F-15
<PAGE> 70

[ART WORK]
<PAGE> 71

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

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 ANY ONE 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.................... 3
Risk Factors.......................... 6
The Company........................... 14
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Financial Data............... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.......................... 18
Business.............................. 22
Management............................ 36
Certain Transactions.................. 43
Principal Stockholders................ 46
Description of Capital Stock.......... 47
Shares Eligible for Future Sale....... 49
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 52
Additional Information................ 52
Index to Financial Statements......... F-1
------------------------
UNTIL , 1996 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK
OFFERED HEREBY, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ---------------------------------------------
- ---------------------------------------------
</TABLE>

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

3,400,000 SHARES

LOGO

COMMON STOCK
------------------------
PROSPECTUS
------------------------

VOLPE, WELTY & COMPANY
WESSELS, ARNOLD & HENDERSON
VECTOR SECURITIES INTERNATIONAL, INC.

, 1996

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 72
APPENDIX

INSIDE FRONT COVER

Caption: The Next Generation...The Company's FOCUS and M(3) Catheters have been
approved by the FDA only for certain applications. See "Business -- Products."

[Graphic: FOCUS Technology catheter. This graphic was previously filed with the
Company's Registration Statement on Form S-1.]

Graphic Caption: CVD's patented FOCUS Technology catheter balloons have smaller
end diameters and larger center diameters which target therapy directly to the
site of the coronary disease.

[Graphic: M(3) Technology catheter. This graphic was previously filed with the
Company's Registration Statement on Form S-1.]

Graphic Caption: CVD's patented M(3) Technology combines multiple membranes of
polymeric balloon material to form a single balloon that enables balloon
angioplasty with local drug delivery and perfusion of blood on a single device.

GATEFOLD FOLLOWING INSIDE FRONT COVER

Caption: The Next Generation...

Caption: FOCUS Force Delivery

[Graphic: Atherosclerotic blockage in a coronary artery. This graphic was
previously filed with the Company's Registration Statement on Form S-1.]

Graphic Caption: This drawing depicts a typical atherosclerotic blockage in a
coronary artery (8-12mm length).

[Graphic: Inflated conventional angioplasty balloon. This graphic was previously
filed with the Company's Registration Statement on Form S-1.]

Graphic Caption: Conventional balloon angioplasty may cause significant damage
to the arterial wall surrounding the blockage.

[Graphic: Inflated FOCUS Technology balloon. This graphic was previously filed
with the Company's Registration Statement on Form S-1.]

Graphic Caption: FOCUS angioplasty directs therapeutic radial force at the
blockage with minimal damage to the adjacent arterial wall.

[Graphic: Stent positioned on FOCUS Technology balloon. This graphic was
previously filed with the Company's Registration Statement on Form S-1.]
<PAGE> 73
Graphic Caption: The Company's FOCUS and M(3) Catheters have not been approved
for stent delivery by the FDA for commercial sale in the United States. The
Company markets these catheters for stent delivery in international markets
only. There can be no assurance that these products will receive FDA approval
for stent delivery.

Caption: Vascular Stent Delivery

[Graphic: Angiogram. This graphic was previously filed with the Company's
Registration Statement on Form S-1.]

Graphic Caption: Pre-procedure angiogram showing blockage of an artery.

[Graphic: Angiogram. This graphic was previously filed with the Company's
Registration Statement on Form S-1.]

Graphic Caption: CVD FOCUS catheter delivering standard coronary stent to
disease site.

[Graphic: Angiogram. This graphic was previously filed with the Company's
Registration Statement on Form S-1.]

Graphic Caption: Post-procedure angiogram showing successful result.

Caption: Local Drug Delivery

[Graphic: Drug delivery catheter. This graphic was previously filed with the
Company's Registration Statement on Form S-1.]

Graphic Caption: The crossing profile of the deflated drug delivery-PTCA
catheter is equal to or smaller than most conventional angioplasty catheters.

[Graphic: Drug delivery catheter. This graphic was previously filed with the
Company's Registration Statement on Form S-1.]

Graphic Caption: The catheter can be inflated with contrast media in the same
manner as conventional angioplasty catheters to perform balloon angioplasty.

[Graphic: Drug delivery catheter. This graphic was previously filed with the
Company's Registration Statement on Form S-1.]

Graphic Caption: The M(3) membrane surrounds the angioplasty balloon and allows
controlled, uniform, site-specific delivery of drugs.

[Graphic: Drug delivery catheter. This graphic was previously filed with the
Company's Registration Statement on Form S-1.]

Graphic Caption: The Company's M(3) site-specific drug delivery technology can
be combined with stent delivery on a single catheter.
<PAGE> 74
INSIDE BACK COVER

Caption: Vascular Access Delivery

[Graphic: SmartNeedle Vascular Access Product. This graphic was previously filed
with the Company's Registration Statement on Form S-1.]

Graphic Caption: The Company's patented SmartNeedle vascular access technology
provides rapid, vascular access to the vasculature to facilitate interventional
procedures.

Caption: FOCUS Technology Products -- FOCUS, CAT, FACT ARC, LYNX
M(3) Technology Products -- Periflow, Bullett, Transport
Vascular Access Products -- SmartNeedle

Caption: The CAT is not available in the United States due to patent
restrictions. The LYNX and Transport are in development and have not been
approved by the FDA for sale in the United States. There can be no assurance
that FDA approval will be obtained for such products. See "Business --
Products" and "-- New Product Development."

<PAGE> 75

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 and the NASD filing fees.

<TABLE>
<S> <C>
SEC Registration fee.................................................... $ 17,778
NASD fee................................................................ 5,583
Nasdaq National Market listing fee...................................... 43,075
Printing and engraving.................................................. 120,000
Legal fees and expenses................................................. 225,000
Accounting fees and expenses............................................ 150,000
Blue sky fees and expenses.............................................. 15,000
Transfer agent fees..................................................... 10,000
Directors' and Officers' Liability Insurance............................ 150,000
Miscellaneous........................................................... 33,564
---------
Total.............................................................. $ 770,000
========
</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.

II-1
<PAGE> 76

2. On July 17, 1995, the Company issued a $750,000 convertible
obligation to Fukuda. The convertible obligation will convert into Common
Stock at the public offering price upon the consummation of this 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 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.

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
--------- ------------------------------------------------------------------------------
<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.
3.1(3) Certificate of Incorporation.
3.2(3) Amended Bylaws.
4.1(1) Specimen Certificate of Common Stock.
5.1(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* 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* 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.
</TABLE>

II-2
<PAGE> 77

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------- ------------------------------------------------------------------------------
<S> <C>
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.
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(2) 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.

(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

The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

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 indemnification 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-3
<PAGE> 78

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Irvine, State of California, on this 18th day of June, 1996.

CARDIOVASCULAR DYNAMICS, INC.

By: /s/ DANA P. NICKELL
-------------------------

Dana P. Nickell
Vice President, Finance and
Administration, Chief Financial
Officer and Secretary

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to the 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>
MICHAEL R. HENSON*
---------------------------------- President, Chief Executive Officer June 18, 1996
(Michael R. Henson) (Principal Executive Officer) and
Chairman

/s/ DANA P. NICKELL
---------------------------------- Vice President, Finance and June 18, 1996
(Dana P. Nickell) Administration, Chief Financial
Officer and Secretary (Principal
Financial and Accounting Officer)

WILLIAM G. DAVIS*
----------------------------------- Director June 18, 1996
(William G. Davis)

MITCHELL DANN*
----------------------------------- Director June 18, 1996
(Mitchell Dann)

GERARD VON HOFFMAN*
----------------------------------- Director June 18, 1996
(Gerard von Hoffman)

EDWARD M, LEONARD*
----------------------------------- Director June 18, 1996
(Edward M. Leonard)

*By: /s/ DANA P. NICKELL
-------------------------
(Dana P. Nickell, Attorney-in-Fact)
</TABLE>

II-4
<PAGE> 79

CARDIOVASCULAR DYNAMICS, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------ ----------- ---------------------- --------- ----------
ADDITIONS
----------------------
BALANCE AT CHARGES TO CHARGED BALANCE AT
BEGINNING COST AND TO OTHER END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF 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> 80

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- --------- ------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.....................................
2.1(2) 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(2) First Amendment dated as of June 30, 1993 to the Agreement and Plan
of Reorganization among EndoSonics, EndoSonics Acquisition
Corporation and CVD................................................
3.1(2) Certificate of Incorporation.......................................
3.2(2) Amended Bylaws.....................................................
4.1 Specimen Certificate of Common Stock...............................
5.1 Opinion of Brobeck, Phleger & Harrison LLP.........................
10.1(2) Form of Indemnification Agreement to be entered into between the
Registrant and its directors and officers..........................
10.2(2) The Registrant's 1996 Stock Option Plan and forms of agreements
thereunder.........................................................
10.3(2) The Registrant's Employee Stock Purchase Plan and forms of
agreement thereunder...............................................
10.4(2) Series A Supplemental Stock Purchase Agreement dated June 5, 1992,
by and between the Company and CVD.................................
10.5(2) Stock Purchase Option Agreement dated June 5, 1992, by and between
EndoSonics and CVD.................................................
10.6*(2) 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*(2) 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(2) Waiver and Grant of Warrant dated June 30, 1995 by and between
SCIMED, CVD and EndoSonics.........................................
10.9*(2) License Agreement dated January 15, 1995 by and between CVD and
Advanced Cardiovascular Systems, Inc. ("ACS")......................
10.10*(2) License Agreement dated March 4, 1996 by and between CVD and ACS...
10.11(2) Series B Stock Purchase Agreement dated March 29, 1996 by and
between CVD and EndoSonics.........................................
10.12(2) License Agreement dated December 22, 1995 by and between CVD and
EndoSonics.........................................................
10.13 Form of Stockholder Agreement with EndoSonics......................
10.14 Form of Tax Allocation Agreement with EndoSonics...................
10.15(2) Industrial Lease dated February 23, 1995 by and between the Irvine
Company and CVD....................................................
10.16 Waiver and Grant of Warrant dated May 2, 1996 by and between
SCIMED, CVD and EndoSonics.........................................
10.17(1) Amendment to Japanese Distribution Agreements dated May 13, 1996 by
and between CVD and Fukuda.........................................
11.1 Computation of Earnings Per Share..................................
</TABLE>

<PAGE> 81

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- --------- ------------------------------------------------------------------- ------------
<C> <S> <C>
23.1 Consent of Ernst & Young LLP, Independent Auditors.................
23.2 Consent of Brobeck, Phleger & Harrison LLP. Reference is made to
Exhibit 5.1........................................................
24.1(2) Power of Attorney. ................................................
27.1(1) Financial Data Schedule............................................
</TABLE>

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

* Confidential treatment requested.

(1) 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.

(2) 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.

<PAGE> 1
FUKUDA DENSHI CO., LTD.,
CARDIOVASCULAR DYNAMICS, INC., AND ENDOSONICS CORPORATION

JAPANESE DISTRIBUTION AGREEMENT

THIS AGREEMENT is made and entered into in Pleasanton, California, on
May 28, 1993, between CardioVascular Dynamics, Inc., a California corporation,
with its principal offices at 15 Hammond, Irvine, California 92718, U.S.A.
(hereinafter referred to as "CVD"), Endosonics Corporation, a Delaware
corporation, with its principal offices at 6616 Owens Drive, Pleasanton,
California 94588, U.S.A. (hereinafter referred to as "Endosonics"), and Fukuda
Denshi Co., Ltd., a corporation of Japan, with its principal offices at 3-39-4
Hongo Bunkyo-Ku, Tokyo 113, Japan (hereinafter referred to as "Fukuda").

