<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended September 30, 1998.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ______ to ______
Commission file number 0-28440
CARDIOVASCULAR DYNAMICS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 68-0328265
<S> <C>
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification Number)
</TABLE>
13700 Alton Parkway, Suite 160, Irvine, California 92618
(Address of principal executive offices)
Registrant's telephone number, including area code (949) 457-9546
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceeding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
On November 4, 1998, the Registrant had outstanding approximately 9,537,000
shares of Common Stock (including 686,000 of treasury shares) of $.001 par
value, which is the Registrant's only class of Common Stock.
<PAGE> 2
CARDIOVASCULAR DYNAMICS, INC.
Form 10-Q
September 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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Part I. Financial Information
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed consolidated balance sheets at September 30, 1998 and
December 31, 1997 3
Condensed consolidated statements of operations for the three
and nine months ended September 30, 1998 and 1997 4
Condensed consolidated statements of cash flows for the nine
months ended September 30, 1998 and 1997 5
Notes to condensed consolidated financial statements 6
Item 2. Management's discussion and analysis of financial condition
and results of operations 11
Part II. Other Information
Items 1 through 6. 19
Signatures 22
Exhibit Index 23
</TABLE>
<PAGE> 3
CARDIOVASCULAR DYNAMICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 3,627 $ 6,141
Marketable securities available-for-sale 23,301 24,773
Trade accounts receivable, net 2,204 2,752
Other receivables 327 282
Inventories 2,334 3,205
Other current assets 296 163
-------- --------
Total current assets 32,089 37,316
Property and equipment, net 1,537 1,550
Notes receivable from officers 127 273
Goodwill 2,288 1,809
Other assets 251 413
-------- --------
Total Assets $ 36,292 $ 41,361
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,274 $ 1,374
Accrued payroll and related expenses 791 1,162
Other accrued expenses 1,067 952
Deferred license revenue 400 --
-------- --------
Total current liabilities 3,532 3,488
Minority interest 910 --
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par value;
7,560,000 shares authorized, no shares issued and
outstanding -- --
Common stock, $.001 par value; 30,000,000 authorized,
9,533,000 shares and 9,389,000 shares outstanding as of
September 30, 1998 and December 31, 1997, respectively 10 9
Additional paid-in capital 60,679 60,371
Deferred compensation (469) (634)
Accumulated deficit (25,014) (19,821)
Treasury stock at cost, 686,000 and 345,000 common
shares as of September 30, 1998 and December 31, 1997,
respectively (3,675) (2,205)
Unrealized gains on available-for-sale securities 164 176
Unrealized exchange rate gain (loss) 155 (23)
-------- --------
Total stockholders' equity 31,850 37,873
-------- --------
Total Liabilities and Stockholders' Equity $ 36,292 $ 41,361
======== ========
</TABLE>
See accompanying notes
3
<PAGE> 4
CARDIOVASCULAR DYNAMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1998 1997 1998 1997
-------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenue:
Sales $ 2,108 $ 2,569 $ 7,031 $ 8,943
License revenue 1,205 -- 1,605
-------- -------- -------- --------
Total revenues 3,313 2,569 8,636 8,943
Cost of sales 1,692 1,405 4,339 4,392
-------- -------- -------- --------
Gross profit 1,621 1,164 4,297 4,551
Operating expenses:
Research, development and clinical 1,579 1,595 5,038 3,507
Marketing and sales 1,238 1,802 3,801 4,838
General and administrative 665 464 1,855 1,265
Minority interest (68) -- (68) --
-------- -------- -------- --------
Total operating expenses 3,414 3,861 10,626 9,610
-------- -------- -------- --------
Loss from operations (1,793) (2,697) (6,329) (5,059)
Other income (expense):
Interest income 395 577 1,202 1,727
Other income (expense) 29 54 (66) 79
-------- -------- -------- --------
Total other income 424 631 1,136 1,806
======== ======== ======== ========
Net loss ($ 1,369) ($ 2,066) ($ 5,193) ($ 3,253)
======== ======== ======== ========
Basic and diluted net loss per share ($ 0.16) ($ 0.23) ($ 0.59) ($ 0.36)
======== ======== ======== ========
Shares used in computing basic and
diluted net loss per share 8,854 9,107 8,857 9,098
======== ======== ======== ========
</TABLE>
See accompanying notes
4
<PAGE> 5
CARDIOVASCULAR DYNAMICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
------------ ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 5,193) ($ 3,253)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 359 248
Amortization of deferred compensation 190 93
Bad debt expense 190 36
Minority interest in losses of Radiance (68) --
Changes, net of effects from purchase of Radiance and Clinitec:
Trade accounts receivable, net 359 (433)
Inventories 871 (1,229)
Other assets (81) (154)
Accounts payable and accrued expenses (322) (2,483)
Deferred revenue 400 (29)
-------- --------
Net cash used in operating activities (3,295) (7,204)
Cash flows provided by (used in) investing activities:
Purchase of available-for-sale securities (32,444) (31,518)
Sales of available-for-sale securities 33,904 24,474
Capital expenditures for property and equipment
and other assets (311) (702)
Purchase of controlling interest in Radiance,
net of cash acquired 577 --
Purchase of Clinitec, net of cash acquired -- (30)
-------- --------
Net cash provided by (used in) investing activities 1,726 (7,776)
Cash flows used in financing activities:
Proceeds from sale of common stock 180 436
Proceeds from exercise of common stock options 112 204
Proceeds from exercise of common stock warrants 390
Proceeds from repayment of affiliate debt 233 --
Purchase of treasury stock (1,470) (1,450)
-------- --------
Net cash used in financing activities (945) (420)
-------- --------
Net decrease in cash and equivalents (2,514) (15,400)
Cash and equivalents, beginning of period 6,141 17,192
-------- --------
Cash and equivalents, end of period $ 3,627 $ 1,792
======== ========
Supplemental schedule of non-cash investing and
financing activities:
The Company exercised preferred stock warrants bringing
its ownership of Radiance to 50%. In conjunction with
the assumption of control of Radiance, the following
liabilities were assumed:
Fair value of assets acquired $ 1,535 --
Cash paid for capital stock (1,462) --
-------- --------
Liabilities assumed $ 73 --
======== ========
The Company purchased all of the capital stock of Clinitec
for $30. In conjunction with the acquisition, the
Company forgave $1,630 in debt and assumed the following
liabilities:
Fair value of assets acquired -- $ 401
Cash paid for capital stock -- (30)
-------- --------
Liabilities assumed -- $ 371
======== ========
</TABLE>
See accompanying notes
5
<PAGE> 6
CARDIOVASCULAR DYNAMICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
1. Basis of Presentation
Cardiovascular Dynamics, Inc. and subsidiaries ("CVD" or the "Company") design,
develop, manufacture and market catheters and stents used to treat certain
vascular diseases. The accompanying condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine month
periods ended September 30, 1998 are not necessarily indicative of results that
may be expected for the year ending December 31, 1998 or any other period. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
2. Net Loss Per Share
As of December 31, 1997, the Company adopted the Financial Accounting Standards
Board Statement No. 128, Earnings per Share. Statement No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share.
3. Inventories
Inventories are stated at the lower of cost, determined on an average cost
basis, or market value. Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Raw materials $ 866,000 $1,285,000
Work-in-process 234,000 165,000
Finished goods 1,234,000 1,755,000
---------- ----------
$2,334,000 $3,205,000
========== ==========
</TABLE>
6
<PAGE> 7
CARDIOVASCULAR DYNAMICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Deferred License Revenue
In June of 1998, the Company signed a technology license agreement with Guidant
Corporation, an international interventional cardiology products company, to
grant them the ability to manufacture and distribute stent delivery products
using the Company's focal technology. Under the Agreement, the Company is
entitled to receive certain milestone payments based upon the transfer of the
technology to Guidant, and royalty payments based upon the sale of products
using the focal technology. An initial license payment of $2.0 million was
received by the Company upon the signing of the Agreement. Based upon the
completion of certain initial technology transfer milestones, the Company
recognized $1.2 million and $1.6 million in license revenue in the third quarter
and first nine months of 1998, respectively, and will recognize the remaining
$0.4 million of deferred license revenue in future periods. In October of 1998,
the Company received another $1.0 million license milestone payment upon the
completion of the technology transfer to Guidant.
