<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED AUGUST 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________
TO _________
Commission File Number: 0-11868
CARDIODYNAMICS INTERNATIONAL CORPORATION
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 95-3533362
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6155 CORNERSTONE COURT EAST, SUITE 125, SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices) (Zip Code)
(619) 535-0202
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
---- ----
Check whether the registrant has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No
---- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of October 1, 1996, 29,282,588 shares of Common Stock were outstanding.
----------
Transitional Small Business Disclosure Format
(check one):
Yes No X
----- ----
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CARDIODYNAMICS INTERNATIONAL CORPORATION
TABLE OF CONTENTS
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Balance Sheets at August 31, 1996 (Unaudited)
and November 30, 1995 (Audited) 3
Condensed Statements of Operations (Unaudited) for the three
and nine month periods ended August 31, 1996 and 1995 5
Condensed Statements of Cash Flows (Unaudited) for the nine
months ended August 31, 1996 and 1995 6
Notes to Condensed Financial Statements (Unaudited) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 10
ITEM 2. CHANGES IN SECURITIES 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 11
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARDIODYNAMICS INTERNATIONAL CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
AUGUST 31, NOVEMBER 30,
ASSETS 1996 1995
- ------ ---------- ------------
Current assets:
Cash and cash equivalents $678,096 $7,441
Receivables, less allowance for doubtful receivables
of $22,254 and $32,354, respectively 42,362 75,861
Short-term marketable securities 263,549 173,883
Inventory, net 390,010 263,382
Other current assets 12,150 642
---------- ------------
Total current assets 1,386,167 521,209
Property and equipment, at cost 430,580 404,207
Less accumulated depreciation 275,121 237,903
---------- ------------
Net property and equipment 155,459 166,304
Other assets:
Deposits 4,250 6,615
Long-term marketable securities -- 85,268
---------- ------------
Total other assets 4,250 91,883
---------- ------------
Total assets $1,545,876 $779,396
---------- ------------
---------- ------------
See accompanying notes to condensed financial statements
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CARDIODYNAMICS INTERNATIONAL CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
- ------------------------------------ ---------- ------------
<S> <C> <C>
Current liabilities:
Accounts payable $67,966 $186,027
Accrued salaries, wages and related benefits 20,613 47,857
Other accrued expenses 2,318 84,532
Customer deposits -- 26,075
Current portion of long-term debt 11,280 14,231
Redemption value of marketable securities for preferred
shareholders 3,914 --
---------- ------------
Total current liabilities 106,091 358,722
Long-term debt, less current maturities 33,026 48,496
Commitments and contingencies:
Redeemable preferred stock of no par value.
Authorized 500,000 shares; none outstanding in
August and 246,793 in November -- 616,986
Shareholders' equity:
Preferred stock of no par value.
Authorized 500,000 shares; issued and outstanding
235,994 shares in August 589,985 --
Common stock of no par value. Authorized 50,000,000
shares; issued and outstanding 29,282,588 shares
in August and 17,951,320 in November 7,524,880 4,594,858
Common stock subscribed -- 325,000
Accumulated deficit (6,632,054) (5,071,928)
Unrealized loss on investment securities (76,052) (92,738)
---------- ------------
Shareholders' equity (deficit) 1,406,759 (244,808)
---------- ------------
Total liabilities and shareholders' equity $1,545,876 $779,396
---------- ------------
---------- ------------
</TABLE>
See accompanying notes to condensed financial statements
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CARDIODYNAMICS INTERNATIONAL CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
AUGUST 31, AUGUST 31,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $97,330 ($39,464) $170,046 $166,790
Cost of sales 43,884 78,490 108,667 292,374
----------- ----------- ------------ ------------
Gross profit (loss) 53,446 (117,954) 61,379 (125,584)
Operating expenses:
Selling, general and 391,128 473,697 1,135,315 1,410,043
administrative expenses
Product development expenses 246,367 20,106 479,559 49,422
----------- ----------- ------------ ------------
Total operating expenses 637,495 493,803 1,614,874 1,459,465
Loss from operations (584,049) (611,757) (1,553,495) (1,585,049)
Other income (expense):
Interest, net (1,632) (5,970) (6,524) (10,259)