In consideration of the mutual promises contained herein, the parties
agree as follows:

1. DEFINITIONS

A. "Products" shall mean those CVD products listed in Exhibit "A"
attached hereto developed and manufactured by CVD or designees of CVD for
cardiovascular applications. Products may be changed, abandoned or added by
CVD, at its sole discretion, provided that CVD gives one hundred twenty (120)
days' prior written notice to Fukuda. If Fukuda should desire to continue
marketing any of such Products, CVD plans to change or abandon, CVD shall use
its best efforts to continue such Products for marketing by Fukuda in Japan.

B. "Territory" shall mean the country of Japan.

C. Endosonics is only a party to this Agreement as this Agreement
includes the combination of CVD drug delivery technology and Endosonics
intravascular ultrasound technology on the same Products ("combined drug
delivery/infusion and intravascular ultrasound catheters"). Otherwise, Fukuda
has no responsibility to Endosonics and Endosonics has no responsibility to
Fukuda under this Agreement.

2. APPOINTMENT AND AUTHORITY OF FUKUDA

A. Appointment. Subject to the terms and conditions set forth
herein, CVD hereby appoints Fukuda as CVD's exclusive distributor for the
Products in the Territory, and Fukuda hereby accepts such appointment.

Fukuda shall pay to CVD a sum of [*] [*] for this exclusive
distributorship for the period set forth in Subsection 7A hereof (hereinafter
referred to

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 2
as "Premium of Exclusive Distribution Right"). This sum will be transferred
from Fukuda to CVD within forty-eight (48) hours after the signing of this
Agreement.

B. Territorial Limitation. Fukuda shall not advertise the Products
outside the Territory or establish a repair or maintenance facility outside the
Territory without the prior written consent of CVD.

C. Conflict of Interest. Fukuda shall use its best efforts in the
promotion and sale of the Products and will not distribute any products
competitive to CVD Products. Both parties are aware that Fukuda currently
distributes PTCA catheter products that may be competitive to CVD Products.

D. Independent Contractors. The relationship of CVD and Fukuda
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to (i) give either party the
power to direct and control the day-to-day activities of the other or (ii) allow
Fukuda to create or assume any obligation on behalf of CVD for any purpose
whatsoever. All financial obligations associated with Fukuda's business are the
sole responsibility of Fukuda. All sales and other agreements between Fukuda
and its customers are Fukuda's exclusive responsibility and shall have no effect
on Fukuda's obligations under this Agreement. Fukuda shall be solely
responsible for, and shall indemnify and hold CVD free and harmless from, any
and all claims, damages or lawsuits (including CVD attorneys' fees) arising out
of the acts of Fukuda, its employees or its agents.

3. TERMS OF PURCHASE OF PRODUCTS BY FUKUDA

A. Terms and Conditions. All purchases of Products by Fukuda from
CVD during the terms of this Agreement shall be subject to the terms and
conditions of this Agreement.

B. Prices. All prices are F.O.B. CVD's plant currently located at
the address listed for CVD at the beginning of this Agreement. The purchase
price to Fukuda for each of the Products ("Purchase Price") shall be decided by
agreement between CVD and Fukuda. The differences between Fukuda's Purchase
Price and Fukuda's selling price to its customers shall be Fukuda's sole
remuneration for sale of the Products.

The prices may be revised from time to time through consultation between
CVD and Fukuda, taking into account the then prevailing market prices of the
similar Products. Such revisions shall apply to all orders received after the
effective date of revision. Price increases shall not affect unfulfilled
purchase orders accepted by CVD prior to the effective date of the price
increase. As agreed by both parties, at no time shall prices for

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 3
any Products sold to Fukuda be greater than [*] of the CVD U.S. list prices for
such Products.

C. Taxes. Fukuda's Purchase Price does not include any Japanese,
federal, state or local taxes that may be applicable to the Products. When CVD
has the legal obligation to collect such taxes, the appropriate amount shall be
added to Fukuda's invoice and paid by Fukuda unless Fukuda provides CVD with a
valid tax exemption certificate authorized by the appropriate taxing
authority. CVD agrees to pay any United States federal, state or local taxes
that may be required to ship Products to Fukuda.

D. Order and Acceptance. All orders for Products submitted by
Fukuda shall be initiated by written purchase orders sent to CVD and requesting
a delivery date during the term of this Agreement; provided, however, that an
order may initially be placed orally, by telefax or by telex if a
confirmational written purchase order is received by CVD within ten (10) days
after said oral, telefax or telex order. To facilitate CVD's production
scheduling, Fukuda shall attempt to submit purchase orders to CVD at least
sixty (60) days prior to the first day of the requested month of delivery. No
order shall be binding upon CVD until accepted by CVD in writing, and CVD shall
have no liability to Fukuda with respect to purchase orders that are not
accepted. CVD shall notify Fukuda of the acceptance or rejection of an order
and of the assigned delivery date for accepted orders within ten (10) days of
receipt of the purchase order. No partial shipment of an order shall
constitute the acceptance of the entire order, absent the written acceptance of
such entire order. CVD shall deliver Products at the time specified in its
written acceptance of Fukuda's purchase orders.

E. Terms of Purchase Orders. Fukuda's purchase orders submitted
to CVD from time to time with respect to Products to be purchased hereunder
shall be governed by the terms of this Agreement, and nothing contained in any
such purchase order shall in any way modify such terms of purchase or add any
additional terms or conditions.

F. Payment. CVD shall submit an invoice to Fukuda upon shipment
of each Product ordered by Fukuda. The invoice shall cover Fukuda's Purchase
Price for the Products in a given shipment plus any freight, taxes or other
applicable costs initially paid by CVD but to be borne by Fukuda. Payment
shall be made in U.S. dollars and payment shall be by wire transfer, check or
other instrument approved by CVD. Payment terms shall be the full invoiced
amount due for payment received by CVD within sixty (60) days of the date of
the invoice. Any invoiced amount not received within sixty (60) days of the
date of invoice shall be subject to a service charge of one percent (1%) per
month. Fukuda shall pay all of CVD's costs and expenses (including reasonable
attorneys' fees) to enforce and preserve CVD's rights under this Subsection
3.F. If at any time an outstanding invoice for Products shipped to

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 4
Fukuda becomes unpaid and outstanding for greater that ninety (90) days, at CVD
option, CVD may require that Fukuda effect payment by means of an irrevocable
letter of credit drawn on a California bank approved by CVD; the letter of
credit shall be upon terms acceptable to CVD, shall allow for partial shipment,
and shall be in an amount equal to Fukuda's purchase price for the Products
plus all applicable taxes, shipping charges, and other charges to be borne by
Fukuda. All exchange, interest, banking collection and other charges shall be
at Fukuda's expense.

G. Shipping. All Products delivered pursuant to the terms of this
Agreement shall be suitably packed for air freight shipment in CVD's standard
shipping cartons, marked for shipment at Fukuda's address set forth above, and
delivered to Fukuda or its carrier agent F.O.B. CVD's manufacturing plant, at
which time title to such Products and risk of loss shall pass to Fukuda.
Unless otherwise instructed in writing by Fukuda, CVD shall select the
carrier. All freight, insurance, and other applicable expenses, as well as any
special packing expense, shall be paid by Fukuda.

H. Rejection of Products. Fukuda shall inspect all Products,
except those Products which are sterilized and sealed by CVD at its plant,
promptly upon receipt thereof and may reject any Product that fails to meet the
specifications set forth in CVD's current product specifications for that
Product. Any Product not properly rejected within thirty (30) days of receipt
of that Product at Fukuda's facility after customs clearance for import (the
"Rejection Period") shall be deemed accepted. To reject a Product, Fukuda
shall, within the Rejection Period, notify CVD in writing, by telefax or by
telex of its rejection and request a Material Return Authorization ("MRA")
number. CVD shall provide the MRA number in writing, by telefax or by telex to
Fukuda within ten (10) days of receipt of the request. Within ten (10) days of
receipt of the MRA number, Fukuda shall return to CVD the rejected Product,
freight collect, in its original shipping carton with the MRA number displayed
on the outside of the carton. Provided that CVD has complied with its
obligations in this Agreement, CVD reserves the right to refuse to accept any
rejected Products that do not bear an MRA number on the outside of the carton.
As promptly as possible but no later than fifteen (15) working days after
receipt by CVD of properly rejected Products, CVD shall, at its expense,
replace the Products and ship such replacement Products freight prepaid.

I. Return of Products After Rejection Period. After the Rejection
Period, CVD's Standard Limited Warranty shall be applied. For sterilized and
sealed Products such as catheters, however, CVD shall replace those Products
found defective with new Products if such defects should be found within one
year of shipment of such Products to Fukuda. If CVD tests and inspects these
returned Products and determines that such Products have (i) not been physically
damaged and (ii) perform according to CVD's written

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 5
specifications, no credit will be given to Fukuda. If upon such test and
inspections, such returned Products have (i) not been physically damaged and
(ii) do not perform to CVD's written specification, these Products will be
replaced at no cost to Fukuda. In all cases of physical damage to returned
Products, no credit will be given to Fukuda.

4. WARRANTY TO FUKUDA'S CUSTOMERS

A. Standard Limited Warranty. Fukuda shall pass on to its customers
CVD's standard limited warranty for the Products, including the limitations set
forth in Subsections 4.B. and 4.C. below. This warranty shall cover the Products
for a period of fifteen (15) months from the date of shipment to Fukuda. This
warranty is contingent upon proper use of a Product in the application for which
it was intended and does not cover Products that were modified without CVD's
approval or that were subjected by the customer to unusual physical stress.

B. No Other Warranty. Except for the express warranty set forth
above, CVD grants no other warranties, expressed or implied, by statute or
otherwise, regarding the Products, their fitness for any purpose, their quality,
their merchantability, or otherwise.

C. Limitation of Liability. CVD's liability under the warranty
shall be limited to a replacement of the customer's Purchase Price with a
Product substantially equivalent to the original Product shipped by CVD. In no
event shall CVD be liable for the cost of procurement of substitute goods by the
customer or for any special, consequential or incidental damages for breach of
liability. CVD, however, shall not be relieved from Product Liability as set
forth in Section 8 hereof.

5. ADDITIONAL OBLIGATIONS OF CVD AND FUKUDA

A. Clinical Trials: Management, Product Supply and Regulatory
Approvals. Fukuda agrees that it will undertake to manage, at Fukuda's expense,
all animal trials and human clinical trials required to obtain approval from all
Japanese regulatory authorities to market CVD's Products in Japan.

CVD agrees that it will sell Products to Fukuda to conduct the animal
trials and human clinical trials for Japanese marketing approval at significant
discounts to CVD's regular prices to Fukuda and other Distributors. CVD agrees
to sell the Products in the quantities and prices shown in Exhibit "C" to this
Agreement as the initial supply for such animal and human clinical trials. All
of these Products, equalling a total value of [*] will be ordered by Fukuda and
shipped by CVD to Fukuda before [*]. Payment for these Products will be 30 days
following shipment from CVD. Shipment costs will be added to invoice amounts.