5. Recent Accounting Pronouncements
For the year beginning January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
("Statement No. 130"). Statement No. 130 establishes standards for reporting and
displaying comprehensive income and its components with the same prominence as
other financial statement information. For the periods ending September 30, 1998
and 1997, the changes in the components of comprehensive income were not
materially different than the reported net loss.
For the year beginning January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, which concerns disclosures about
Segments of an Enterprise and Related Information ("Statement No. 131").
Statement No. 131 establishes standards for the way that public business
enterprises report selected information about operating segments in annual and
interim financial statements. However, as the Company operates in one business
segment, no additional interim reporting is required under Statement No. 131.
In March 1998, the AICPA issued SOP 98-1, Accounting for the Costs of Computer
Software Developed for or Obtained for Internal Use. The SOP is effective
7
<PAGE> 8
CARDIOVASCULAR DYNAMICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. Recent Accounting Pronouncements (continued)
beginning January 1, 1999 and requires the capitalization of certain costs
incurred after the date of adoption in connection with developing or obtaining
software for internal use. The Company currently expenses such costs, and it
anticipates that the impact of the SOP will not be material on its results of
operations or financial position for the foreseeable future as amounts expended
to develop or obtain software have not been and are not expected to be material.
6. Acquisitions
In September 1998, the Company exercised warrants to purchase an additional
1,500,000 Preferred Series B shares in Radiance Medical Systems, Inc.
("Radiance") for $0.975 per share or a total of $1.5 million, bringing CVD's
ownership of the outstanding equity of Radiance to above 50%. Radiance was
incorporated in August 1997 to develop radiation products to treat restenosis
based on CVD's patented focal delivery systems technology. In consideration for
the granting by CVD of a license to this technology, Radiance issued to CVD
750,000 shares of Series B Preferred Stock, a Warrant to purchase 1,500,000
shares of Series B Preferred Stock, rights of first offer with respect to the
commercialization of Radiance's products, and a promise to receive royalties on
sales of products based upon the licensed technology.
In November 1998, the Company signed a definitive merger agreement with
Radiance, whereby CVD will acquire all of the outstanding shares which it does
not already own, subject to the approval of the shareholders of both companies.
Under the terms of the agreement, on the effective date of the merger, CVD will
pay the shareholders of Radiance $3.00 for each share of Preferred Stock and
$2.00 for each share of Common Stock for a total consideration of approximately
$7.0 million, excluding the value of CVD stock options to be provided to
Radiance employees in exchange for their Radiance stock options. The Radiance
common stock options outstanding immediately prior to the closing of the merger
will accelerate, vest and be converted into an option to acquire $2.00 of CVD
Common Stock. In addition, Radiance share and option holders may receive product
development milestone payments of $2.00 for each share of Preferred Stock and
$3.00 for each share of Common Stock. The aforementioned development milestone
payments may be increased up to 30%, or reduced or eliminated if the milestones
are reached earlier or later, respectively, than the milestone target dates.
Lastly, the merger consideration paid is subject to certain price adjustment and
collar provisions and, at CVD's option,
8
<PAGE> 9
CARDIOVASCULAR DYNAMICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. Acquisitions (continued)
CVD may pay up to 30% of the consideration due to Radiance Preferred
shareholders in cash.
Proforma combined results of the Company and Radiance for the three and nine
month periods ended September 30, 1998, on the basis that the acquisition had
taken place at the beginning of 1998, would have reported the following:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1998
------------------- -------------------
<S> <C> <C>
Pro forma Revenues $ 3,313,000 $8,636,000
Pro forma Net Loss (1,542,000) (5,638,000)
Pro forma Net Loss
Per Share (0.17) (0.64)
</TABLE>
Operating results for Radiance for the period from inception in August 1997 to
September 30, 1997 were immaterial; therefore, pro forma operating results are
not presented for the quarter and nine month periods ending September 30, 1997.
In July 1997, the Company acquired its independent distributor in Germany and
Switzerland, Clinitec GmbH ("Clinitec"). In exchange for the assumption of the
assets and liabilities of Clinitec, including bank debt of $0.3 million, the
Company acquired all of the common stock of Clinitec. At the time of the
acquisition, Clinitec had a deficiency in stockholder's equity of approximately
$0.5 million.
Pro forma combined results of the Company and Clinitec for the three and nine
month periods ended September 30, 1997 on the basis that the acquisition had
taken place at the beginning of 1997, would have reported the following:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1997
------------------- -------------------
<S> <C> <C>
Pro forma Revenues $ 2,627,000 $9,263,000
Pro forma Net Loss (2,201,000) (3,945,000)
Pro forma Net Loss
Per Share (0.24) (0.43)
</TABLE>
9
<PAGE> 10
CARDIOVASCULAR DYNAMICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. Other Significant and Subsequent Events
In October 1998, the Company signed a letter of intent to sell its Vascular
Access Business Unit to Escalon Medical Corporation. Under the terms of the
letter of intent, CVD will receive an initial payment upon the signing of an
agreement to sell the business, a milestone payment upon the transferring of the
assets and technology, and royalty payments upon the sale of products for a
five-year period following the execution of the agreement. The sale is subject
to various conditions, including the negotiation and execution of a definitive
sale agreement.
In July 1996, the Company and Medtronic, Inc. ("Medtronic") entered into a
written OEM agreement ("Agreement") pursuant to which Medtronic was to purchase
certain angioplasty balloon catheters and related components from the Company.
In May 1997, Medtronic advised the Company of its election to not make minimum
purchases of product for the second year of the Agreement. This dispute
adversely affected the Company's financial results for the quarter and
nine-month period ended September 30, 1997 and the three and nine-month periods
ended September 30, 1998.
10
<PAGE> 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All statements other than statements of historical fact included in this Report
on Form 10-Q are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. The Company intends that such forward-looking statements be subject to the
safe harbors created thereby. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable at this
time, it can give no assurance that such expectations will prove to have been
correct. The Company makes no undertaking to correct or update any such
statements in the future. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements") are
set forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" as well as in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
Overview
Since its inception in 1992, CardioVascular Dynamics, Inc. has engaged primarily
in the research and development of products for the treatment of cardiovascular
disease. The Company's financial results will be affected in the future by
several factors, including the timing of any FDA approval to market the
Company's products, FDA approval of IDE sites and the number of patients
permitted to be treated, future changes in government regulations and third
party reimbursement policies applicable to the Company's products, the progress
of competing technologies and the ability of the Company to develop the
manufacturing and marketing capabilities necessary to support commercial sales.
As a result of these factors, revenue levels, gross margins and operating
results may fluctuate materially from quarter to quarter.
On July 15, 1996, the Company entered into co-distribution agreements with
Medtronic, providing for the co-distribution of the Company's FACT, CAT and ARC
balloon angioplasty catheters. Under the terms of these agreements, Medtronic
was to purchase a minimum number of angioplasty catheters manufactured by the
Company for distribution worldwide for a period of up to three years. Specific
products to be distributed by Medtronic would differ in individual country
markets. The initial term of the Medtronic agreements was for a period of three
years from the date of first delivery of a product. In May of 1997, Medtronic
advised the Company of its election to not make minimum purchases of product for
the second year of the
11
<PAGE> 12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
agreement. In June 1997 Medtronic informed CVD that it would not fulfill its
commitment for the first year of the agreement and that it did not believe it
was required to fulfill such commitment. This dispute adversely affected the
Company's financial results for the quarter and nine-month periods of 1997 and
1998.
In June 1998, the Company signed a technology license agreement with Guidant
Corporation, an international interventional cardiology products company, to
grant them the ability to manufacture and distribute products using the
Company's focal technology. Under the terms of the Agreement, the Company is
entitled to receive certain milestone payments based upon the transfer of the
technological knowledge to Guidant, and royalty payments based upon the sale of
products using focal technology by Guidant. See Note 4 to the Condensed
Consolidated Financial Statements.