Other income -- -- 693 11,670
----------- ----------- ------------ ------------
Total other income (expense) (1,632) (5,970) (5,831) 1,411
Loss before income taxes (585,681) (617,727) (1,559,326) (1,583,638)
Provision for income taxes -- -- (800) (800)
----------- ----------- ------------ ------------
Net loss ($585,681) ($617,727) ($1,560,126) ($1,584,438)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Loss per common share ($0.02) ($0.04) ($0.06) ($0.13)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Weighted average number of
common shares outstanding 29,276,852 16,010,723 24,022,507 12,288,425
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
See accompanying notes to condensed financial statements
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CARDIODYNAMICS INTERNATIONAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED AUGUST 31,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,560,126) ($1,584,438)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 37,218 16,875
Issuance of common stock for services -- 75,000
Changes in operating assets and liabilities:
Receivables 33,499 131,840
Inventories (126,628) (127,854)
Other current assets (11,508) (36,183)
Deposits 2,365 --
Accounts payable (118,061) 57,750
Accrued salaries, wages and related benefits (27,244) 24,988
Other accrued expenses (82,214) 16,392
Deferred revenue -- (14,100)
Customer deposits (26,075) --
----------- -----------
Net cash used in operating activities (1,878,774) (1,439,730)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (26,373) (112,544)
----------- -----------
Net cash used in investing activities (26,373) (112,544)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (643,421) (140,979)
Proceeds from long-term debt 625,000 480,797
Proceeds from exercise of warrants 95,973 --
Issuance of common stock 2,498,250 1,249,319
----------- -----------
Net cash provided by financing activities 2,575,802 1,589,137
----------- -----------
Net increase in cash and cash equivalents 670,655 36,863
Cash and cash equivalents at beginning of period 7,441 17,386
----------- -----------
Cash and cash equivalents at end of period $678,096 $54,249
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements
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CARDIODYNAMICS INTERNATIONAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION:
The accompanying condensed financial statements have been prepared in accordance
with the requirements for Form 10-QSB and therefore do not include all
information and footnotes which would be presented were such financial
statements prepared in accordance with generally accepted accounting principles.
These statements should be read in conjunction with the Company's November 30,
1995 audited financial statements and notes thereto as presented in its Annual
Report on Form 10-KSB. Financial presentations for the prior periods have been
reclassified to conform with the current presentation.
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim periods
a fair statement of such operations. All such adjustments are of a normal
recurring nature.
The results of operations for the three and nine months ended August 31, 1996
are not necessarily indicative of the results that may be expected for the full
fiscal year ended November 30, 1996.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
PART I - FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the attached
condensed financial statements and notes thereto, and with the Company's audited
financial statements for the fiscal year ended November 30, 1995.
RESULTS OF OPERATIONS
In the second and third quarters of fiscal 1996, the Company focused
increasingly on the development of the BioZ system, a digital signal processor-
based noninvasive hemodynamic monitor, using the Company's patented Thoracic
Electrical Bioimpedance technology. In the third quarter of fiscal 1996, the
Company began clinical testing of the BioZ System at leading medical centers,
and applied to the Food and Drug Administration for 510(k) premarket
notification clearance for the BioZ System.
Sales for the third quarter of fiscal 1996 increased significantly over the
third quarter of fiscal 1995, bringing year to date sales to $170, 046, 2%
higher than that achieved in the same nine-month period of 1995. In April 1996,
the Company hired Rick Ferlito as sales director and began implementation of a
sales distribution infrastructure. Under Rick's direction, sales of the CDM
4000 monitor increased over the same quarter of fiscal 1995. The CDM 4000
monitor may be upgraded to the BioZ System once FDA premarket notification
clearance has been obtained. Both the 1996 and 1995 sales levels are far below
the level needed to sustain the Company on an operating basis.