* CONFIDENTIAL TREATMENT REQUESTED

<PAGE> 6
Furthermore, in order for Fukuda to properly market the CVD Bullett and
Transport catheters described in Exhibit "A", CVD agrees to provide Fukuda with
[*] Bullett(TM) catheters and one-hundred and [*] Transport(TM) catheters [*]
Fukuda. These [*] catheters will be sent to Fukuda at the rate of [*] catheters
per month for [*] consecutive months following MOH approval of each respective
catheter.

At Fukuda's request, CVD agrees, at its expense, to send a Clinical
Affairs Specialist to Japan to train Fukuda's customers in the proper clinical
use of these systems. Also at Fukuda's request, CVD agrees to make arrangements
to send one of CVD's major U.S. Clinical Investigator Physicians to Japan to (i)
give lectures on the use of CVD's Products and (ii) perform clinical training of
these Products to Japanese physicians. Fukuda agrees to reimburse CVD for all
out-of-pocket expenses for the travel of this physician to Japan.

B. Fukuda Total Annual Purchases. During the first twelve (12)
months following the approval of the first CVD product by the Japanese Ministry
of Health (MOH), Fukuda agrees to purchase a [*] CVD catheters. These [*]
catheters will be selected by Fukuda from those Products shown in Exhibit "A".
The total of these purchases will be Fukuda's Total Annual Purchases for this
twelve-month calendar year. Prior to ninety (90) days before the end of this
twelve-month period, Fukuda will present to CVD Fukuda's planned purchases for
the next twelve-month calendar year. Within thirty (30) days following receipt
of the Fukuda proposal, CVD will respond to Fukuda's proposal. If the two
parties cannot agree of these twelve-month purchases prior to the end of the
twelve-month calendar year, the parties will meet to negotiate in good faith the
Total Annual Purchases for such twelve-month calendar year.

On or before ninety (90) days prior to the end of each subsequent year,
Fukuda will present its proposal to CVD in writing specifying the forecasted
Total Annual Purchases in U.S. dollars for the next twelve-month calendar year.
The two parties agree to negotiate these Total Annual Purchases in good faith
for each year of this Agreement. However, beginning with the second calendar
year following MOH approval of the first CVD Product, both parties agree that
the minimal annual increase in Total Annual Purchases will be [*] than the
previous year's Total Annual Purchases.

Throughout the term of this Agreement, if Fukuda fails to meet Fukuda's
agreed Total Annual Purchases in U.S. dollars for any twelve-month calendar year
through no fault of CVD, Fukuda and CVD will meet to discuss (i) the reasons for
this nonperformance, (ii) the Fukuda Total Annual Purchases in U.S. dollars for
the next twelve-month calendar year and (iii) how CVD and Fukuda can work

* CONFIDENTIAL TREATMENT REQUESTED

<PAGE> 7
together to help Fukuda meet Fukuda's Total Annual Purchases for the next
twelve-month calendar year.

C. Forecasts. Within the first ten (10) days of every quarter,
Fukuda shall provide CVD with a four quarter rolling forecast showing
prospective orders by Product model and intended purchase order submittal date.

D. Promotion of the Products. Fukuda shall, at its own expense,
vigorously promote the sale of the Products within the Territory. Such promotion
shall include, but not be limited to, preparing promotional materials in
languages appropriate for the Territory, advertising the Products in trade
publications within the Territory, participating in appropriate trade shows, and
directly soliciting orders from customers for the Products.

E. Finances and Personnel. Fukuda shall devote sufficient
financial resources, technically qualified sales personnel, and service
personnel to the Products to fulfill its responsibilities under this Agreement.

F. Customer and Sales Reporting. Fukuda shall, at its own expense
and consistent with the sales policies of CVD:

(i) place the Products in Fukuda's catalogues as soon as
possible and feature the Products in any applicable trade show
that it attends;

(ii) provide adequate contact with existing and potential
customers within the Territory on a regular basis, consistent
with good business practice;

(iii) assist CVD in assessing customer requirements for the
Products, including modifications and improvements thereto, in
terms of quality, design, functional capability, and other
features; and

(iv) submit market research information, as reasonably
requested by CVD, regarding competition and changes in the
market within the Territory.

G. Import and Export Requirements. Fukuda shall, at its own
expense, pay all import and export licenses and permits, pay customs charges and
duty fees, and take all other actions required to accomplish the export and
import of the Products purchased by Fukuda. Fukuda understands that CVD is
subject to regulation by agencies of the U.S. government. Fukuda warrants that
it will comply in all respects with the export and re-export restrictions set
forth in the export license for every Product shipped to Fukuda.

* CONFIDENTIAL TREATMENT REQUESTED

<PAGE> 8
6. ADDITIONAL OBLIGATIONS OF CVD

A. Product Development Schedule. CVD and Fukuda have agreed on a
product launch schedule of CVD Products in Japan. This schedule is shown in
Exhibit "A". If CVD fails to supply these products to Fukuda so that Fukuda
can begin Japanese human clinical trials on the dates scheduled, Fukuda has the
right to cancel this Agreement. CVD agrees to provide Fukuda an update of this
schedule on January 1, 1994, July 1, 1994 and January 2, 1995 for Fukuda's
planning purposes.

B. Materials. CVD shall promptly provide Fukuda with marketing
and technical information concerning the Products as well as reasonable
quantities of brochures, instructional material, advertising literature, and
other Product data, with all such material printed in the English language.

C. Response to Inquiries. CVD shall promptly respond to all
inquiries from Fukuda concerning matters pertaining to this Agreement.

D. Testing. CVD shall test all Products before shipment to Fukuda
under U.S. FDA GMP requirements.

E. Delivery Time. CVD shall minimize delivery time as much as
possible and to fulfill delivery obligations as committed in acceptance.

F. Territorial Inquiries. CVD shall submit to Fukuda any inquiry
originating from the Territory rather than answering the inquiry directly.

G. Quotations to Exporters. CVD shall refrain from giving
quotations to exporters for Products to be shipped to the Territory.

H. Market Information. Upon reasonable request of Fukuda, CVD
shall provide Fukuda with information as to general market movement,
competitors' prices and strategies, names of CVD's major customers (users) and
other information that may help Fukuda promote and sell the Products in the
Territory.

I. Customer's Special Requirement. Sometimes Fukuda will encounter
requests from customers for special changes or modifications on Products so that
the Products meet their particular usage. In such cases, if Fukuda deems it
necessary to comply with such requirements for its market strategy, Fukuda shall
request CVD to make such changes or modifications on the Products and CVD shall
use its best efforts to meet such requirements.

J. New Developments. CVD shall inform Fukuda of new Product
developments.

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 9
7. TERM AND TERMINATION

A. Term. This Agreement shall continue in force through May 31,
1998, unless terminated earlier under the provisions of this Section 7. It is
agreed by both parties that this Agreement will be extended for an additional
five (5) years, unless one party notifies the second party ninety (90) days
prior to the end of this Agreement. If extended, Fukuda will not be required
to pay CVD any additional amounts for such distribution rights in Japan.

B. Termination for Cause. If either party defaults in the
performance of any provision of this Agreement, then the non-defaulting party
may give written notice to the defaulting party that if the default is not
cured within ninety (90) days, the Agreement will be terminated. If the
non-defaulting party gives such notice and default is not cured during the
ninety-day period, then the Agreement shall automatically terminate at the end
of that period.

C. Termination for Insolvency. This Agreement shall terminate,
without notice, (i) upon the institution by or against Fukuda or CVD of
insolvency, receivership or bankruptcy proceedings or any other proceedings for
the settlement of debts, (ii) upon Fukuda's making an assignment for the
benefit of creditors, or (iii) upon Fukuda's or CVD's dissolution.

D. Fulfillment of Orders Upon Termination. Upon termination of
this Agreement, CVD shall continue to fulfill, subject to the terms of Section
3 above and if so requested by Fukuda, all orders accepted by CVD prior to the
date of termination.

E. Return of Materials. All trademarks, trade names, patents,
copyrights, designs, drawings, formulas or other data, photographs, samples,
literature, and sales aids of every kind shall remain the property of CVD.
Within thirty (30) days after the termination of this Agreement, Fukuda shall
prepare all such items in its possession for shipment, as CVD may direct, at
CVD's expense. Fukuda shall not make or retain any copies of any confidential
items or information or any product literature which may have been entrusted to
it. Effective upon the termination of this Agreement, Fukuda shall cease to
use all trademarks, marks, and trade names of CVD.

F. Limitation on Liability. In the event of termination by either
party in accordance with any of the provisions of this Agreement, neither party
shall be liable to the other, because of such termination, for compensation,
reimbursement or damages on account of the loss of prospective profits or
anticipated sales or on account of expenditures, inventory, investments, leases
or commitments in connection with the business or goodwill or CVD of Fukuda.
Termination shall not, however, relieve either party of obligations incurred
prior to the termination.

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 10
G. Survival of Certain Terms. The provisions of Section 3.F., 4,
7, 8, 9, 10, 11 and 12 shall survive the termination of this Agreement for any
reason. All other rights and obligations of the parties shall cease upon
termination of this Agreement.

8. LIABILITY COVERAGE AND LIMITATIONS

A. Products Liability. CVD agrees to carry products liability
insurance for all of its Products. This liability will cover the design,
manufacture and performance of CVD's Products when these Products are promoted,
sold and used by customers for uses specified in CVD's labelling, promotional
materials and instructions for use. Fukuda will be responsible for any
liability arising out of (i) Fukuda's sales of CVD's Products for applications
not included in CVD's labelling, promotional material and instructions for use,
(ii) for liability claims arising from Fukuda's wrongful training of customer
users, and (iii) liability claims arising from wrongful use of Products by
customer users.

B. Limitation on Liability. CVD's liability arising out of this
Agreement and/or sale of the Product shall be limited to the amount paid by the
customer or the Products. In no event shall CVD be liable for costs of
procurement of substitute goods. In no event shall CVD be liable to Fukuda or
any other entity for any special, consequential, incidental, or indirect
damages, however caused, on any theory of liability, and notwithstanding any
failure of essential purpose of any limited purpose of any limited remedy.

9. PROPERTY RIGHTS AND CONFIDENTIALITY

A. Property Rights. Fukuda agrees that CVD owns all right, title
and interest in the Product lines that include the Products now or hereafter
subject to this Agreement and in all of CVD's patents, trademarks, trade names,
inventions, copyrights, know-how, and trade secrets relating to the design,
manufacture, operation or service of the Products. The use by Fukuda of any of
these property rights is authorized only for the purposes herein set forth, and
upon termination of this Agreement for any reason such authorization shall
cease.

B. Sale Conveys No Right to Manufacture or Copy. The Products are
offered for sale and are sold by CVD subject in every case to the condition
that such sale does not convey any license, expressly or by implication, to
manufacture, duplicate or otherwise copy to reproduce any of the Products.
Fukuda shall take appropriate steps with its customers, as CVD may request, to
inform them of and assure compliance with the restrictions contained in this
Subsection 9.B.