In August 1997, CVD incorporated Radiance Medical Systems, Inc. ("Radiance") to
focus on the development of radiation technology for treating and preventing
restenosis based on CVD's patented focal delivery systems technology. In
September 1997, Radiance issued to CVD 750,000 shares of Series B Preferred
Stock, a warrant to purchase an additional 1,500,000 shares of Series B
Preferred Stock at a price equal to the lower of: (i) $2.05 per share, or (ii)
One and one-half times the per share price of Radiance stock sold in its then
most recent equity financing. In addition, Radiance granted to CVD the rights of
first offer with respect to the commercialization of Radiance's products, and
promised the payment of royalties on sales of products based upon the licensed
technology.
In September 1998, the Company exercised its warrant to purchase 1,500,000
Series B Preferred of Radiance, bringing CVD's ownership of the outstanding
equity of Radiance to above 50%.
In November 1998, the Company signed a definitive merger agreement with
Radiance, whereby CVD will acquire all of the outstanding shares it does not
already own, subject to the approval of the shareholders of both companies.
Under the terms of the Agreement, on the effective date of the merger, CVD will
pay the shareholders of Radiance total consideration of approximately $7.0
million, excluding the value of CVD options to be issued to Radiance employees
in exchange for their Radiance stock options. Radiance Common Stock Options
outstanding immediately prior to the closing of the merger will accelerate, vest
and be converted into an option to acquire $2.00 of CVD Common Stock for an
aggregate value of approximately $1.1 million. In addition, Radiance share and
option
12
<PAGE> 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
holders may receive product development milestone payments of $2.00 for each
share of Preferred Stock and $3.00 for each share of Common Stock. The milestone
payments may be increased up to 30%, or reduced or eliminated if the milestones
are reached earlier or later, respectively, than the milestone target dates. See
Note 6 to the Condensed Consolidated Financial Statements.
Results of Operations
Third quarter of 1998 compared to the same period in 1997
Revenue for the third quarter of 1998 increased 29% to $3.3 million compared to
$2.6 million for the third quarter of 1997. The increase resulted primarily from
$1.2 million in license revenue recognized in the third quarter of 1998. Product
revenues decreased 18% to $2.1 million compared to $2.6 million for the third
quarter of 1997. The decrease was primarily attributable to lower domestic sales
as co-exclusive rights to sell focus technology products in the domestic market,
along with the technology license, were transferred to Guidant under
aforementioned license agreement, and secondarily attributable to the turnover
of certain distributor relationships in Europe.
The gross profit percentage for the third quarter of 1998 increased to 49%
compared to 45% of revenues for the same period of 1997. The increase is
attributable primarily to the inclusion in revenues for the third quarter of
1998 product license fees of $1.2 million that had no associated cost of sales,
offset by the recognition of $0.5 million in inventory obsolescence reserves.
Research, development and clinical expenses were $1.6 million in the quarters
ended September 30, 1998 and 1997. During the quarter, the company continued
efforts to develop its SEAL technology stent products and expects the
expenditures to increase in the fourth quarter and in 1999 as the technology is
developed for clinical trials. The SEAL technology involves a new concept in
vascular stenting and is designed to line a significant portion of the diseased
vessel wall with metal to attempt to reduce restenosis. At any time during the
development process, work on this technology could be halted or restarted under
a different design, for example, unless the efficacy of the design and
technology is proven at each stage of its development. There is no certainty
that the technology will ever reach the market or produce material sales due to
many risks, including competitor development of superior technologies or
products, an unrecoverable product cost, lack of product
13
<PAGE> 14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
reimbursement, the uncertainty of regulatory approval and other factors
mentioned below concerning the risks associated with CVD's operations within
this market.
Marketing and sales expenses decreased 31% to $1.2 million, down $0.6 million in
the quarter ended September 30, 1998, compared to $1.8 million in the same
period of 1997. This decrease primarily reflects reductions in the Company's
domestic sales force and related expenses.
General and administrative expenses increased by 43% to $0.7 million for the
quarter ended September 30, 1998, from $0.5 million for the same quarter in
1997. The increase was due primarily to additions to the allowance for
uncollectible accounts receivable and the salary expense of an additional
executive officer.
Interest income decreased 32% to $0.4 million in the third quarter of 1998 from
$0.6 million for the same period of 1997. The decrease was due primarily to the
use of funds for operations and, secondarily, due to the purchase of property
and equipment and treasury stock, resulting in a reduction in cash and cash
equivalents and marketable securities of 45% ($10.6 million) from September 30,
1997 to September 30, 1998, excluding the cash of Radiance.
First nine months of 1998 compared to the same period of 1997
Revenue for the first nine months of 1998 decreased 3% to $8.6 million compared
to $8.9 million for the same period of 1997. The revenue decrease was primarily
due to the change in product revenues, which decreased 21% to $7.0 million in
the first nine months of 1998 compared to $8.9 million for the same period in
1997. The decrease resulted primarily from sales to one large former
international distributor of approximately $1.5 million made in the first nine
months of 1997. Revenue for the first nine months of 1998 included $1.6 million
from certain product licensing fees paid by Guidant Corporation.
The gross profit percentage for the first nine months of 1998 decreased to 50%
compared to 51% for the same period of 1997. Although revenue for the first nine
months of 1998 included $1.6 million from licensing fees that had no associated
cost of sales, the gross profit percentage decreased, compared with the same
period of 1997, primarily due to increases in the Company's provision for
inventory obsolescence.
Research, development and clinical expenses increased by 44% to $5.0 million in
the nine-month period ended September 30, 1998 from $3.5 million in the same
period
14
<PAGE> 15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
ended September 30, 1997. The primary reason for this increase was additional
spending on development of the Company's new SEAL technology stent products and
increased spending on clinical trials for these products.
Marketing and sales expenses declined 21% to $3.8 million, from $4.8 million in
the nine month period ended September 30, 1997. This decrease primarily reflects
reductions in the Company's domestic sales force and related expenses.
General and administrative expenses increased by 47% to $1.9 million for the
nine months ended September 30, 1998 from $1.3 million for the same period in
1997. The increase was due primarily to additions to the allowance for
uncollectible accounts receivable and the salary expense of an additional
executive officer.
Interest income declined to $1.2 million in the first nine months of 1998
compared with $1.7 million in the same period of 1997. The decrease was due to a
reduction of $10.6 million in cash and cash equivalents and marketable
securities since September 30, 1997, excluding the cash of Radiance, due to the
use of funds for operations, the purchase of treasury stock and capital
expenditures.
The Company has experienced an operating loss for each of the last five years.
After considering the anticipated operating losses of Radiance, the Company
expects to continue to incur consolidated operating losses through at least
2000, 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
15
<PAGE> 16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
there can be no assurance that the Company will be able to achieve or maintain
profitability in the future.
The Company has completed an assessment, has upgraded, and must upgrade portions
of its hardware and software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. Of the total Year 2000
project cost estimated at $15,000, approximately $5,000 has been expended and
future expenditures for upgrades and other project costs are not expected to
exceed said estimate by a material amount. The project is estimated to be
completed not later than December 31, 1998, which is prior to any anticipated
impact on the operating systems.
In addressing the Year 2000 Issue, the Company will also be contacting its
vendors and customers to assess the impact that they will have on the Company's
operations and whether the Company will be able to meet their needs. Based upon
our assessment of the Company's systems and software, we believe that the
planned system enhancements and upgrades should prevent related problems that
could affect our ability to supply or service our customers. However, there can
be no assurance that all of our systems and software will be Year 2000 ready.