Gross profit as a percent of net sales for the quarter and nine months ended
August 31, 1996 were 55% and 36% respectively, compared with a gross loss in
both the quarter and corresponding nine month period in 1995.
Selling, general and administrative costs were reduced by 17% and 19% in the
third quarter and first nine months of fiscal 1996 compared with the same
periods of fiscal 1995, primarily due to the Company redirecting its focus and
efforts to development of the new BioZ System. For the same reason, product
development costs continued to increase in third quarter of fiscal 1996 to
$246,367 up from just $20,106 in the third quarter of fiscal 1995.
The Company incurred a reduced net loss per common share for the third quarter
of $.02 bringing the year to date 1996 loss to $.06 per common share compared
with losses of $.04 and $.13 per common share in the same periods of 1995.
8
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CARDIODYNAMICS INTERNATIONAL CORPORATION
PART I - FINANCIAL INFORMATION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's number of shares outstanding increased significantly during fiscal
1995 and the first three quarters of fiscal 1996 due to the necessity of
selling shares to CardioDynamics Holdings, LLC, and to its individual members,
and to other members of the Board of Directors, to finance the Company
operations. CardioDynamics Holdings, LLC, obtained control of the Company in
the first quarter of fiscal 1995.
Working capital at August 31, 1996 was $1,280,076, up from $162,487 at November
30, 1995. In order to fund the Company's anticipated revenue growth and
investment in product development and marketing, the Company believes it
ultimately will require additional capital. There can be no assurance that
additional capital will be available to the Company when required, nor that any
available capital would be available on favorable terms. The current working
capital levels are inadequate to sustain the Company indefinitely at present
sales and expense levels, however, the Company believes that it has sufficient
financial resources to support its forecasted working capital and capital
expenditure requirements in the balance of fiscal 1996. In the fiscal 1995 year-
end audit reports, the Company's auditors expressed substantial doubt about the
Company's ability to continue as a going concern. The Company was in bankruptcy
proceedings from March 6, 1992 to October 21, 1993.
To fund its operating losses, the Company has relied on periodic purchases of
unregistered common stock, and/or advances under a secured convertible
promissory note, by CardioDynamics Holdings, LLC, its individual members, and
other members of the Board of Directors of the Company. In June 1996
Cardiodynamics Holdings, LLC converted a portion of the outstanding principal
balance of the promissory note into 7,200,000 shares of common stock. As of
August 31, 1996, all advances have been received and there are no binding
obligations for any such purchases or advances to continue.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None.
ITEM 2. CHANGES IN SECURITIES
On May 30, 1996, the Company's Board of Directors lowered the exercise price of
the Class B warrants from $4.00 to $3.50 and the exercise price of Class C
warrants from $6.00 to $3.50, in each case effective through July 8, 1996.
During the exercise period, 15,341 Class B warrants and 12,015 Class C warrants
were redeemed. Proceeds from the sale of these warrants were $53,694 and
$42,053, respectively. On July 9, 1996, the exercise prices reverted to their
original levels.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PROPOSAL 1
At the Annual Meeting of Shareholders held on June 12, 1996, the shareholders
elected the following individuals to the Board of Directors for the coming year:
William P. Cordeiro, Stephenson M. Dechant, Nicholas V. Diaco M.D., James C.
Gilstrap, Roger S. Kolasinski, Kenneth W. Miller, Michael D. Padilla, Allen E.
Paulson and Barry M. Zwick.
The balloting for the directors was as follows:
AGAINST/
FOR WITHHELD ABSTAIN
----------- -------- -------
William Cordeiro 13,180,357 545,653 None
Stephenson Dechant 13,721,026 4,984 None
Nicholas Diaco 13,721,026 4,984 None
James Gilstrap 13,720,026 5,984 None
Roger Kolasinski 13,180,357 545,653 None
Kenneth Miller 13,180,357 545,653 None
Michael Padilla 13,721,026 4,984 None
Allen Paulson 13,721,026 4,984 None
Barry Zwick 13,179,357 546,653 None
PROPOSAL 2
At the Annual Meeting of Shareholders held on June 12, 1996, the shareholders
approved the 1995 Stock Option/Stock Issuance Plan (as amended and restated
through August 15, 1995). 11,981,710 shares were voted in favor of the Plan,
566,633 shares were voted against the Plan and 12,443 shares abstained.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
PART II - OTHER INFORMATION (CONTINUED)
ITEM 5. OTHER INFORMATION
During the third quarter of fiscal 1996, the Company began clinical testing of
the BioZ System at leading medical centers, and applied to the Food and Drug
Administration for 510(k) premarket notification clearance for the BioZ System.