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 11
C. Confidentiality. Each of the parties hereto acknowledges that
by reason of its relationship to the other party hereunder it will have access
to certain information and materials concerning the other party's business plan;
plans; customers, technology and products (including, without limitation, the
Products) that are confidential and of substantial value to the other party,
which value would be impaired if such information were disclosed to third
parties. Each of the parties hereto agrees that it will not use in any way for
its own account or the account of any third party, nor disclose to any third
party, any such confidential information revealed to it by the other party until
such information becomes public through means other than through breach of this
Agreement. Each of the parties hereto shall take every reasonable precaution to
protect the confidentiality of such information. Upon request of either of the
parties hereto, the other party shall advise whether or not it considers any
particular information or materials to be confidential. Fukuda shall not
publish any technical description of the Products beyond the description
published by CVD (except to translate that description into appropriate
languages for the Territory). In the event of termination of this Agreement,
there shall be no use or disclosure by either of the parties hereto of any
confidential information of the other party, and neither of the parties hereto
shall manufacture or have manufactured any devices, components or assemblies
utilizing any of the confidential information of the other party, for three (3)
years from the termination date of this Agreement.

10. TRADEMARKS AND TRADE NAMES

A. Use. During the term of this Agreement, Fukuda shall have the
right to indicate to the public that it is an authorized distributor of CVD's
Products and to advertise (within the Territory) such Products under the
trademarks, marks and trade names that CVD may adopt from time to time ("CVD's
Trademarks"). Fukuda shall not alter or remove any CVD's Trademark applied to
the Products at the factory. Nothing herein shall grant to Fukuda any right,
title or interest in CVD's Trademarks. At no time during or after the term of
this Agreement shall Fukuda challenge or assist others to challenge CVD's
Trademarks or the registration thereof or attempt to register any trademarks,
marks or trade names confusingly similar to those of CVD.

B. Approval of Representations. Fukuda shall respect CVD's
Trademarks and follow the instructions of CVD as to the usage of CVD's
Trademarks. CVD shall grant to Fukuda its general approval for the use of CVD's
Trademarks by Fukuda hereunder. If any of CVD's Trademarks are to be used in
conjunction with another trademark on or in relation to the Products, then CVD's
mark shall be presented equally legibly, equally prominently, and of the same or
greater size than the other but nevertheless separated from the other so that
each appears to be a mark in its own right, distinct from the other mark.

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 12
11. PATENT, COPYRIGHT AND TRADEMARK INDEMNITY

A. Indemnification. Fukuda agrees that CVD has the right to
defend, or at its option to settle, and CVD agrees, at its own expense, to
defend or at its option to settle, any claim suit or proceeding brought against
Fukuda or its customer on the issue of infringement of any United States or
Japanese patent, or trademark by the Products sold hereunder, or the use
thereof, subject to the limitations hereinafter set forth. CVD shall have sole
control of any such action or settlement negotiations, and CVD agrees to pay,
subject to the limitations hereinafter set forth, any final judgment entered
against Fukuda or its customer on such issue in any such suit or proceeding
defended by CVD. Fukuda agrees to notify CVD promptly in writing of such
claim, suit or proceeding and gives CVD authority to proceed as contemplated
herein, and, at CVD's expense, gives CVD proper and full information and
assistance to settle and/or defend any such claim, suit or proceeding. If the
Products, or any part thereof, are the subject of any claim, suit or proceeding
for infringement of any United States or Japanese patent, or trademark, or if
the sale or use of the Products, or any part thereof, is, as a result,
enjoined, then CVD shall, at its expense (i) procure for Fukuda and its
customers the right under such patent, or trademark to sell or use, as
appropriate, the Products or such part thereof; or (ii) replace the Products,
or part thereof, with other suitable Products or parts; or (iii) suitably
modify the Products, or part thereof; or (iv) if the use of the Products, or
part thereof, is prevented by injunction, remove the Products, or part thereof,
and refund the aggregate payments paid therefor by Fukuda, less a reasonable
sum for use and damage.

B. Limitation. Notwithstanding the provisions of Subsection 11.A.
above, CVD assumes no liability for (i) infringements covering completed
equipment or any assembly, circuit, combination, method or process in which any
of the Products may be used but not covering the Products standing alone; (ii)
any trademark infringements involving any marking or branding applied at the
request of Fukuda; or (iii) the modification of the Products, or any part
thereof, unless such modification or servicing was done by CVD.

C. Entire Liability. The foregoing provision of this Section 11
states the entire liability and obligations of CVD and the exclusive remedy of
Fukuda and its customers, with respect to any alleged patent or trademark
infringement by the Products or any part thereof.

12. GENERAL PROVISIONS

A. Arbitration. All disputes, controversies, or differences which
may arise between the parties hereto, out of, in relation to, or in connection
with this Agreement or the breach thereof, shall

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 13
be finally settled by arbitration in accordance with the Japan-American Trade
Arbitration Agreement of September 16, 1952 (as amended), by which each party
hereto agrees to be bound. If arbitration is requested by Fukuda, arbitration
shall be conducted in Palo Alto, California, U.S.A.; if arbitration is
requested by CVD, arbitration shall be conducted in Tokyo, Japan. Judgment
upon an award rendered may be entered in any court having jurisdiction, or
application may be made to such court for judicial acceptance of the award and
an order of enforcement, as the case may be.

B. Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject matter
herein and merges all prior discussions between them with an exception of
Product Development Agreement, Fukuda Denshi Right of Refusal that is to be
separately concluded between the parties hereto. No modification or of
amendment to this Agreement, nor any waiver of any rights under this Agreement,
shall be effective unless in writing signed by the party to be charged.

C. Notices. Any notice required or permitted by this Agreement
shall be in writing and shall be sent by prepaid registered or certified mail,
return receipt requested, addressed to the other party at the address shown at
the beginning of this Agreement or at such other address for which such party
gives notice hereunder. Such notice shall be deemed to have been given five
(5) days after deposit in the mail.

D. Force Majeure. Nonperformance of either party shall be excused
to the extent that performance is rendered impossible by strike, fire, flood,
governmental acts or orders or restrictions, failure of suppliers, or any other
reason where failure to perform is beyond the control of and not caused by the
negligence of the non-performing party.

E. Nonassignability and Binding Effect. A mutually agreed
consideration for CVD's entering into this Agreement is the reputation,
business standing, and goodwill already honored and enjoyed by Fukuda under its
present ownership, and, accordingly, Fukuda agrees that its rights and
obligations under this Agreement may not be transferred or assigned (except to
Fukuda's subsidiary companies) directly or indirectly without the prior written
consent of CVD. Subject to the foregoing sentence, this Agreement shall be
binding upon and inure to the benefit of the parties hereto, their successors
and assigns.

F. Partial Invalidity. If any provision of this Agreement is held
to be invalid by a court of competent jurisdiction, then the remaining
provisions shall nevertheless remain in full force and effect. The parties
agree to renegotiate in good faith any term held invalid and to be bound by the
mutually agreed substitute provision.

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 14
G. Legal Expenses. The prevailing party in any legal action
brought by one party against the other and arising out of this Agreement shall
be entitled, in addition to any other rights and remedies it may have, to
reimbursement for its expenses, including arbitration costs and reasonable
attorneys' fees.

H. Counterparts. This Agreement shall be executed in two
counterparts, each of which shall be deemed an original, each party retaining
one copy thereof.

CARDIOVASCULAR DYNAMICS, INC.

By: [SIG] 4/30/93
-------------------------------

PRINTED NAME: Michael R. Henson

Title: Chairman and Board Member

ENDOSONICS CORPORATION

By: [SIG] 4/30/93
-------------------------------

PRINTED NAME: Reinhard J. Warnking

TITLE: President, Chief Operating
Officer and Board Member

FUKUDA DENSHI CO., LTD.

By: [SIG] 5/17/93
-------------------------------

PRINTED NAME: Kotaro Fukuda

TITLE: President and Board Member

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 15
EXHIBIT "A"

"PRODUCTS"

<TABLE>
<CAPTION>
PROJECTED
PRODUCT
FUKUDA LAUNCH
PRODUCTS PURCHASE PRICE SCHEDULE
- -------- -------------- ---------
<S> <C> <C>
Model 2020 - Transport(TM) [*] November 1993
PTCA-Infusion
Catheter,
2.0mm Balloon

Model 2025 - Transport(TM) [*] June 1993
PTCA-Infusion
Catheter,
2.5mm Balloon

Model 2030 - Transport(TM) [*] June 1993
PTCA-Infusion
Catheter,
3.0mm Balloon

Model 2035 - Transport(TM) [*] November 1993
PTCA-Infusion
Catheter,
3.5mm Balloon

Model 4020 - Bullett(TM) [*] November 1993
Infusion
Catheter,
2cm Infusion Length

Model 4040 - Bullett(TM) [*] April 1994
Infusion
Catheter,
4cm Infusion Length

Model 4060 - Bullett(TM) [*] July 1994
Infusion
Catheter,
6cm Infusion Length
</TABLE>

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 16
EXHIBIT "A"

"PRODUCTS"
(Continued)

<TABLE>
<CAPTION>
PROJECTED
PRODUCT
FUKUDA LAUNCH
PRODUCTS PURCHASE PRICE SCHEDULE
- -------- -------------- ---------
<S> <C> <C>
Model 3030 - Periflow(TM) [*] January 1994
PTA-Infusion
Catheter,
3.0mm

Model 3040 - Periflow(TM) [*] March 1994
PTA-Infusion
Catheter,
4.0mm

Model 3050 - Periflow(TM) [*] March 1994
PTA-Infusion
Catheter,
5.0mm

Model 3060 - Periflow(TM) [*] May 1994
PTA-Infusion
Catheter,
6.0mm

LP-50 Catheters Product launch dates
to be determined in
January 1994.

Combined Infusion- Product launch dates
Intravascular Ultrasound to be determined in
Catheters March 1994.
</TABLE>

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 17
EXHIBIT "B"

TERRITORY

Distributor's Territory shall be all portions of the following:

1. Japan

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 18
EXHIBIT "C"

Fukuda Clinical Trial Products

CVD AGREES TO SELL THE FOLLOWING PRODUCTS TO FUKUDA AT THE INDICATED PRICES SO
THAT FUKUDA CAN (A) PROVIDE SUFFICIENT QUANTITIES OF SAMPLE PRODUCTS TO THE
JAPANESE MINISTRY OF HEALTH (MOH) AND (B) CONDUCT ANY AND ALL ANIMAL AND HUMAN
CLINICAL TRIALS FOR MOH APPROVAL.

<TABLE>
<CAPTION>
FUKUDA PRICE
PRODUCT QUANTITY PER CATHETER
- ------- -------- ------------
<S> <C> <C>
BULLETT(TM) CATHETERS [*] $ [*]

TRANSPORT(TM) PTCA- [*] $ [*]
INFUSION CATHETERS
-------- ------------
TOTAL [*] $ [*]
</TABLE>

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 19
AMENDMENT TO INTERNATIONAL DISTRIBUTOR AGREEMENT

THIS AGREEMENT entered into this 27th day of October 1994 between
Cardiovascular Dynamics, Inc., ("CVD"), an affiliate of Endosonics Corporation
("Endosonics"), and Fukuda Interventional Systems Co., Ltd. an affiliate of
Fukuda Denshi Co., Ltd. ("Distributor") of Japan amends the International
Distributor Agreement ("Distribution Agreement") signed on May 28, 1993 between
the parties.