There is also no assurance that our vendor's systems and software will be Year
2000 ready. In an effort to prepare for any vendor problems we will be
attempting to identify alternative supply sources. However, there can be no
assurance that the alternative sources will be Year 2000 ready or be able to
provide the same level of service and supply as our current vendors. Even if the
Company's project to be Year 2000 ready is completed by the end of 1998, there
can be no assurance that such plans will be sufficient to address any third
party failures or that unresolved or undetected internal and external Year 200
issues will not have a material adverse affect on the Company's business,
financial condition and results of operations.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations primarily through
the sale of its equity securities. Prior to the Company's initial public
offering on June 19, 1996, the Company raised approximately $11.4 million from
the private sales of preferred and common stock and $2.7 million in working
capital advances from Endosonics Corporation (CVD's former parent company). The
Company repaid Endosonics Corporation during the third quarter of 1996.
16
<PAGE> 17
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
On June 19, 1996, the Company closed its initial public offering, which
consisted of the sale of 3,400,000 shares of common stock at $12.00 per share.
On July 17, 1996, the Company's underwriters exercised their overallotment
option to purchase an additional 510,000 shares of common stock at $12.00 per
share. CVD received net offering proceeds from the sale of common stock of
approximately $42.8 million after deducting underwriting discounts and
commissions and other expenses of the offering.
On September 30, 1998, the Company had cash, cash equivalents and marketable
securities available for sale of $26.9 million. Net cash used in operating
activities was $3.3 million for the first nine months of 1998 as compared to
$7.2 million for the same period of 1997. The Company expects to incur
substantial costs related to, among other things, clinical testing, product
development, marketing and sales expenses, and increased working capital, prior
to achieving positive cash flow from operations. The Company anticipates that
its existing capital resources will sufficient to fund its operations through
the first quarter of 2000; however, if the anticipated acquisition of Radiance
is consummated, the amount of capital resources expended, especially for
clinical tests and research and development, will be substantial, and the
Company may not be able to fund its operations from its existing capital
resources in the year 2001 or sooner. The timing and extent of expenditures for
the research and development and testing of Radiance technology will be
dependent upon many variables, including but not limited to the success of the
research and development and clinical testing process, changes in the
competitive environment, internal resource allocations and external resource
availability. CVD's future capital requirements will depend on many factors,
including its research and development programs, the scope and results of
clinical trials, the regulatory approval process, the costs involved in
intellectual property rights enforcement or litigation, competitive products,
the establishment of manufacturing capacity, the establishment of sales and
marketing capabilities, and the establishment of collaborative relationships
with other parties. The Company may need to raise funds through additional
financings, including private or public equity offerings and collaborative
arrangements with existing or new corporate partners. There can be no assurance
that funds will be raised on favorable terms, or at all. If adequate funds are
not available, the Company may be required to delay, scale back or eliminate one
or more of its development programs or obtain funds through arrangements with
collaborative partners or others that may require the Company to grant rights to
certain technologies or products that the Company would not otherwise grant.
17
<PAGE> 18
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Trade accounts receivable, net, decreased 20% to $2.2 million as of September
30, 1998, compared with $2.8 million at December 31, 1997. The decrease was
primarily due to the decrease in the product sales levels for the nine months
ended September 30, 1998 compared with sales for the same period of 1997.
Inventories decreased 27% to $2.3 million as of September 30, 1998, compared
with $3.2 million at December 31, 1997. This decrease resulted from inventory
obsolescence reserves and lower production levels associated with the lower
level of sales. Accounts payable and accrued expenses decreased 7% to $1.3
million at September 30, 1998, compared with $1.4 million at the end of 1997
primarily due to lower production levels.
Property and equipment, net, was unchanged at $1.5 million at December 31, 1997
and September 30, 1998 with capital additions of $0.3 million being offset by
depreciation expense of a similar amount in the nine months ended September 30,
1998.
Deferred license revenue resulted from a $2.0 million technology license revenue
payment paid by Guidant Corporation to the Company upon the signing of a
technology license agreement for the Company's focal technology. Based on the
completion of the technology transfer milestones, the Company will recognize the
remaining $0.4 million in deferred license revenue. See Note 4 to the Condensed
Consolidated Financial Statements.
18
<PAGE> 19
Part II.
OTHER INFORMATION
Items 1 and 3. Not applicable
Item 2. Changes in Securities and Use of Proceeds
(d) Use of Proceeds
The Company has used approximately $2.7 million of the net proceeds from its
initial public offering on June 19, 1996, SEC file number 333-04560, the IPO for
repayment of certain outstanding indebtedness to Endosonics, Inc., a holder of
in excess of ten percent of the Common Stock of the Company. From the date of
the IPO until September 30, 1998, in the normal course of business, the Company
has paid salaries and bonuses in excess of $0.1 million each to seven officers
of the Company and used $6.3 million for working capital. The Company has also
used approximately $1.7 million of the net proceeds for machinery and equipment
and leasehold improvement purchases. Through the end of the third quarter of
1998, the Company used approximately $3.7 million to purchase 686,000 shares of
the Company's Common Stock on the open market. In September of 1998, the Company
exercised a Warrant to acquire 1,500,000 Series B Preferred Stock of Radiance
Medical Systems, Inc. for $1.5 million. At September 30, 1998, approximately
$24.6 million was held in temporary investments, of which approximately $4.5
million was invested in U.S. Agency debt securities, $1.5 million was invested
in Canadian Government debt securities, and $18.6 million was invested in
corporate debt securities.
Item 5. Other Information
Amendment of By-Laws
On August 21, 1998, the Board of Directors amended Section 11 of the
Company's By-Laws to elect to be governed by Section 141(C)(2) of the Delaware
General Corporation Law. The By-Law amendment allows the Board of Directors to
designate a committee comprised of one or more directors. Any committee which is
designated by the Board of Directors may exercise all of the authority of the
Board of Directors in the management of the business and affairs of the Company,
except for matters which expressly are required under Delaware law to be
submitted to the stockholders for approval, and except to adopt, amend or repeal
any By-Laws.
19
<PAGE> 20
Part II.
OTHER INFORMATION
Item 5. Other Information (continued)
Stockholder Proposals
Any stockholder desiring to submit a proposal for action at the 1999 Annual
Meeting of Stockholders and presentation in the Company's proxy statement with
respect to such meeting should arrange for such proposal to be delivered to the
Company's principal executive office, Attn: Secretary, Cardiovascular Dynamics,
Inc., 13700 Alton Parkway, Suite 160, Irvine, California 92618, no later than
December 16, 1998 in order to be considered for inclusion in the Company's proxy
statement relating to the meeting. Matters pertaining to such proposals,
including the number and length thereof, eligibility of persons entitled to have
such proposals included and other aspects are regulated by the Securities
Exchange Act of 1934, Rules and Regulations of the Securities and Exchange
Commission and other laws and regulations to which interested persons should
refer.
On May 21, 1998 the Securities and Exchange Commission adopted an amendment
to Rule 14a-4, as promulgated under the Securities and Exchange Act of 1934, as
amended. The amendment to Rule 14a-4(C)(1) governs the Company's use of its
discretionary proxy voting authority with respect to a stockholder proposal that
is not addressed in the Company's proxy statement. The new amendment provides
that if a proponent of a proposal fails to notify the Company at least 45 days
prior to the month and day of mailing of the prior year's proxy statement, then
the Company will be allowed to use its discretionary voting authority when the
proposal is raised at the meeting, without any discussion of the matter in the
proxy statement.
With respect to the Company's 1999 Annual Meeting of Stockholders, if the
Company is not provided notice of a stockholder proposal, which the stockholder
has not previously sought to include in the Company's proxy statement, by March
1, 1999, the Company will be allowed to use its voting authority as outlined.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
<TABLE>
<S> <C>
Exhibit 3.3 Amended and Restated Certificate of Incorporation
</TABLE>
20
<PAGE> 21
Part II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (continued)
<TABLE>
<S> <C>
Exhibit 3.4 Amended By-Laws
Exhibit 11 Statement Regarding the Computation of Net Loss Per Share
Exhibit 27 Financial Data Schedule
</TABLE>
- -----------------------------------------
(b) No reports on Form 8-K were filed during the quarter.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by undersigned
thereto duly authorized.
CARDIOVASCULAR DYNAMICS, INC.