The Company is optimistic that 510(k) clearance will be obtained during the
fourth quarter, however, there can be no assurance that the clearance will be
obtained timely or at all.
On June 12, 1996, Allen E. Paulson and James C. Gilstrap were named co-chairmen
of the Company's Board of Directors. Richard E. Otto, the Company's President
and CEO, was appointed to the Board of Directors on September 20, 1996. Mr.
Otto succeeds Kenneth W. Miller, who resigned from the Board of Directors in
July 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 International Distribution Agreement, dated June 20, 1996,
between the Company and Landice International corporation.
10.2 Fourth Amended and Restated Secured Convertible Promissory
Note, dated June 30, 1996, between CardioDynamics Holdings,
LLC and the Company.
27. Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
August 31, 1996.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CARDIODYNAMICS INTERNATIONAL CORPORATION
Date: October 9, 1996 By: /s/ Richard E. Otto
-----------------------------------
Richard E. Otto
President and Chief Executive Officer
Date: October 9, 1996 By: /s/ Stephenson M. Dechant
-----------------------------------
Stephenson M. Dechant
Chief Financial Officer and Secretary
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INTERNATIONAL
DISTRIBUTION AGREEMENT
This International Distribution Agreement (the "Agreement") is entered as
of June 20, 1996 by and between CardioDynamics International Corporation
("Supplier"), a California corporation, with its registered office and/or place
where business is actually carried out at 6155 Cornerstone Court East, Suite
125, San Diego, California and Landice International Corporation, Inc.
("Distributor"), a Washington corporation, with its registered office and/or
place where business is actually carried out at 1530 Westlake Avenue North,
Seattle, Washington.
1. APPOINTMENT; TERRITORY; PRODUCTS.
Supplier hereby appoints Distributor for the term of this Agreement as, and
Distributor agrees to act as, Supplier's exclusive distributor of the Products
(as hereinafter defined) for the Territory specified in Attachment A, subject to
all the terms and conditions hereof. So long during the term of this Agreement
as Distributor remains in full compliance with this Agreement, Supplier will not
appoint another distributor for the Products in the Territory. Distributor
shall refrain from establishing or maintaining any branch, warehouse or
distribution depot for the Products outside the Territory, and shall not engage
in any advertising or promotional activities relating to the Products directed
primarily to customers located outside the Territory. Furthermore, Products
distributed by Distributor for further distribution may be distributed only
through sub-distributors who are bound in writing to all the restrictions on
Distributor contained in this Agreement. "Product" shall mean the selected
Supplier products which are expressly set forth in Attachment B. Any
enhancement or improvement of a Product that is made generally available by
Supplier, that is substantially similar to such Product, and that is marketed
under the same product number and nomenclature as such Product shall be added to
Attachment B as a Product. Supplier reserves the right to change, modify or
discontinue any Product at any time. Supplier may add Products to Attachment B
and may remove any discontinued Product therefrom.
2. PAYMENT AND SUPPLY TERMS.
a. Products are delivered F.O.B. Supplier's applicable warehouse or place
of production. Purchase prices payable by Distributor are Supplier's then
current International distributor list prices less the discounts specified in
Attachment C. Supplier shall have the right, in its sole discretion, from time
to time or at any time to change such list prices with thirty (30) days written
notice. New prices will apply to all shipments made after such notice period.