1. AMENDMENT

The purpose of this Amendment to the Distribution Agreement is to change
(a) the items as "Products" in Exhibit "A" to the Distribution Agreement and
(b) the term of the Distribution Agreement.

2. PRODUCTS

The definition of Products is hereby changed to delete all Transport(R)
Products and add all of the Products specified in Exhibit "A" of this
Amendment. "Transport Catheters" are defined as Transport OTW and Transport
F/X products that perform coronary balloon dilatation and infusion of solutions
to the coronary circulation. The additional new products are as defined
in Exhibit "A".

Pursuant to Exhibit "B" attached hereto included in this Amendment and
signed by both parties, this Amendment terminates all rights of Distributor to
sell the Transport Catheters within the Territory are terminated as of March 1,
1995.

It is the intention of this Amendment that Distributor will have
exclusive rights in the Territory for the Products listed in Exhibit "A".
However, the parties acknowledge and agree that nothing in this Agreement
prevents either Endosonics and/or CVD from licensing their patented and/or
proprietary technology, including but not limited to CAT technology, drug
delivery technology and/or advanced angioplasty technology to third parties for
the purposes of combining Endosonics or CVD patented and/or proprietary
technologies with patented and/or proprietary technologies of such third
parties. Except for the above, Distributor will have exclusive distribution
rights to Products sold in the Territory when such Products are not combined
with a patented and/or proprietary technology of a third party.

3. TERM

In order to further motivate Distributor, and in total consideration,
monetary or otherwise, for Distributor's agreement for deleting all Transport
Products from the Distribution Agreement between the parties, CVD agrees to
extend the Term of the Distribution Agreement to May 31, 1999, unless terminated
earlier under the provisions of Section 7. of the Distribution Agreement. CVD
also agrees that this Term extension is granted to Distributor with no increase
in the total catheter purchase commitments agreed to in the Distribution
Agreement.

* CONFIDENTIAL TREATMENT REQUESTED

<PAGE> 20
4. RIGHT-OF-FIRST-REFUSAL

As a part of this Amendment, Endosonics Corporation agrees to grant
Distributor a right-of-first-refusal to distribute the DU-MED Microsound(R)
System and electronic micromotor catheters ("Microsound Products") in Japan.

On or before March 31, 1995, Endosonics will provide Distributor with a
confidential technical dossier regarding the Microsound Products. This dossier
will include all technical design information, engineering test data, animal
trial results and human clinical results. Distributor will have forty-five (45)
days to review this technical dossier and notify Endosonics of its interest in
distributing the Microsound Products in Japan.

If Distributor notifies Endosonics of a positive interest in
distributing the Microsound Products, the two parties will negotiate in good
faith to finalize a distribution agreement for these products.

Except as expressly modified by this Amendment, the terms and conditions
of the Distribution Agreement remain in Full Force and effect.

This Amendment is agreed to and signed by both parties as of October
27, 1994.

FUKUDA INTERVENTIONAL SYSTEMS, CO., LTD. CARDIOVASCULAR DYNAMICS, INC.
- ---------------------------------------- -----------------------------

BY: [SIG] BY: [SIG]
--------------------------------- -------------------------

TITLE: President TITLE: Chairman/CEO
------------------------------ ----------------------

COMPANY: Fukuda Interventional COMPANY: Cardiovascular
Systems Co., Ltd. Dynamics, Inc.
---------------------------- --------------------

ENDOSONICS CORPORATION

BY: [SIG]
_________________________

TITLE: Chairman/CEO
----------------------

COMPANY: Endosonics Corp.
--------------------

* CONFIDENTIAL TREATMENT REQUESTED

<PAGE> 21
EXHIBIT "A"

"PRODUCTS"

<TABLE>
<CAPTION>
PRICE TO DISTRIBUTOR
PRODUCT DISTRIBUTOR AVAILABILITY
------- ----------- ------------

<S> <C> <C>
Bullett(R) OTW
2cm Infusion Length $ [*] 9/94
4cm Infusion Length $ [*] 2/95
6cm Infusion Length $ [*] 4/95

Bullett(R) F/X
2cm Infusion Length $ [*] 11/94
4cm Infusion Length $ [*] 4/95
6cm Infusion Length $ [*] 6/95

Bullett(R) Hi-Flo OTW
2cm Infusion Length $ [*] 3/95
4cm Infusion Length $ [*] 5/95
6cm Infusion Length $ [*] 7/95

VISTA(TM) Small Vessel Angioplasty-Infusion Catheters
2.5mm Balloon $ [*] 9/95
3.0mm Balloon $ [*] 4/95
3.5mm Balloon $ [*] 4/95
4.0mm Balloon $ [*] 4/95
4.5mm Balloon $ [*] 7/95

The CAT(TM) Coronary Angioplasty Catheters
2.5/3.0mm Balloon $ [*] 10/94
3.0/3.5mm Balloon $ [*] 12/94
3.5/4.0mm Balloon $ [*] 12/94
4.0/4.5mm Balloon $ [*] 2/95

</TABLE>

* Other new Products as marketed by Manufacturer

* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL
PORTION HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 22
EXHIBIT "B"

This Exhibit "B" is an attachment to the Amendment to the International
Distributor Agreement (the "Distribution Agreement") between Cardiovascular
Dynamics, Inc. ("CVD") and Fukuda Interventional Systems, Co., Ltd.
("Distributor") of Japan.

CVD and Distributor hereby agree that this Amendment terminates all
rights of Distributor in the Territory in regard to Transport catheters as of
March 1, 1995. As agreed in this Amendment to the Distributor Agreement
between CVD and the Distributor, Distributor hereby acknowledges that all
rights awarded to Distributor in the Distribution Agreement to sell any and all
Transport Catheters are hereby terminated.

CVD and Distributor have agreed to continue their on-going relationship
as agreed to in the Amendment to the Distribution Agreement signed by both
parties.

This Exhibit "B" is agreed to and signed by both parties as of
October 27, 1994.

FUKUDA INTERVENTIONAL SYSTEMS, CO., LTD. CARDIOVASCULAR DYNAMICS, INC.
- ---------------------------------------- -----------------------------

NAME: [SIG] NAME: [SIG]
----------------------------------- ---------------------------------
TITLE: PRESIDENT TITLE: CHAIRMAN/CEO
---------------------------------- --------------------------------
COMPANY: FUKUDA INTERVENTIONAL CO., LTD. COMPANY: CARDIOVASCULAR DYNAMICS, INC.
-------------------------------- ------------------------------

*CONFIDENTIAL TREATMENT REQUESTED

<PAGE> 23
AMENDMENT TO INTERNATIONAL DISTRIBUTION AGREEMENT

This Amendment Agreement is entered into this 17th day of July, 1995
between Cardiovascular Dynamics, Inc., a Delaware corporation ("CVD"),
Endosonics Corporation, a Delaware corporation ("Endosonics"), and Fukuda
Intervention Systems, Co., Ltd., a subsidiary of Fukuda Denshi Co., Ltd. of
Japan (hereinafter "Distributor").

WHEREAS, the parties hereto are parties to an International
Distribution Agreement dated May 28, 1993, as amended on October 27, 1994 (the
"Distribution Agreement");

WHEREAS, the parties desire to include certain additional products of
CVD to be covered under the terms and conditions of the Distribution Agreement;

WHEREAS, in consideration for including such additional products,
Distributor has agreed to make a cash payment of U.S. $750,000 to CVD, which
payment shall be converted into capital stock of CVD on the terms set forth
herein;

NOW, THEREFORE, IT IS HEREBY AGREED:

1. The definition of "Products" in "Exhibit A" to the Distribution
Agreement is hereby amended to include those products listed in Exhibit A to
this Amendment Agreement. Except as expressly modified by this Section 1, all
other terms and conditions of the Distribution Agreement remain in full force
and effect.

2. Distributor shall make a cash payment to CVD in the amount of
U.S. $750,000 (the "Cash Payment") coincident with the execution of this
Agreement. The Cash Payment shall be converted into capital stock of either
CVD of Endosonics on the terms set forth below:

a. In the event that CVD issues and sells preferred stock in a
future round of equity financing in which CVD raises at least $750,000 from
persons or entities which are not, prior to such financing, equity holders of
CVD (the "Future Financing") subsequent to the date of this Amendment Agreement,

* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL
PORTION HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.

<PAGE> 24
the Cash Payment paid pursuant to Section 2 hereof shall automatically be
converted into shares of common stock such preferred stock having the same
rights, preferences and privileges and at the same price as the securities
purchased by the participants in the Future Financing.

b. In the event that Endosonics or CVD shall consolidate,
merge, sell, convey or dispose of substantially all of CVD's shares before the
issuance of CVD's new shares in return for Fukuda's Cash Payment of $750,000
as described in section 2(a) above, CVD will repay the $750,000 cash payment to
Fukuda, plus interest equal to eight (8) percent per year.

c. If none of the events set forth in Sections 2(a) or (b) have
occurred prior to the expiration of thirty (30) months from the date hereof, CVD
agrees to hire, at CVD's expense, an independent investment banker to value CVD
and determine the per share price at which the U.S. $750,000 shall be converted
into shares of a senior equity security of CVD with terms comparable to CVD's
existing Series A Preferred Stock, except for price related terms. The
investment banker shall be selected and agreed to by CVD and Distributor.

Immediately upon the occurrence of any of the events set forth in
Sections 2(a), (b) or (c) hereof, the remaining conversion rights set forth in
this Section 2 shall terminate.

3. a. This Amendment Agreement shall be governed by the laws of
California, without regard to its choice of laws or conflicts of law provisions.

b. This Agreement may be executed in counterparts, each copy
of which shall for all purposes be deemed an original.

* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL
PORTION HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 25
IN WITNESS WHEREOF, the parties have executed this Amendment Agreement
as of the date first above written.

FUKUDA INTERVENTION SYSTEMS CO., LTD.

BY: [SIG]
----------------------------------

TITLE: PRESIDENT

FUKUDA DENSHI CO., LTD.

BY: [SIG]
----------------------------------

TITLE: PRESIDENT

CARDIOVASCULAR DYNAMICS, INC.

BY: [SIG]
----------------------------------

TITLE: Chairman/President/CEO

ENDOSONICS CORPORATION

BY: [SIG]
----------------------------------

TITLE: Chairman

<PAGE> 26
EXHIBIT A

[CVD Interpoint Products for Peripheral Vascular, Neurovascular,
Gastrointestinal and Urology Applications]

<PAGE> 1
LICENSE AGREEMENT

THIS LICENSE AGREEMENT is made and entered into effective as of March
4, 1996, by and between CardioVascular Dynamics, Inc., a Delaware corporation,
having its principal place of business at 13900 Alton Parkway, Suite 122,
Irvine, CA 92718 ("CVD"), and Advanced Cardiovascular Systems, Inc., a
California corporation having its principal place of business at 3200 Lakeside
Drive, Santa Clara, California 95052-8167 ("ACS").

RECITALS:

A. CVD is engaged in the discovery, development, manufacture and
sale of medical devices for the diagnosis and treatment of vascular disease,
including coronary angioplasty balloon catheters incorporating blood perfusion
capabilities.