Date: November 16, 1998 /s/ Jeffrey F. O'Donnell
----------------------------------------
Chief Executive Officer
(Principal Executive Officer)
Date: November 16, 1998 /s/ Stephen R. Kroll
----------------------------------------
Vice President-Finance and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<S> <C>
3.3 Amended and Restated Certificate of Incorporation
3.4 Amended By-Laws
11 Statement Regarding the Computation of Net Loss Per Share
27 Financial Data Schedule
</TABLE>
- ----------
23
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
AMENDED & RESTATED CERTIFICATE OF INCORPORATION
OF
CARDIOVASCULAR DYNAMICS, INC.
A DELAWARE CORPORATION
CARDIOVASCULAR DYNAMICS, INC., a Delaware corporation organized and
existing under and by virtue of the Delaware General Corporation Law (the
"Corporation"), does hereby certify:
(1) The Board of Directors of the Corporation, at a meeting of the Board
of Directors, duly adopted resolutions proposing and declaring advisable the
following amendments to the Amended & Restated Certificate of Incorporation of
the Corporation, directing that such amendments be submitted to the stockholders
of the Corporation for consideration thereof. The resolutions setting forth the
proposed amendments are as follows:
NOW, THEREFORE, BE IT RESOLVED, that Article IV, Section 4 of the
Company's Amended and Restated Certificate of Incorporation be amended
to read as follows:
"4. Voting Rights. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of this corporation,
and shall be entitled to vote upon such matters and in such manner as
may be provided by law."
NOW, THEREFORE, BE IT RESOLVED, that Article VIII of the
Company's Amended and Restated Certificate of Incorporation be amended
to add the following:
"The Board of Directors shall be divided into three (3) classes,
as nearly equal in number as possible, designated Class I, Class II and
Class III. The number of directors constituting each Class shall be
fixed from time to time by a resolution duly adopted by the Board of
Directors. Class I directors shall hold office for an initial term
expiring at the annual meeting of stockholders in 1999. Class II
directors shall hold office for an initial term expiring at the annual
meeting of stockholders in 2000, and Class III directors shall hold
office for a term expiring at the annual meeting of stockholders in
2001. At each annual meeting of stockholders held thereafter, directors
shall be elected for a three-year term to succeed the directors of the
Class whose terms then expire."
<PAGE> 2
(2) That thereafter, the holders of the necessary number of shares of
capital stock of the Corporation voted in favor of the foregoing amendments in
accordance with the provisions of Section 228 of the Delaware General
Corporation Law.
(3) That such amendment was duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, CARDIOVASCULAR DYNAMICS, INC. has caused this
Certificate of Amendment to be signed by its duly authorized Chief Financial
Officer and Secretary, Stephen R. Kroll, on November 12, 1998.
CARDIOVASCULAR DYNAMICS, INC.,
a Delaware corporation
By: /s/ STEPHEN R. KROLL
-------------------------------------
Stephen R. Kroll
Chief Financial Officer and Secretary
2
<PAGE> 3
AMENDED & RESTATED
CERTIFICATE OF INCORPORATION
OF
CARDIOVASCULAR DYNAMICS, INC.
(Pursuant to Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware)
Cardiovascular Dynamics, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "General
Corporation Law").
DOES HEREBY CERTIFY:
FIRST: That the name of this corporation is Cardiovascular Dynamics,
Inc, and that this corporation was originally incorporated on June 2, 1993,
pursuant to the General Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions proposing
to amend and restate the Certificate of Incorporation of this corporation,
declaring said amendment and restatement to be advisable and in the best
interests of this corporation and its stockholders, and authorizing the
appropriate officers of this corporation to solicit the consent of the
stockholders therefore, which resolution setting forth the proposed amendment
and restatement is as follows:
"RESOLVED, that the Amended and Restated Certificate of Incorporation of
this corporation be amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is Cardiovascular Dynamics, Inc.
ARTICLE II
The address of the registered office of this corporation in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address if The Prentice-Hall
Corporation System, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
(A) CLASSES OF STOCK. This corporation is authorized to issue two
classes of stock, to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares that this corporation is authorized to issue
is thirty seven million five hundred and sixty thousand (37,560,000). The number
of shares of Preferred Stock authorized to be issued is seven million five
hundred sixty thousand (7,560,000), par value $.001 per share, 2,060,000 of
which shares have been
<PAGE> 4
designated Series A Preferred Stock (the "Series A Preferred Stock") and 500,000
of which shares have been designated Series B Preferred Stock (the "Series B
Preferred Stock"). The number of shares of Common Stock authorized to be issued
is thirty million (30,000,000), par value $.001 per share.
Upon filing this Amended and Restated Certificate of Incorporation,
each share of Common Stock shall be, and is, hereby reclassified and divided
into two (2) shares of Common Stock.
(B) RIGHTS, PREFERENCES AND RESTRICTIONS OF THE PREFERRED STOCK. The
Preferred Stock authorized by this Restated Certificate of Incorporation may be
issued from time to time in one or more series. The rights, preferences,
privileges, and restrictions granted to and imposed on the Series A Preferred
Stock, which series shall consist of 2,060,000 shares, and the Series B
Preferred Stock, which series shall consist of 500,000 shares, are as set forth
below in this Article IV(B). The Board of Directors is hereby authorized to fix
or alter the rights, preferences, privileges and restrictions granted to or
imposed upon additional series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or of any of them.
Subject to compliance with applicable protective voting rights which have been
or may be granted to the Preferred Stock or series thereof in Certificates of
Determination or the corporation's Restated Certificate of Incorporation
("Protective Provisions"), but notwithstanding any other rights of the Preferred
Stock or any series thereof, the rights, privileges, preferences and
restrictions of any such additional series may be subordinated to, pari passu
with (including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption and/or approval of matters
by vote or written consent), or senior to any of those of any present or future
class or series of Preferred or Common Stock. Subject to compliance with
applicable Protective Provisions, the Board of Directors is also authorized to
increase or decrease the number of shares of any series (other than the Series A
Preferred Stock and the Series B Preferred Stock), prior or subsequent to the
issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
1. DIVIDEND PROVISIONS. Subject to the rights of series of Preferred
Stock that may from time to time come into existence, the holders of shares of
Series A Preferred Stock and Series B Preferred Stock shall, on a pari passu
basis, be entitled to receive dividends, out of any assets legally available
therefor, prior and in preference to any declaration or payment of any dividend
(payable other than in Common Stock or other securities and rights convertible
into or entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock of this corporation) on the Common Stock of
this corporation, at the rate of $.50 per share per annum for the Series A
Preferred Stock, and $1.50 per share per annum for the Series B Preferred Stock,
or, if greater (as determined on a per annum basis and on an as converted basis
for the Series A Preferred Stock and Series B Preferred Stock), plus an amount
equal to that paid on any other outstanding shares of this corporation, payable
quarterly, when, as, and if declared by the Board of Directors. Such dividends
shall not be cumulative.
-2-
<PAGE> 5
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock that may from time to time come into existence, the
holders of Series A Preferred Stock and Series B Preferred Stock shall, on a
pari passu basis, be entitled to receive, prior and in preference to any
distribution of any of the assets of this corporation to the holders of Common
Stock by reason of their ownership thereof, (i) with respect to the Series A
Preferred Stock, an amount per share equal to the sum of (A) $6.58 for each
outstanding share of Series A Preferred Stock (the "Original Series A Issue
Price"), and (B) an amount equal to declared but unpaid dividends on such share;
and (ii) with respect to the Series B Preferred Stock, an amount per share equal
to the sum of (A) $20.00 for each outstanding share of Series B Preferred Stock
(the "Original Series B Issue Price"), and (B) an amount equal to declared but
unpaid dividends on such share. If upon the occurrence of such event, the assets
and funds thus distributed among the holders of the Series A Preferred Stock and
Series B Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amounts, then, subject to the rights
of series of Preferred Stock that may from time to time come into existence, the
entire assets and funds of this corporation legally available for distribution
shall be distributed ratably among the holders of the Series A Preferred Stock
and Series B Preferred Stock in proportion to the amount of such stock owned by
each such holder.