In addition, Distributor will pay all charges, including without limitation
freight, shipping, customs charges and expenses, cost of special packaging or
handling and insurance premiums, and shall be responsible for all taxes,
including but not limited to sales, value added and use taxes, duties and other
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governmental assessments. Payment shall be made in U.S. dollars in the United
States. Payment will be prepaid by the Distributor.
b. During the term of this Agreement:
i. Supplier shall provide Distributor, at Supplier's expense, with
Samples of any applicable printed marketing materials that Supplier may in its
discretion produce for the Products.
Distributor will prepare and produce similar and any additional materials needed
to promote the Products in the Territory. Distributor shall provide all such
materials (together with English translations) to Supplier and will not
distribute them unless approved by Supplier in writing.
ii. Subject to the other terms and conditions of this Agreement,
Supplier shall use its reasonable efforts to promptly fill Distributor's written
purchase orders for Products with a requested delivery date not less than sixty
(60) days after the date the purchase order is received by Supplier; provided
that Distributor shall not submit any order requesting fewer than five units of
any Product per shipment per location. Should Supplier fail to supply
Distributor with the Products ordered, the purchase quotas for such period shall
be reduced in direct proportion to the extent of the shortfall. Supplier shall
ship Products as manufactured for sale in the United States and Distributor
shall be responsible at its expense for any modifications to the packaging,
labeling or otherwise required to sell the Products in the Territory.
iii. Supplier will provide Distributor with, and Distributor will
accept, such training as Supplier deems appropriate at locations specified by
Supplier, each party will bear its own expenses in connection with such
training.
c. Product will be deemed accepted if not rejected by written notice and
returned to Supplier in accordance with the warranty return procedure (Section
5) within ten (10) days of delivery.
3. LICENSE, TRADEMARKS AND TRADE NAMES.
a. The Distributor shall not use Supplier's name or any other trademark
or trade name used or claimed by Supplier (all of which names or marks shall
hereinafter be referred to as the "Marks") in connection with any business
conducted by the Distributor other than dealing with the Products.
b. Supplier hereby grants to the Distributor a royalty free non-exclusive
license to use the Marks, but only with respect to the sales of the Products.
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c. Distributor shall include and shall not alter, obscure or remove any
trademark or trade name used or claimed by Supplier, or any markings, colors or
other insignia which are contained on or in or affixed to Product at the time of
shipment.
d. Any advertising or promotional literature or announcement to the press
by Distributor regarding its relationship with Supplier or otherwise utilizing
Supplier's name or trademarks must be approved by Supplier in advance in
writing.
e. Distributor agrees that it will not use, without Supplier's prior
written consent, any mark which is likely to be similar to or confused with the
Marks.
f. Distributor agrees that it has not and will not register the name
"CardioDynamics International Corporation (CDIc)" or any forms thereof for use
in connection with any business entity without the prior written approval of
Supplier. Distributor also agrees not to use or contest during or after the
term of this Agreement any name, mark or designation used by Supplier anywhere
in the world (or any name, mark or designation similar thereto) and to promptly
register at Distributor's expense all Marks throughout the Territory in the name
of and for the sole benefit and ownership of Supplier.
g. The Distributor agrees that its use of the Marks shall not create in
its favor any right, title or interest therein and acknowledges Supplier's
exclusive right, title and interest in the Marks.
h. The Distributor hereby acknowledges and agrees that any and all
rights, title and interest in any and all trademarks and other proprietary
rights that are related in any way to the production, manufacture or sale of the
Initial Products, or form the basis for the development of the Initial Products
are owned solely and exclusively by Supplier, and Supplier may, in its
discretion, seek to secure and maintain any such rights. In the event that
Supplier seeks to secure or maintain or initiate any infringement action
regarding such rights, the Distributor agrees to cooperate with Supplier in any
way reasonably requested.