B. CVD has developed or acquired and is the owner of all right,
title and interest in certain patent rights and the inventions covered thereby,
as well as Know-How, relating to methods and apparatus comprising and related
to a certain device known as the mechanical angioplasty catheter ("MAC"), that
combines blood perfusion and coronary balloon angioplasty in a single device to
treat vascular stenoses.

C. ACS is and has been engaged in the discovery, development,
manufacture and sale of medical devices for the diagnosis and treatment of
vascular disease, including angioplasty balloon catheters having blood perfusion
capability, and continues to be active in this area.

<PAGE> 2
D. ACS previously acquired from CVD in a License Agreement
effective as of January 15, 1995 (the "Prior Agreement"), an option to acquire
the exclusive worldwide right and license, with a right to sublicense, in and
to the MAC Technology and CVD Patent Rights (each as defined below) to make,
have made, use and sell products covered thereby and to practice processes and
methods thereunder (the "Option").

E. ACS exercised the Option in accordance with the terms of the
Prior Agreement, and the parties desire to set forth the terms and conditions
of the license granted pursuant to the Option in this Agreement.

AGREEMENT:

NOW, THEREFORE, the parties hereby agree as follows:

1. DEFINITIONS

a. "MAC Technology" as used herein shall mean rights in and to CVD
Patent Rights and the inventions covered thereby, and currently available CVD
Know-How only as it relates to practice of said CVD Patent Rights.
Improvements (as hereinafter defined) thereto shall also be included therein.

b. "CVD Patent Rights" as used herein shall mean the patent rights
held by CVD in the patents and patent applications identified on Exhibit A
hereto, and the

2
<PAGE> 3
inventions covered thereby, and Foreign Counterparts thereof (as hereinafter
defined), as well as any additional patent rights CVD now owns or controls or
may acquire in the future based upon applications which are continuations,
continuations-in-part, divisionals or substitutes of the original applications
upon which the aforementioned patent rights are based, and the inventions
covered thereby, or Foreign Counterparts thereof, and upon any reexaminations,
reissues, renewals or extensions thereof, and any patent rights which CVD now
owns or controls or may acquire in the future relating to improvements thereto.

c. "Foreign Counterparts" as used herein shall mean foreign
applications or issued foreign patents, which claim priority from, or share
common priority with an identified United States patent or patent application,
and the inventions covered thereby.

d. "CVD Know-How" as used herein shall mean confidential
information regarding the MAC Technology, including, but not limited to,
devices and methods relating thereto, technical and business information,
design and manufacturing information and data, specifications and the like.
"CVD Know-How" shall also include bench, animal and clinical testing results
and the like, unless CVD is prohibited from disclosing such results due to
confidentiality restrictions in agreements with third parties.

e. "ACS Licensed Product" or "Licensed Product" as used herein
shall mean a product which if made, used, or sold by ACS in the absence of the
license

3
<PAGE> 4
granted from CVD hereunder, would infringe a Valid Claim included in the CVD
Patent Rights or other right of CVD in, or other use of, the MAC Technology.

f. "Valid Claim" as used herein shall mean a claim of an issued
patent that has not been held or declared invalid, unpatentable or unenforceable
by the United States Patent and Trademark Office, a foreign patent office, or a
court of competent jurisdiction from which no appeal can or has been taken.

g. "Net Revenues" as used herein shall mean gross amounts received
by ACS or any of its Affiliates or Sublicensees for sales of ACS Licensed
Products, less any trade and quantity discounts, rebates, and credit for
returned goods and cancellations, and shall exclude freight charges, taxes,
duties and the like, all to the extent that any of the foregoing may be actually
paid or allowed. Hereinafter, such reduction, discounts, credits and other
charges, taxes and duties shall be referred to collectively as "Deductions".

h. "Improvements" as used herein shall mean modifications of the
ACS Licensed Products, CVD Know-How and related devices and methods of use, to
the extent that same directly arise from technology covered by the MAC
Technology and/or CVD Patent Rights, and are dominated by one or more claims of
the CVD Patent Rights.

i. "Affiliate" as used herein shall mean any company or entity
which owns, or is at least fifty percent (50%) owned by, or is under common
ownership with, a party hereto.

4
<PAGE> 5
j. "Sublicensee" as used herein shall mean any sublicensee of the
license rights granted hereunder or of a license which is the subject of an
option granted hereunder.

k. "Effective Date" as used herein shall mean the date first
written above.

2. GRANT OF LICENSE TO ACS

a. Effective as of February 14, 1996 (the "Option Exercise Date"),
and subject to the terms and conditions set forth herein, CVD hereby grants to
ACS an exclusive, non-transferable, worldwide right and license, with the right
to sublicense the same as provided herein, in and to the MAC Technology to make,
have made, use and sell, or otherwise dispose of products, and practice
processes and methods thereunder.

3. DEVELOPMENT OF INVENTIONS

a. As between the parties, inventions or Know-How developed during
the term of this Agreement solely by one party shall be owned exclusively by
that party, regardless of any obligation of disclosure or licensing set forth
herein regarding same.

b. Inventions or Know-How relating to MAC Technology developed
jointly by the parties shall be jointly owned by the parties, and will be
included in the MAC Technology and licensed to ACS at no additional expense to
ACS, subject to the provisions of Paragraph 12 below.

5
<PAGE> 6
4. DISCLOSURE OF IMPROVEMENTS AND RIGHTS THERETO

If CVD conceives, develops, acquires, or otherwise obtains rights to any
improvements to the MAC Technology, CVD shall immediately notify ACS and
disclose each such improvement to ACS in writing, including all information
relating to, or necessary to practice the improvement.

5. RIGHTS AND OBLIGATIONS OF ACS

a. As of the Option Exercise Date, ACS shall have a credit against
future earned royalties of [*] dollars ($[*]).

b. ACS shall make the following non-refundable license fee payments
to CVD:

i. [*] dollars ($[*]) upon execution of this Agreement.

ii. [*] dollars ($[*]) upon U.S. Food and Drug
Administration ("FDA") approval of the first ACS Licensed Product.

iii. [*] dollars ($[*]) upon commercial U.S. market release
of the first ACS Licensed Product.

c. ACS shall pay a royalty of [*] percent ([*]%) of Net Revenues
from ACS Licensed Products covered by a Valid Claim of a patent included in the
CVD Patent Rights. If, in a particular country, there is no such patent but the
ACS Licensed Product

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 7
is covered by CVD Know-How, then ACS shall pay a royalty of [*] percent ([*]%)
of Net Revenues from such products for a period of [*] ([*]) years from the
first sale of such ACS Licensed Product in such country. Such royalty payments
shall be reduced by the amount of the credit set forth in subparagraph 5(a)
above.

d. Commencing in the calendar year in which commercial launch of
an ACS Licensed Product occurs, in each calendar year in which CVD has received
from ACS royalty payments of less than $[*] in respect of sales of ACS Licensed
Product in such year, ACS shall pay to CVD a minimum annual royalty equal to
the difference between the royalties actually paid to CVD by ACS in respect of
ACS Licensed Products during such year and [*] dollars ($[*]). However, during
the calendar year in which commercial launch of an ACS Licensed Product occurs,
the minimum annual royalty amount of such payment shall be pro rated (on a
monthly basis). Such payments shall be paid to CVD by January 31 of the
immediately subsequent calendar year.

6. MARKETING OF PERFUSION PRODUCTS

a. ACS shall exercise reasonable efforts to develop a commercially
viable ACS Licensed Product. In this regard the following shall apply:

i. If ACS, or an Affiliate or Sublicensee, has not
submitted a product incorporating the MAC Technology to the FDA
for approval within [*] ([*]) months after the Option Exercise
Date, ACS shall either pay the required [*] dollar ($[*])
advance royalty payment to CVD described in subparagraph
5(b)(ii) above, or shall [*] and [*]

* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL
PORTION HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 8
to CVD. Each of the parties shall have a royalty free and
paid-up license to practice improvements jointly developed by
the parties.

ii. If ACS, or an Affiliate or Sublicensee, has not released
a product covered by or incorporating the MAC Technology on the
U.S. market within [*] ([*]) days following FDA approval of such
a product, ACS shall either pay the required [*] dollar ($[*])
advance royalty payment to CVD described in subparagraph
5(b)(iii) above, or shall [*] and [*] to CVD. Each of the
parties shall have a royalty free and paid-up license to
practice improvements jointly developed by the parties.

The payments provided for in this subparagraph shall be in lieu of the similar
payments provided in paragraph 5(b)(ii) and (iii) above, and not in addition
thereto.

b. If the MAC Technology and the rights therein are transferred
back to CVD, improvements, know-how, technology, patent rights, and other
tangible and intangible property owned exclusively by ACS shall not be
transferred to CVD.

c. If the MAC Technology and the rights therein are transferred
back to CVD, CVD will pay to ACS royalties amounting to [*] percent ([*]%) of
Net Revenues from the sale of products incorporating MAC Technology until any
license fees and/or advance royalty payments made by ACS to CVD are repaid in
full.

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 9
d. In the event that ACS (exercising its sole discretion)
determines that an ACS Licensed Product is covered by one or more additional
license agreements with unaffiliated third parties and ACS is required to pay a
royalty to such third party in order to make, have made, use or sell a
particular ACS Licensed Product due to a blocking patent or other blocking
rights of third parties which would prevent practice of the MAC Technology but
for such license agreement(s), then the royalty rate at which payments are made
to CVD for that particular ACS Licensed Product shall be subject to a reduction
of [*] for each such additional license agreement. However, the royalty rate
for any ACS Licensed Product shall not, in any event, be less than [*] percent
([*]%) for products covered by CVD Patent Rights, and [*] percent ([*]%) for
those covered only by CVD Know-How. The reduction of royalty under this
subparagraph shall be subject to receipt by CVD of reasonable evidence (which
shall, at a minimum, include identification of the blocking patent and a
description of the manner in which the ACS Licensed Product would, absent such
third party agreement, be blocked) of the payment obligation to unaffiliated
third parties by ACS and ACS' compliance therewith.