(b) After the distributions described in subsection (a) above have
been paid, subject to the rights of series of Preferred Stock which may from
time to time come into existence, the remaining assets of the corporation
available for distribution to shareholders shall be distributed among the
holders of Common Stock pro rata based on the number of shares of Common Stock
held by each.
(c)(i) For purposes of this Section 2, a liquidation, dissolution or
winding up of this corporation shall be deemed to be occasioned by, or to
include (A) the acquisition of the corporation by another entity by means of any
transaction or series of related transactions (including, without limitation,
any reorganization, merger or consolidation but, excluding any merger effected
exclusively for the purpose of changing the domicile of the corporation); or (B)
a sale of all or substantially all of the assets of the corporation; unless the
corporation's shareholders of record as constituted immediately prior to such
acquisition or sale will, immediately after such acquisition or sale (by virtue
of securities issued as consideration for the corporation's acquisition or sale
or otherwise) hold at least 50% of the voting power of the surviving or
acquiring entity.
(ii) In any of such events, if the consideration received by the
corporation is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (B) below:
(i) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing;
-3-
<PAGE> 6
(ii) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(iii) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the appropriate fair
market value thereof, as mutually determined by the corporation and the holders
of at least a majority of voting power of all then outstanding shares of such
Preferred Stock.
(iii) In the event the requirements of this subjection 2(c) are
not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time as
the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Preferred Stock and
Series B Preferred Stock shall revert to and be the same as such rights,
preferences and privileges existing immediately prior to the date of the first
notice referred to in subsection 2(c)(iv) hereof.
(iv) The corporation shall give each holder of record of Series
A Preferred Stock and Series B Preferred Stock written notice of such impending
transaction not later than twenty (20) days prior to the shareholders' meeting
called to approve such transaction, or twenty (20) days prior to the closing of
such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the impending transaction
and the provisions of this Section 2, and the corporation shall thereafter give
such holders prompt notice of any material changes. The transaction shall in no
event take place sooner than twenty (20) days after the corporation has given
the first notice provided for herein or sooner than ten (10) days after the
corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of Preferred Stock that are entitled to such notice rights or
similar notice rights and that represent at least a majority of the voting power
of all then outstanding shares of such Preferred Stock.
3. CONVERSION. The holders of Series A Preferred Stock and Series B
Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock and
Series B Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
this corporation or any transfer agent for the Series A Preferred Stock and
Series B Preferred Stock, into such number fully paid and nonassessable shares
of Common Stock as is determined by dividing the Original Issue Price for such
series by the Conversion Price at the time in effect for such series. The
initial Conversion Price per share for shares of Series A Preferred Stock and
Series B Preferred Stock shall be the Original Series A Issue Price and Original
Series B Issue Price, respectively.
-4-
<PAGE> 7
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred Stock and
Series B Preferred Stock shall automatically be converted into shares of Common
Stock at the Conversion Price at the time in effect for such series immediately
upon the earlier of (A) the consummation of this corporation's sale of its
Common Stock in a bona fide, firm commitment underwriting pursuant to a
registration statement on Form S-1 under the Securities Act of 1933, as amended,
the public offering price of which was $7,500,000 in the aggregate, or (B) the
date upon which this corporation obtains the consent of the holders of a
majority of the then outstanding shares of Series A Preferred Stock and Series B
Preferred Stock, voting together as a single class on an as-converted to Common
Stock basis.
(c) MECHANICS OF CONVERSION. Before any holder of Series A Preferred
Stock or Series B Preferred Stock shall be entitled to convert the same into
shares of Common Stock, he or she shall surrender the certificate or
certificates therefor, duly endorsed, at the office of this corporation or of
any transfer agent for the Series A Preferred Stock and Series B Preferred
Stock, and shall give written notice by mail, postage prepaid, to this
corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holders of Series A Preferred Stock or Series B Preferred Stock, or to the
nominee or nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series A Preferred
Stock or Series B Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock as of such date. If the conversion is in connection with an
underwritten offer of securities registered pursuant to the Securities Act of
1933, the conversion may, at the option of any holder tendering Series A
Preferred Stock or Series B Preferred Stock for conversion, be conditioned upon
the closing with the underwriter of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock
issuable upon such conversion of the Series A Preferred Stock or Series B
Preferred Stock shall not be deemed to have converted such Series A Preferred
Stock or Series B Preferred Stock until immediately prior to the closing of such
sale of securities.
(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK. The Conversion
Price of the Series A Preferred Stock and Series B Preferred Stock shall be
subject to adjustment from time to time as follows:
(i) In the event this corporation should at any time or from
time to time after the date upon which this corporation first issued any shares
of Series B Preferred Stock (the "Purchase Date"), fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional
-5-
<PAGE> 8
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Price of the Series A Preferred Stock
and Series B Preferred Stock shall be appropriately decreased so that the number
of shares of Common Stock issuable on conversion of each share of Series A
Preferred Stock and Series B Preferred Stock shall be increased in proportion to
such increase of the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents.
(ii) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Price for the Series A Preferred Stock and Series B Preferred Stock
shall be appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of Series A Preferred Stock and Series B
Preferred Stock shall be decreased in proportion to such decrease in outstanding
shares.
(e) OTHER DISTRIBUTIONS. In the event this corporation shall declare
a distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection (3)(d)(i), then, in each such
case for the purpose of this subsection 3(e), the holders of the Series A
Preferred Stock and Series B Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of this corporation into which their shares
of Series A Preferred Stock and Series B Preferred Stock are convertible as of
the record date fixed for the determination of the holders of Common Stock of
this corporation entitled to receive such distribution.
(f) RECAPITALIZATIONS. If any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in this Section 3
or Section 5) provision shall be made so that the holders of the Series A
Preferred Stock and Series B Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Preferred Stock and Series B Preferred
Stock the number of shares of stock or other securities or property of the
Company or otherwise, to which a holder of Commons Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of the Series A
Preferred Stock and Series B Preferred Stock after the recapitalization to the
end that the provisions of this Section 3 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock and Series B Preferred Stock ) shall
be applicable after that event as nearly equivalent as may be practicable.
(g) NO IMPAIRMENT. This corporation will not, by amendment of this
Restated Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 3 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock and Series B
Preferred Stock against impairment.
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(h) NO FRACTIONAL SHARES AND CERTIFICATES AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon conversion of the
Series A Preferred Stock and Series B Preferred Stock, and the number of shares
of Common Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of Series A Preferred Stock and
Series B Preferred Stock the holder is at the time converting into Common Stock
and the number of shares of Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series A Preferred Stock and Series B Preferred Stock
pursuant to this Section 3, this corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series A Preferred Stock and Series B
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
This corporation shall, upon the written request at any time of any holder of
Series A Preferred Stock or Series B Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (A) such adjustment or
readjustment, (B) the Conversion Price at the time in effect, and (C) the number
of shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of a share of Series A Preferred
Stock and Series B Preferred Stock .
(i) NOTICES OF RECORD DATE. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Preferred Stock, at least 20 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Preferred Stock such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Preferred Stock, this
corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes.
(k) NOTICES. Any notice required by the provisions of this Section 3
to be given to the holders of shares of Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of this corporation.
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4. VOTING RIGHTS. The holder of each share of Series A Preferred Stock
and Series B Preferred Stock shall have the right to one vote for each share of
Common Stock into which such share could then be converted (with any fractional
share determined on an aggregate conversion basis being rounded to the nearest
whole share), and with respect to such vote, such holder shall have full voting
rights and powers equal to the voting rights and powers of the holders of Common
Stock, and shall be entitled, notwithstanding any provision hereof, to notice of
any stockholders' meeting in accordance with the by-laws of this Corporation,
and shall be entitled to vote, together with holders of Common Stock, with
respect to any question upon which holders of Common Stock have the right to
vote.