4. DISTRIBUTOR COVENANTS AND REPRESENTATIONS.
Except as expressly and unambiguously provided herein, Distributor
represents, warrants and agrees:
a. To use its best efforts to successfully market (including, without
limitation, conducting periodic promotions and market research, maintaining a
well staffed sales force and adequate inventory, and prompt inclusion of the
Products in all applicable trade shows and in Distributor's catalogs and other
promotional materials), distribute and support (including training and other
support) the Products on a continuing basis and to comply with good business
practices and all laws and regulations relevant to
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this Agreement or the subject matter hereof. In its distribution efforts,
Distributor will use Marks (but will not represent or imply that it is Supplier
or is a part of Supplier). However, all advertisements, promotional materials,
packaging and anything else bearing a Mark shall identify Supplier as the Mark
owner and Product manufacturer and shall be subject to prior written approval of
Supplier, which approval shall not be unreasonably withheld.
b. To keep Supplier informed of relevant market trends, customer needs,
competitive activity, economic and regulatory conditions and Distributor's sales
and inventory by Product. Distributor will also provide Supplier with a written
quarterly report with respect to these matters.
c. That it does not currently represent or promote any lines or products
that compete with the Products. Distributor will conduct its business in a
manner that reflects favorably on the Products and shall not, without Supplier's
prior written consent, represent, promote or otherwise try to sell within the
Territory any lines or products that, in Supplier's judgment, compete with the
Products covered by this Agreement.
d. That neither this Agreement (or any term hereof) nor the performance
of or exercise of rights under this Agreement, is restricted by, contrary to, in
conflict with, ineffective under, requires registration or approval or tax
withholding under, or affects Supplier's proprietary rights (or the duration
thereof) under, or will require any termination payment or compulsory licensing
under, any law or regulation of any organization, country, group of countries or
political or governmental entity located within or including all or a portion of
the Territory.
e. That Distributor will purchase the quota of Product specified in
Attachment E during the periods specified therein. If Distributor fails during
any period specified in Attachment E to purchase from Supplier the sales quota
of Product for that period, Supplier shall have the right to convert the
Distributor's rights in the Territory to non-exclusive (or terminate this
Agreement).
f. To ascertain and comply with, at Distributor's sole expense, all
applicable laws and regulations.
g. To ascertain and comply with all applicable laws and regulations and
standards of industry or professional conduct, including without limitation,
those applicable to product claims, labels, instructions, packaging or the like,
which consent shall not be unreasonably withheld.
h. To use best efforts, at its sole expense, to obtain and maintain any
applicable approvals, registrations, notifications or the like with regard to
marketing, using, selling, labeling or otherwise promoting or making claims
regarding the Products or their uses or reimbursement therefore in the
Territory. This includes, without limitation, conducting any necessary clinical
studies and preparing and filing any
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necessary applications or documents. Distributor shall not file any such
application or document or conduct any study without Supplier's prior written
consent, which shall not be unreasonably withheld. To the extent allowed by law
all approvals, registrations, notifications and the like (and all documents,
applications and information related thereto) and all rights thereunder or
thereto shall be for the sole benefit of and shall be solely owned by and in the
name of Supplier. Distributor will provide Supplier with any information
regarding the foregoing that Supplier may request (with English translations);
Supplier may use such information in its discretion.
i. To immediately notify Supplier of any adverse or unexpected results or
any actual or potential government action relevant to a Product and, if and to
the extent requested by Supplier in writing to suspend distribution of that
Product.
j. To keep for five years after termination of this Agreement records of
all Product sales and customers sufficient to adequately administer a recall of
any Product and to fully cooperate in any decision by Supplier to recall,
retrieve and/or replace any Product.
l. To keep Supplier informed as to any problems encountered with the
Products and any resolutions arrived at for those problems, and to communicate
promptly to Supplier any and all modifications, design changes or improvements
of the Products suggested by any customer, employee or agent. Distributor
further agrees that Supplier shall have any and all right, title and interest in
and to any such suggested modifications, design changes or improvements of the
Products, without the payment of any additional consideration therefore either
to Distributor, or its employees, agents or customers. Distributor will also
promptly notify Supplier of any infringement of any trademarks or other
proprietary rights relating to the Products.