7. DRUG DELIVERY CATHETER OPTION

a. If CVD develops one or more improved product concepts based on
combining features of both the MAC Technology and CVD drug delivery technology
in a single device, and CVD proceeds to the completion of in-vitro and in-vivo
animal testing for such a device, CVD shall present such data, prototype
device, and other information CVD deems reasonably required to evaluate the
feasibility of commercializing the device to ACS, together with an estimated
budget for the cost of additional development and trials for such device,
licensing fees therefor, and a projected

* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 10
timetable for completing such development. ACS shall have ninety (90) days from
receipt of such information to evaluate the device, make requisite inquiries for
further information and/or clarification, if required, and notify CVD that ACS
desires to license rights in and to such device (and the proprietary rights
therein) and pursue development of a commercial product based on such
information provided by CVD. During such time period, CVD agrees to entertain
different or modified terms proposed by ACS, and to discuss and/or negotiate in
good faith with ACS with respect to establishing the principle terms of a
license and development agreement regarding the commercial exploitation of such
device; provided, however, that if, within such ninety (90) day period the
parties have not agreed upon such terms (in a memorandum of understanding or
similar document) or ACS declines to exercise such option, then CVD shall be
free to exploit such device as permitted hereunder. If ACS responds
affirmatively within the ninety (90) day period and the parties have agreed upon
the principle terms of a license and development agreement regarding the
commercial exploitation of such device (and the proprietary rights therein), the
two parties shall, on an expedited basis (which shall in no event continue
beyond 60 days following notice to CVD to ACS' affirmative interest), exercise
commercially reasonable, good faith efforts to execute a written license and
development agreement regarding the commercial exploitation of such device (and
the proprietary rights therein) in accordance with such terms.

b. If the option to acquire rights to such a drug delivery
perfusion catheter system is not exercised by ACS, and a drug delivery product
employing MAC Technology is released to the market by CVD, Net Revenues to ACS
hereunder shall be reduced by the amount of like revenues, if any, received by
CVD from sales of such

10
<PAGE> 11
drug delivery catheters during the corresponding period of time for royalty
calculation and any resulting correction in royalties owed for that time period
shall be reflected by a Deduction of the requisite amount applied to a
subsequent quarter-annual royalty payment to CVD. ACS would in this later case
grant back to CVD a non-exclusive license in and to the MAC Technology so as to
enable CVD to make, use, sell and distribute said drug delivery perfusion
catheter system product; provided that CVD shall not disclose to a third party
confidential information of ACS without ACS' prior written consent.

8. OTHER LICENSE TERMS APPLICABLE

a. No royalty shall be payable for transfers (by sales or
otherwise) of ACS Licensed Products by ACS, or any of its Sublicensees or
Affiliates, to CVD, provided such transferred Licensed Product is subsequently
resold in a royalty-bearing transaction or is used clinically by ACS or its
Affiliates or Sublicensees in an experimental or other like setting where no Net
Revenues are generated.

b. In the event that ACS, or any of its Affiliate or Sublicensee,
markets the Licensed Product as part of a system or kit that incorporates or
includes other products that are not royalty-bearing Licensed Products, Net
Revenues for royalty purposes shall be computed using the average Net Revenues
per unit of the corresponding royalty-bearing product when sold separately. If
any royalty-bearing product is sold only as part of a system or kit that
includes other products that are not royalty-bearing, and corresponding
royalty-bearing products are not sold separately, then Net Revenues for royalty
purposes shall include and refer to only that part of such sale reasonably
allocable to the royalty-bearing product. In making such allocation, primary

11
<PAGE> 12
consideration shall be given to the added value accorded by the royalty-bearing
product to the kit as compared to the value if sold without it. In all such
cases the applicable Deductions as set forth above shall also be taken into
consideration in computation of the Net Revenues.

c. Each Licensed Product shall be marketed and sold on its own
merits in a manner consistent with the standard marketing practices of ACS.
However, the foregoing clause shall not restrict ACS from bundling or otherwise
combining Licensed Products with other products. If a Licensed Product is used
as an inducement to purchase other products of ACS, the basis on which the
royalties or share of Net Revenue are calculated for such Licensed Product
shall be calculated based on the fair market value price of the applicable
Licensed Product regardless of whether such Licensed Product is actually sold
below a fair market value price. If a fair market value price cannot otherwise
be established by the parties, a value added methodology such as that described
in paragraph 8(b) above shall be used to establish a royalty basis for such
Licensed Product.

9. PAYMENTS

a. Royalty payments shall be made to CVD within sixty (60) days
after the end of each calendar quarter during which royalties accrue. Each
payment shall be accompanied by a report that reflects at least (i) the
quantity of royalty-bearing products subject to reporting by virtue of
activities of ACS, and its Affiliates and sublicenses; (ii) Net Revenues
amounts; (iii) Deductions, if any, applied to determine Net Revenues; (iv) the
applicable royalty rate, and (v) the royalties computed and due to CVD. No
report shall be required for any calendar quarter prior to a quarter during
which royalties first

12
<PAGE> 13
accrue. Thereafter, a report shall be rendered for each calendar quarter
during the remaining term of this Agreement.

b. Royalties occurring on sales outside the United States shall be
converted to United States dollars, with conversion of foreign currency where
appropriate as of the last day of the royalty period based upon conversion
rates in effect at the close of business in New York on such day, as published
in the Wall Street Journal. The parties shall hold in confidence all
information reported with respect to royalty payments, and shall refrain from
disclosing such information to others, except as may be required internally for
management purposes and except as may be required by Federal and State law or
by governmental agencies.

c. ACS shall not be required to make any royalty payments in
contravention of the laws of any country, nor shall ACS be required to make a
royalty payment in the United States if ACS is unable to recoup the amount of
such royalty payments directly or indirectly from an entity within a country in
which the sales on which such payments are based is made. In each country where
the local currency is blocked or cannot be removed from the country, royalties
accrued in each such country shall be paid in such country in local currency
by deposit in a local bank designated by CVD.

10. RECORDS

ACS and CVD shall keep or cause the responsible Affiliate or
Sublicensee to keep true and accurate books and records with respect to all
sales of royalty-bearing products under this Agreement in accordance with
customary accounting principles and in a manner consistent with the accounting
methods employed throughout its business.

13
<PAGE> 14
Each of the parties shall have the right, at its own expense, through an
established and reputable independent representative, to examine the relevant
books and records of the other, or the responsible Affiliate or Sublicensee, at
any reasonable time during business hours within five (5) days after notifying
the other of its desire to do so. This examination shall take place no more
than once each year and shall cover no more than the preceding three (3)
calendar years. The examination shall be solely for the purpose of determining
the correctness of the reports and payments required to be made by a party
hereto and its Affiliates and Sublicensees. The independent representative
shall report only on the accuracy of such records and shall not disclose
specific entries to the extent otherwise disclosed in reports rendered as
provided hereunder. Any amount that is not paid when due shall bear interest
at the lesser of one percent (1%) per month or the maximum amount permitted by
applicable law. In the event that an examination determines that royalties in
any particular payment period have been under-reported by 5% or more, the party
that is the subject of such examination shall pay the costs, fees and expenses
of said independent representative.

11. TAXES

All taxes levied on account of royalties accruing under this Agreement
shall be paid by CVD. If laws or regulations require the withholding of taxes,
the taxes will be deducted by ACS from remittable royalty and shall be paid to
the proper taxing authority. Proof of payment shall be sent to CVD within
ninety (90) days following payment.

<PAGE> 15
12. PROSECUTION OF PATENTS

a. The cost of preparation and prosecution of the applications
included in the CVD Patent Rights shall be paid by ACS, and ACS shall have
control of the prosecution of such applications, whether by right of approval
regarding the actions of CVD counsel or by using ACS' own counsel in such
preparation and prosecution, as the parties mutually determine in each case;
provided that CVD shall have reasonable opportunity to review and comment on any
patent application prepared by ACS. If ACS determines that it does not wish to
control the prosecution of such a patent application in any individual case, ACS
shall have no obligation to pay the cost of prosecution or maintenance of such a
patent, but it shall notify CVD at least ninety (90) days prior to taking, or
not taking, any action which would result in the abandonment, withdrawal, or
lapse of any such patent or patent application. In such circumstance CVD shall
control the prosecution thereof, and may independently choose to not go forward
with prosecution (subject to notifying ACS, and the provisions of subparagraph
12(b) below) and in that event such patent shall not be included in the MAC
Technology, but ACS shall retain a non-exclusive license to practice any such
patent that is a joint invention of ACS and CVD as described under Paragraph 3
above. If CVD independently develops an improvement and ACS does not wish to
control or pay the cost of preparation or prosecution of a patent application
thereon, the application and any patent granted therefrom covering such
improvement shall not be included in the CVD Patent Rights.

b. If CVD elects not to file, prosecute or maintain any patent or
patent application relating to the CVD Patent Rights and Improvements
thereon, it shall notify ACS at least ninety (90) days prior to taking, or not
taking, any action which would

<PAGE> 16
result in the abandonment, withdrawal, or lapse of any such patent or patent
application. ACS shall then have the right to file, prosecute or maintain the
patent or patent application at its own expense, and any patent rights granted
thereon shall be solely owned by ACS, provided that CVD shall retain a
non-exclusive license to practice any such patent rights that are a joint
invention of ACS and CVD as described under Paragraph 3 above. Sales of ACS
Licensed Products in the country in which such patent application had been filed
or issued covered only by the claims of such patent rights owned by ACS shall
not be royalty-bearing to CVD.

c. The language of this subparagraph will also apply to Foreign
Counterparts. The parties shall, after consultation, determine the countries, if
any, where additional Foreign Counterparts will be prosecuted and maintained.
The parties shall keep each other reasonably informed of the status of all
patents included in the CVD Patent Rights and additional Foreign Counterparts
thereof which they have responsibility for hereunder.

d. Each party shall cooperate with the other party, as reasonably
requested, to execute all lawful papers and instruments and to make all rightful
oaths and declarations as may be necessary in the preparation and prosecution of
any and all such patents and patent applications. The party that is paying the
full cost of such preparation and prosecution shall also pay the reasonable
out-of-pocket costs of such cooperation by the non-paying party.

16
<PAGE> 17
13. INFRINGEMENT BY THIRD PARTIES

a. Each party will promptly notify the other party of any
infringement or possible infringement of any of the CVD Patent Rights. ACS shall
have the first right, but not the obligation, to prosecute infringement of the
MAC Technology and CVD Patent Rights. CVD shall cooperate as reasonably required
in such prosecution, and ACS shall bear the reasonable costs to CVD of such
cooperation.

b. If ACS fails to prosecute any such infringement within one
hundred eighty (180) days after receiving notice thereof, CVD shall have the
right, but not the obligation, to prosecute such infringement at its own
expense. In such event ACS shall cooperate fully with CVD, and CVD shall bear
the reasonable costs to ACS of such cooperation.

c. Any net recovery obtained by the prosecuting party as a result
of such proceedings, by settlement or otherwise, shall be retained by the
prosecuting party.

14. CONFIDENTIALITY

a. The parties contemplate that information may be disclosed to one
another under this Agreement which is confidential in nature. In this regard,
each party will maintain the confidential information of the other party in
confidence and shall not make use thereof, in whole or in part, except as
expressly authorized in this Agreement.

b. Except as specifically provided, and as may be reasonably
necessary to develop and market products and to enable Affiliates and
Sublicensees to make, have

<PAGE> 18
made, use and sell products licensed hereunder and to practice processes and
methods as contemplated herein, each of the parties shall refrain from
communicating (whether by disclosure or by providing access) any portion of the
confidential information of the other party to any other person, firm,
corporation or entity without first obtaining prior written permission from the
other party.

c. In recognition of the proprietary nature and value of the
confidential information and the likelihood of loss of business by the other
party in the event of unauthorized disclosure of its confidential information,
the parties agree that the obligations of this Paragraph shall continue unabated
regardless of expiration or termination of this Agreement for any reason, for a
period of not less than five (5) years from the effective date of such
expiration or termination. Neither party shall be obligated or required to
maintain in confidence any information which it can demonstrate with written
records:

i. is at the time in question in the public domain, or is
known to the receiving party prior to disclosure by the
disclosing party without breach of any obligation of confidence;
or

ii. is or has been furnished to the receiving party by a
third party not under a duty of confidentiality; or

iii. is required to be disclosed by Federal or State Law, by
a court of competent jurisdiction or by a governmental agency.