5. PROTECTIVE PROVISIONS. Subject to the rights of series of Preferred
Stock that may from time to time come into existence, this corporation shall not
without first obtaining the approval (by vote or written consent, as provided by
law) of at least a majority of the then outstanding shares of Series A Preferred
Stock and Series B Preferred Stock, voting together as a single class and on an
as-converted to Common Stock basis:
(i) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than 50%
of the voting power of this corporation is disposed of;
(ii) create any new class or series of stock or any other securities
convertible into equity securities of the corporation (i) having a preference
over, or being on a parity with, Series A Preferred Stock and Series B Preferred
Stock with respect to voting, dividends or upon liquidation, or (ii) having
rights similar to any of the rights of the Series A Preferred Stock and Series B
Preferred Stock under this Section 5; or
(iii) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock and Series B Preferred Stock so as to affect
adversely the shares.
6. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any shares of
Series A Preferred Stock or Series B Preferred Stock shall be converted pursuant
to Section 3 hereof, the shares so converted shall be cancelled and shall not be
issuable by this corporation. This Restated Certificate of Incorporation shall
be appropriately amended to effect the corresponding reduction in this
corporation's authorized capital stock. In the event all outstanding shares of
Preferred Stock are automatically converted into Common Stock pursuant to
Section 3 hereof, any designated but unreserved shares of Series A Preferred
Stock and Series B Preferred Stock shall be deemed "converted" pursuant to this
Section.
(C) COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of this corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
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2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up
of this corporation, the assets of this corporation shall be distributed as
provided in Section 2 of Division (B) of this Article IV hereof.
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holder of each share of Common Stock shall have
the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law. The
holders of Common Stock shall be entitled to cumulate votes in any election of
directors.
ARTICLE V
A director of this corporation shall not be personally liable to this
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to this corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporation action
further eliminating or limiting the personal liability of directors, then the
liability of a director of this corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as
amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of this corporation shall not adversely affect any right or
protection of a director of this corporation existing at the time of such repeal
or modification.
ARTICLE VI
This corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted to this reservation.
ARTICLE VII
The Board of Directors may from time to time make, amend, supplement or
repeal the Bylaws; provided, however, that the stockholders may change or repeal
any Bylaw adopted by the Board of Directors; and provided, further, that no
amendment or supplement to the Bylaws adopted by the Board of Directors shall
vary or conflict with any amendment or supplement adopted by the stockholders.
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ARTICLE VIII
The number of directors of this corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders.
ARTICLE IX
Elections of directors need not be by written ballot unless the Bylaws
of this corporation shall so provide.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, the Bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
THIRD: The foregoing amendment was approved by the holders of the
requisite number of shares of said corporation in accordance with Section 228 of
the General Corporation Law.
FOURTH: That said amendments were duly adopted in accordance with the
provisions of Section 242 and 245 of the General Corporation Law.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed by the Vice President, Finance and Administration and Chief Financial
Officer and the Assistant Secretary of this corporation this 1st day of May,
1996.
/s/ DANA P. NICKELL
------------------------------------------
Dana P. Nickell
Vice President, Finance and Administration
and Chief Financial Officer
ATTEST
/s/ EDWARD M. LEONARD
- --------------------------------
Edward M. Leonard
Assistant Secretary
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EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
CARDIOVASCULAR DYNAMICS, INC.
ARTICLE I
OFFICES
SECTION 1. The registered office shall be in the City of Dover,
County of Kent, State of Delaware.
SECTION 2. The corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. All meetings of the stockholders for the election of
directors shall be held at such place as may be fixed from time to time by the
Board of Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
SECTION 2. Annual meetings of stockholders, commencing with the
year 1996, shall be held at such date and time as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting, at
which they shall elect directors by a plurality vote and transact such other
business as may properly be brought before the meeting.
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SECTION 3. At the direction of the Board of Directors, the
President or the Secretary of the corporation, written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
SECTION 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 5. Special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning not less than
fifty percent (50%) of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
SECTION 6. At the direction of the Board of Directors, the
President or the Secretary, written notice of a special meeting stating the
place, date and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be given not fewer than ten (10) nor more than sixty
(60) days before the date of the meeting, to each stockholder entitled to vote
at such meeting.
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SECTION 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
SECTION 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted that might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
SECTION 9. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
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SECTION 10. Unless otherwise provided in the certificate of
incorporation and subject to Article VI, Section 5 each stockholder shall at
every meeting of the stockholders be entitled to one vote in person or by proxy
for each share of the capital stock having voting power held by such
stockholder, but no proxy shall be voted on after three (3) years from its date,
unless the proxy provides for a longer period.
SECTION 11. To be properly brought before an annual meeting or
special meeting, nominations for the election of director or other business must
be (a) specified in the notice of meeting (or any supplement thereto) given by
or at the direction of the board of directors, (b) otherwise properly brought
before the meeting by or at the direction of the board of directors, or (c)
otherwise properly brought before the meeting by a stockholder. For such
nominations or other business to be considered properly brought before the
meeting by a stockholder, such stockholder must have given timely notice and in
proper form of such stockholder's intent to bring such business before such
meeting. To be timely, such stockholder's notice must be delivered or mailed to
and received by the secretary of the corporation not less than 90 days prior to
the meeting; provided, however, that in the event that less than 100 days notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. To be in proper form, a stockholder's notice to the secretary shall set
forth:
(i) the name and address of the stockholder who intends to make
the nominations or propose the business, and, as the case may be, the
name and address of the person or persons to be nominated or the nature
of the business to be proposed;
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(ii) a representation that the stockholder is a holder of record
of stock of the corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice or introduce the
business specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each matter
of business to be proposed by such stockholder as would be required to
be included in a proxy statement filed pursuant to the proxy rules of
the Securities and Exchange Commission had the nominee been nominated,
or intended to be nominated, or the matter been proposed, or intended to
be proposed by the board of directors; and
(v) if applicable, the consent of each nominee to serve as
director of the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the
nomination of any person or the proposal of any business not made in compliance
with the foregoing procedure.
SECTION 12. The stockholders of the Corporation may not take
action by written consent without a meeting but must take any such actions at a
duly called annual or special meeting.
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ARTICLE III
DIRECTORS
SECTION 1. The number of directors which shall constitute the
whole Board shall be fixed by resolution of the Board of Directors, with the
number initially fixed at five (5). Each director shall be elected by the
stockholders at the annual meeting and shall hold office until the next annual
meeting and until his successor is elected and qualified, or until his earlier
death, resignation or removal. Directors need not be stockholders of the
corporation.
SECTION 2. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and qualified
or until his earlier resignation or removal. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute.
SECTION 3. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these bylaws directed or required
to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
SECTION 5. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present.
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In the event of the failure of the stockholders to fix the time or place of such
first meeting of the newly elected Board of Directors, or in the event such
meeting is not held at the time and place so fixed by the stockholders, the
meeting may be held at such time and place as shall be specified in a notice
given as hereinafter provided for special meetings of the Board of Directors, or
as shall be specified in a written waiver signed by all of the directors.
SECTION 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
SECTION 7. Special meetings of the board may be called by the
President on forty-eight (48) hours notice to each director either personally,
or by telephone, telegram or facsimile; special meetings shall be called by the
President or Secretary in like manner and on like notice on the written request
of two directors unless the board consists of only one director, in which case
special meetings shall be called by the President or Secretary in like manner
and on like notice on the written request of the sole director. A written waiver
of notice, signed by the person entitled thereto, whether before or after the
time of the meeting stated therein, shall be deemed equivalent to notice.
SECTION 8. At all meetings of the board a majority of the total
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
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SECTION 9. Unless otherwise restricted by the certificate of
incorporation of these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
SECTION 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
SECTION 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of the committee, the member or
members present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee,
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to the extent provided in the resolution of the Board of Directors, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to the following
matters: (i) approving or adopting, or recommending to the stockholders, any
action or matter expressly required by the Delaware General Corporation Law to
be submitted to stockholders for approval or (ii) adopting, amending or
repealing any by-law of the Corporation. Each committee which may be established
by the Board of Directors pursuant to these By-Laws may fix its own rules and
procedures. Notice of meetings of committees, other than regular meetings
provided for by the rules, shall be given to committee members.