5. COMPLIANCE WITH UNITED STATES LAWS.
a. Distributor acknowledges that the export from the United States of the
Products may be subject to regulation by the U.S. Export Administration Act of
1979, as amended, and the rules and regulations promulgated thereunder, which
restrict exports and re-exports of any Products or direct product thereof.
Distributor agrees to comply with U.S. Export Administration Regulations as in
effect from time to time (including, without limitation, all record-keeping
requirements imposed thereunder), and will not re-export the Products in
violation of such Regulations.
b. Without limitation of the foregoing, Distributor agrees to commit no
act which, directly or indirectly, would violate any United States law,
regulation, or treaty, or any other international treaty or agreement, relating
to or applicable to the export or re-export of the Products, to which the United
States adheres or with which the United States complies.
5
<PAGE>
c. Distributor shall obtain, at its expense, any necessary licenses
and/or exemptions with respect to the export from the U.S. of all material or
items deliverable by Supplier and shall demonstrate to Supplier its compliance
with all applicable laws and regulations prior to delivery thereof by Supplier.
d. Distributor agrees to comply with the U.S. Foreign Corrupt Practices
Act of 1977, as amended, and the Regulations promulgated thereunder. Without
limiting the foregoing, Distributor will not pay or give anything of value
directly or indirectly to any officer, employee, or agent of a political party
or government, or candidate for public office, for the purpose of obtaining or
retaining business.
e. Distributor agrees to indemnify and hold harmless Supplier from any
and all fines, damages, losses, costs and expenses (including reasonable
attorneys' fees) incurred by Supplier as a result of the breach of this Section
5 by Distributor.
6. CONFIDENTIALITY.
Distributor agrees that all inventions, know-how and ideas it obtains from
Supplier and all other business, technical and financial information it obtains
from Supplier are the confidential property of Supplier ("Proprietary
Information"). Except as expressly and unambiguously allowed herein,
Distributor will hold in confidence and not use or disclose any Proprietary
Information and shall similarly bind its employees in writing. Distributor's
nondisclosure obligation shall not apply to information it can document has
entered the public domain and is generally available to the public. Distributor
will promptly report to Supplier any actual or suspected violation of the terms
of this Section 6, and will take all reasonable further steps requested by
Supplier to prevent, control or remedy any such violation. Distributor shall,
upon the termination of the Agreement or the request of Supplier at any time,
return to Supplier all tangible manifestations of confidential information
received by Distributor pursuant to this Agreement (and all copies and
reproductions thereof).
7. WARRANTY AND DISCLAIMER.
Supplier warrants only to Distributor that the Products will be free from
manufacturing and material defects for twelve (12) months after delivery to
Distributor. Products purchased from Supplier which do not comply with the
warranty and are returned (by Distributor only) to Supplier during such period
(with proof of the date of purchase) will be repaired or replaced, provided
Distributor bears the cost of freight and insurance for return of good to
Distributor. Distributor must return any such Products in the original
container, which shall conspicuously bear the Return Material Authorization
(RMA) number Distributor obtains from Supplier prior to return. If Supplier
cannot, or determines that is not practical to, repair or replace the returned
Product, the purchase price therefore will be refunded. Supplier MAKES NO OTHER
WARRANTIES WITH RESPECT TO THE PRODUCTS OR ANY SERVICES AND DISCLAIMS ALL OTHER
WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY,
6
<PAGE>
FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT. The above warranty does
not extend to any Product that is modified or altered, is not maintained to
Supplier's maintenance recommendations, is operated, handled or stored in a
manner other than that specified by Supplier, has its serial number removed or
altered or is treated with abuse, negligence or other improper treatment
(including, without limitation, use outside the recommended environment).
Distributor's sole remedy with respect to any warranty or defect is as stated
above. Distributor is fully responsible for satisfaction of its customers and
will be responsible for all claims, damages, settlements, expenses and attorneys
fees incurred by Supplier with respect to Distributor's customers or their
claims beyond Supplier's above warranty obligation to Distributor.