18
<PAGE> 19
15. NO DISCLOSURE WITHOUT CONSENT OR LEGAL REQUIREMENT

Neither party shall release any information to any third party with
respect to the terms of this Agreement without the prior written consent of the
other party (which consent shall not be unreasonably withheld). This
prohibition includes, but is not limited to, press releases, educational and
scientific conferences, promotional materials, and disclosures to (or
discussions with) the media. It is understood, however that the parties shall
have the right, in the exercise of reasonable business judgment, to provide
required information (but which, with respect to patent applications and the
information contained therein, shall only be provided to outside counsel without
the prior written consent of the other party) concerning this Agreement to
investors and potential investors, and to Affiliates and potential Sublicensees
in order to enable them to carry out the activities contemplated hereunder and
as each may determine, in its reasonable judgment, to be required by law. Each
party agrees to notify the other party of its intention to disclose such
information to a third party (but not the identity of the third party).

16. TERM

This Agreement shall become effective on the Effective Date and shall
continue, subject to earlier termination in accordance with other terms of this
Agreement until the expiration of the last to expire of the licensed patents
included in the CVD Patent Rights.

17. TERMINATION

a. In the event that either of the parties breaches any of the
terms or conditions of this Agreement including the obligation to pay royalties
thereunder, the

19
<PAGE> 20
other party may terminate this Agreement by giving at least sixty (60) days
advance written notice, specifying the act or omission on which such termination
is based. Should such breach be remedied within sixty (60) days of such
notice, this Agreement shall remain in force, subject to continued compliance
with all of the terms, conditions and limitations of this Agreement. Otherwise
this Agreement shall automatically terminate at the end of such notice period.

b. ACS, without affecting the rights of CVD, shall have the right
to terminate its licenses under this Agreement, with or without cause, by
giving thirty (30) days notice to CVD of its intent to terminate.

c. Termination of any license granted under this Agreement shall
not deprive either party of accrued rights including CVD's right to collect
royalties on sales made prior to termination. Upon termination of this
Agreement, ACs shall have the right to sell products licensed hereunder it has
in its inventory. Such sales shall be subject to the obligations to pay royalty
provided for hereunder. All other rights and obligations of the parties,
including the obligations of confidentiality accruing prior to termination or
expiration of this Agreement, shall survive such termination or expiration.

18. COMPLIANCE WITH LAWS

a. The parties shall comply with all prevailing laws, rules and
regulations pertaining to the development, testing, manufacture, marketing,
promotion and import or export of ACS Licensed Products.

20
<PAGE> 21
b. ACS will be responsible for obtaining, at its cost and expense,
all governmental approvals required to market ACS Licensed Products.

19. REPRESENTATIONS AND WARRANTIES

CVD represents and warrants to ACS that it has the right to grant the
licenses and rights granted herein and has full right and title to the patent
rights and inventions included in the CVD Patent Rights, and that, to the best
of its knowledge, no other person or entity has a claim or right to any aspect
or part of the CVD Patent Rights, and that it has the unencumbered right to
grant the licenses and rights granted in this Agreement, and that no other
license, assignment, sale, agreement or encumbrance has, or will, be made or
entered into which would conflict with this Agreement. CVD represents and
warrants that, to its actual knowledge, based on its written records and
without regard to patents in its possession that have not undergone substantive
review, it is unaware of: (i) any basis on which CVD Patent Rights, or any
portion thereof, are invalid or unenforceable; or (ii) any claims or right of
any third party that could be infringed by practice of the MAC Technology.

20. INDEMNITY

a. Each of the parties shall be responsible for its own errors and
omissions and indemnifies, and agrees to defend and hold harmless, the other
and its officers, directors, professional staff, employees, and agents, and any
of their respective Affiliates, Sublicensees, respective successors, heirs and
assigns (the "Indemnities"), against any claim, demand, liability, damage,
loss, judgment or expense (including reasonable attorneys fees and expense and
out-of-pocket litigation expense) incurred by or imposed upon the Indemnities
arising out of its own activities hereunder (including

21
<PAGE> 22
actions in tort, warranty or strict liability) except and to the extent due to
negligence of the other party. Each of the parties shall notify the other
promptly of any claim, demand, suit or action arising out of any activity
hereunder, whether or not the subject of the indemnity herein, and each shall
cooperate as reasonably required in the defense of the matter, and the other
shall bear the reasonable out-of-pocket cost of such cooperation. The
indemnifying party shall have sole control over any litigation or settlement
thereof for which it is responsible under this Paragraph, and it shall not be
required to pay any amount of any settlement to which it has not given its prior
written consent.

b. NEITHER PARTY SHALL BE LIABLE WITH RESPECT TO ANY SUBJECT
MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR
OTHER THEORY FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES.

21. RELATIONSHIP OF THE PARTIES

It is understood that the parties hereto are independent contractors
engaged in the conduct of their own respective endeavors. Neither ACS nor CVD
are to be considered the agent or employee of the other for any purpose, and no
party hereto has the right or authority to enter into any contract or assume
any obligation for the other or give any warranty or make any representation on
behalf of another party except where and to the extent specifically authorized
in writing to do so.

<PAGE> 23
22. ASSIGNMENT

This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors and assigns, provided, however, that except
as set forth in the next sentence, neither party may assign any obligation to
provide services hereunder, in whole or in part, without the prior written
consent of the other party except in connection with a merger, reorganization
or sale of all of substantially all of the assets of such party.
Notwithstanding any other provision to the contrary in this Agreement or the
Prior Agreement (as defined below), ACS shall have the right to assign its
rights and obligations under this Agreement to Guidant Corporation. ACS shall
provide CVD with written notice of any such assignment within 30 days of making
such assignment.

23. FORCE MAJEURE

In the event any party hereto is prevented or is otherwise unable to
perform any of its obligations under this Agreement due to fire, flood,
earthquake, war, strikes, lockouts, labor troubles, failure of public
utilities, injunctions, or other events beyond the reasonable control of the
party affected, the affected party shall give notice promptly to the other
party in writing and, thereupon, the affected party's nonperformance shall be
excused and the time for performance of this Agreement shall be extended for
the period of delay or inability due to such Force Majeure.

24. AMENDMENT

Except as otherwise provided herein, this Agreement may not be amended,
supplemented, or otherwise modified except by an instrument in writing signed
by authorized representatives of CVD and ACS.

23
<PAGE> 24
25. NO STRICT CONSTRUCTION

This Agreement has been prepared jointly and shall not be strictly
construed against any party.

26. WAIVER

No waiver of any term, provision, or condition of this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be construed as a further or continuing waiver of such term, provision or
condition of this Agreement.

27. COUNTERPARTS

This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one and
the same instrument.

28. GOVERNING LAW

This Agreement shall be construed in accordance with the laws of the
State of California without reference to choice of law principles, as to all
matters, including, but not limited to, matters of validity, construction,
effect or performance. The venue for resolution of disputes hereunder, shall
be the courts located in Santa Clara County, California.

29. NOTICE

a. Any notice, report or statement to either party required or
permitted under this Agreement shall be in writing and shall be sent by
certified mail, return

24
<PAGE> 25
receipt requested, postage prepaid, or facsimile transmission with confirmation
sent by certified mail above, or by courier, such as Federal Express, DHL, or
the like, with confirmation of receipt by signature requested, directed to the
other party at its mailing address set forth below, or to such other mailing
address as the respective parties may from time to time designate by prior
notice in compliance herewith:

ACS: Advanced Cardiovascular Systems, Inc.
3200 Lakeside Drive
P.O. Box 58167
Santa Clara, CA 95052-8167
Fax: (408) 235-3987
Attn.: General Counsel

CVD: CardioVascular Dynamics, Inc.
13844 Alton Parkway, Suite 140
Irvine, CA 92718
Fax: (714) 457-9561
Attn.: Michael R. Henson, Chairman & CEO

b. Any such notice, report or statement sent in accordance with the
requirements of Subparagraph a. above shall be deemed to be fully given upon
dispatch, subject to proof of receipt.

30. SEVERABILITY

If any term or provision of this Agreement, or the application thereof
to any person or circumstance, shall to any extent be held invalid or
unenforceable under any controlling law, that provision shall be considered
severable and its invalidity shall not affect the remainder of this Agreement,
which shall continue in full force and effect. The parties shall there upon
negotiate in good faith a term there specifically declare that they would have
entered into this carrying out, insofar as possible, the intention of severed
term.

25
<PAGE> 26
31. CAPTIONS

Captions are inserted herein only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this Agreement
or the intent of any provision herein.

32. SOLE UNDERSTANDING

This Agreement and the Prior Agreement set forth the entire agreement
and understanding between the parties as to the subject matter hereof and
thereof, and supersede, integrate and merge all prior discussions,
correspondence, negotiations, understandings or agreements. The parties each
represent and warrant that there are no conditions, definitions, warranties,
promises, agreements, understandings or representations or remaining
obligations, written or oral, with respect to the subject matter of this
Agreement or the Prior Agreement, other than as expressly provided in this
Agreement or the Prior Agreement, or as the same may subsequently be amended in
writing by mutual agreement duly executed by the affected parties hereto. This
Agreement supersedes Sections 2a, 2c, 4a, 6a, 6c, 6d, 6e, 7, 8 and 34 of the
Prior Agreement. If there are any inconsistencies between the terms of the
remaining Sections of the Prior Agreement and the terms of this Agreement, the
terms of this Agreement shall prevail. Except as superseded by this Agreement,
the remaining terms of the Prior Agreement remain in full force and effect.

<PAGE> 27
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in duplicate originals effective as of the day and year first above
written.

CardioVascular Dynamics, Inc.

By: [SIG]
-----------------------------------
Michael R. Henson,
Chairman and CEO

ATTEST: [SIG] Date: March 4, 1996
---------------------------- ---------------------------------

Advanced Cardiovascular Systems, Inc.

By: [SIG]
-----------------------------------
Peter McInnes.
Vice President

ATTEST: [SIG] Date: March 4, 1996
---------------------------- ---------------------------------

27
<PAGE> 28
EXHIBIT A

License Agreement Between

CardioVascular Dynamics

and

Advanced Cardiovascular Systems, Inc.

(Relevant CVD Patents and Applicants)

U.S. APPLICATIONS AND PATENTS

Patent N. 5,344,402 issued September 6, 1994 on U.S. Application 08/084,820
filed June 30, 1993, with an Interventional PCT application filed June 1994

No. 08/208,617 filed March 8, 1994 - Amendment filed 1/11/96, Notice of
Allowance

FOREIGN APPLICATIONS AND PATENTS

Foreign Counterparts filed in Japan, Belgium, France, Germany, Great Britain
and The Netherlands in December 1994 on U.S. Application No. 08/084,820

08/357,420 - Notice of Allowance, Issue Fee Paid 2/7/96

08/357,401 - Filed 12/16/94

<PAGE> 1

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to use of our report dated March 15, 1996,
except for Note 11, as to which the date is May 13, 1996 in Amendment No. 3 to
the Registration Statement (Form S-1) and related Prospectus of CardioVascular
Dynamics, Inc. for the registration of 3,910,000 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

ERNST & YOUNG LLP

Palo Alto, California

June 18, 1996