SECTION 12. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
SECTION 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
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REMOVAL OF DIRECTORS
SECTION 14. Unless otherwise restricted by the certificate of
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
SECTION 1. Whenever, under the provisions of the statutes or of
the certificate of incorporation or of these bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice (except as provided in Section 7 of Article III of these Bylaws), but
such notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telephone, telegram or facsimile.
SECTION 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
SECTION 1. The officers of the corporation shall be chosen by the
Board of Directors and shall be a President, Chief Financial Officer and a
Secretary. The Board of Directors may elect from among its members a Chairman of
the Board and a Vice Chairman of the Board. The Board of Directors may also
choose one or more Vice Presidents, Assistant Secretaries, Treasurers and
Assistant Treasurers. Any number of offices may be held by the same person,
unless the certificate of incorporation or these bylaws otherwise provide.
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SECTION 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a President, a Chief Financial
Officer, and a Secretary and may choose Vice Presidents.
SECTION 3. The Board of Directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
SECTION 4. The salaries of all officers of the corporation shall
be fixed by the Board of Directors. The salaries of agents of the corporation
shall, unless fixed by the Board of Directors, be fixed by the President or any
Vice-President of the corporation.
SECTION 5. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or appointed
by the Board of Directors may be removed at any time by the affirmative vote of
a majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
SECTION 6. The Chairman of the Board, if any, shall preside at
all meetings of the Board of Directors and of the stockholders at which he shall
be present. He/she shall have and may exercise such powers as are, from time to
time, assigned to him by the Board and as may be provided by law.
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SECTION 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
SECTION 8. The President shall be the chief executive officer of
the corporation; and in the absence of the Chairman and Vice Chairman of the
Board he/she shall preside at all meetings of the stockholders and the Board of
Directors; he/she shall have general and active management of the business of
the corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
SECTION 9. The President or any Vice President shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
SECTION 10. In the absence of the President or in the event of
his inability or refusal to act, the Vice-President, if any, (or in the event
there be more than one Vice-President, the Vice-Presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. The Vice-Presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
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<PAGE> 13
THE SECRETARY AND ASSISTANT SECRETARY
SECTION 11. The Secretary shall attend all meetings of the Board
of Directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He/she shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he/she shall be. He/she shall have custody of
the corporate seal of the corporation and he/she, or an Assistant Secretary,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by his signature or by the signature of such
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his signature.
SECTION 12. The Assistant Secretary, or if there be more than
one, the Assistant secretaries in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the Secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
THE CHIEF FINANCIAL OFFICER, TREASURERS
AND ASSISTANT TREASURERS
SECTION 13. The Chief Financial Officer of the corporation shall
have the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the Board of Directors.
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<PAGE> 14
SECTION 14. He/she shall disburse the funds of the corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Chief Financial Officer and of the financial condition
of the corporation.
SECTION 15. If required by the Board of Directors, he/she shall
give the corporation a bond (which shall be renewed every six years) in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his/her office and for
the restoration to the corporation, in case of his/her death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his/her control
belonging to the corporation.
SECTION 16. The Treasurer, or Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election) shall, in the absence of the Chief Financial Officer or in the
event of his inability or refusal to act, perform the duties and exercise the
powers of the Chief Financial Officer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
SECTION 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by,
the Chairman or Vice-Chairman of the Board of Directors, or the President or a
Vice-President and the Chief Financial Officer, Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the corporation,
certifying the number of shares owned by him/her in the corporation.
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<PAGE> 15
Certificates may be issued for partly paid shares and in such
case upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate that the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
SECTION 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he/she
were such officer, transfer agent or registrar at the date of issue.
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<PAGE> 16
LOST CERTIFICATES
SECTION 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his/her
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
SECTION 4. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
FIXING RECORD DATE
SECTION 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
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<PAGE> 17
REGISTERED STOCKHOLDERS
SECTION 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
SECTION 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
SECTION 2. Before payment of any dividend, there may be set aside
out of any funds of the corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
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<PAGE> 18
CHECKS
SECTION 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
SECTION 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
SECTION 5. The Board of Directors may adopt a corporate seal
having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of which he or she is the representative, is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee, fiduciary or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the corporation to the fullest extent which it is empowered to
do so unless prohibited from doing so by the General Corporation Law of
Delaware, as the same exists or may hereafter be
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<PAGE> 19
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification rights than
said law permitted the corporation to provide prior to such amendment) against
all expense, liability and loss including attorneys' fees actually and
reasonably incurred by such person in connection with such proceeding, and such
indemnification shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that the corporation shall indemnify any such
person seeking indemnification in connection with a proceeding initiated by such
person only if such proceeding was authorized by the board of directors of the
corporation. The right to indemnification conferred in this Article VIII shall
be a contract right and shall include the right to require the corporation, from
time to time, to advance any necessary and reasonable amounts for the
preparation and/or conduct of the defense incurred in defending any such
proceeding in advance of its final disposition unless otherwise determined by
the board of directors in the specific case and upon receipt of an undertaking
by or on behalf of the director or officer to repay such amount if it shall be
ultimately determined that he or she is not entitled to be indemnified by the
corporation. The corporation may, by action of its board of directors, provide
indemnification to employees and agents of the corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
SECTION 2. The rights to indemnification and the payment of
expenses incurred in defending a proceeding in advance of its final disposition
conferred in this Article VIII shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, provision of the
certificate of incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
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<PAGE> 20
SECTION 3. The corporation may purchase and maintain insurance on
its own behalf and on behalf of any person who is or was a director, officer,
employee, fiduciary, or agent of the corporation or was serving at the request
of the corporation as a director, officer, employee, fiduciary or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him or her and incurred by him or her in
any such capacity, whether or not the corporation would have the power to
indemnify such person against such liability under this Article VIII.
SECTION 4. Persons who are not covered by the foregoing
provisions of this Article VIII and who are or were employees, fiduciaries or
agents of the corporation, or who are or were serving at the request of the
corporation as directors, officers, employees, fiduciaries or agents of another
corporation, partnership, joint venture, trust or other enterprise, may be
indemnified to the extent authorized at any time or from time to time by the
board of directors.
SECTION 5. The provisions of this Article VIII shall be deemed to
be a contract right between the corporation and each director or officer who
serves in any such capacity at any time while this Article VIII and the relevant
provisions of the General Corporation Law of Delaware or other applicable law
are in effect, and any repeal or modification of this Article VIII or any such
law shall not affect any rights or obligations then existing with respect to any
state of facts or proceeding then existing.
ARTICLE IX
AMENDMENTS
SECTION 1. These bylaws may be altered, amended or repealed or
new bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate or incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
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<PAGE> 1
CARDIOVASCULAR DYNAMICS, INC.
STATEMENT REGARDING THE COMPUTATION OF NET LOSS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1998 1997 1998 1997
-------------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Numerator:
Net Loss ($1,369) ($2,066) ($5,193) ($3,253)
------- ------- ------- -------
Net loss used for basic and diluted loss per
share -- loss attributable to common
stockholders ($1,369) ($2,066) ($5,193) ($3,253)
======= ======= ======= =======
Denominator:
Denominator for basic and diluted loss per share--
weighted average common shares outstanding 8,854 9,107 8,857 9,098
======= ======= ======= =======
Basic and diluted net loss per share ($ 0.16) ($ 0.23) ($ 0.59) ($ 0.36)
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,627
<SECURITIES> 23,301
<RECEIVABLES> 2,725
<ALLOWANCES> 521
<INVENTORY> 2,334
<CURRENT-ASSETS> 32,089
<PP&E> 2,531
<DEPRECIATION> 994
<TOTAL-ASSETS> 36,292
<CURRENT-LIABILITIES> 3,532
<BONDS> 0
10
0
<COMMON> 0
<OTHER-SE> 31,840
<TOTAL-LIABILITY-AND-EQUITY> 31,850
<SALES> 2,108
<TOTAL-REVENUES> 3,313
<CGS> 1,692
<TOTAL-COSTS> 1,692
<OTHER-EXPENSES> 3,284
<LOSS-PROVISION> 130
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,369)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,369)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,369)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