8. LIMITED LIABILITY.
NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, Supplier
WILL NOT BE LIABLE UNDER ANY SECTION OF THIS AGREEMENT OR UNDER ANY CONTRACT,
NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY (A) FOR ANY
AMOUNTS IN EXCESS IN THE AGGREGATE OF THE AMOUNTS PAID TO Supplier HEREUNDER
DURING THE TWELVE MONTH PERIOD PRIOR TO DATE THE CAUSE OF ACTION AROSE OR (B)
FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES. (C) FOR COST OF PROCUREMENT OF
SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES, OR (D) DAMAGES ARISING FROM THE LOSS
OF PROFITS OR LOSS OF BUSINESS. Supplier SHALL HAVE NO LIABILITY FOR ANY
FAILURE OR DELAY DUE TO MATTERS BEYOND ITS REASONABLE CONTROL. DISTRIBUTOR
SHALL INDEMNIFY Supplier AGAINST ALL CLAIMS ASSERTED BY ITS CUSTOMERS OR OTHER
THIRD PARTIES AS A RESULT OF DISTRIBUTOR'S ACTS OR OMISSIONS.
9. RELATIONSHIP OF PARTIES.
The parties hereto expressly understand and agree that Distributor is an
independent contractor in the performance of each and every part of this
Agreement, is not an agent, and is solely responsible for all its employees and
agents and its labor costs and expenses arising in connection therewith and is
responsible for an will indemnify Supplier from any and all claims, liabilities,
damages, debts, settlements, costs, attorneys' fees, expenses and liabilities of
any type whatsoever that may arise on account of Distributor's activities or
omissions, or those of, its employees or agents, including without limitation,
providing unauthorized representations or warranties (or failing to effectively
disclaim all warranties and liabilities on behalf of Supplier) to its customers
or breaching any term, representation or warranty of this Agreement. Supplier
is in no manner associated with or otherwise connected with the actual
performance of this Agreement on the part of Distributor, nor with Distributor's
employment of other persons or incurring of other expenses. Except as expressly
provided herein, Supplier shall have
7
<PAGE>
no right to exercise any control whatsoever over the activities or operations of
Distributor.
10. ASSIGNMENT.
This Agreement and the rights hereunder are not transferable or assignable
by a party without the prior written consent of the other party, except for
rights to payment and except to a person or entity who acquires all or
substantially all of the assets or business of Supplier, whether by sale, merger
or otherwise.
11. TERM AND TERMINATION.
Unless terminated earlier as provided herein, this Agreement shall have a
term extending from the date of this Agreement to June 14, 2,000. This
Agreement is renewable for two subsequent one year periods with the written
consent of each party delivered to the other within 60 days of expiration of
this Agreement or an extension thereof. Distributor understands that after the
date specified above or earlier termination, it shall have no right whatsoever
to purchase Products or continue as a dealer or distributor or otherwise
regardless of any undocumented continuation of the relationship with Supplier.
a. This Agreement may be terminated by a party for cause immediately by
written notice upon the occurrence of any of the following events:
i. If the other ceases to do business, or otherwise terminates its
business operations; or
ii. If the other shall fail to secure or renew any license, registration,
permit, authorization or approval for the conduct of its business in the manner
contemplated by this Agreement or if any such license, registration, permit,
authorization or approval is revoked or suspended; or
iii. If the other breaches any provision of this Agreement and falls to
fully cure such breach within 30 days (10 days in the case of a failure to pay)
of written notice describing the breach; or
iv. If the other seeks protection under any bankruptcy, receivership,
trust deed, creditors arrangement, composition or comparable proceeding, or if
any such proceeding is instituted against the other.
b. Supplier may immediately terminate this Agreement upon notice if
Distributor or Distributors' assets or business is acquired by a third party.
Additionally, the Supplier may terminate this Agreement upon two years written
notice if Supplier or Suppliers' assets or business is acquired by a third
party. "Acquired" for purposes of this provision means that the third party has
obtained 50% or more of the capital shares or voting power.
8
<PAGE>
c. Either party may terminate this Agreement at any time with or without
cause upon 180 days written notice. Commencing January 1997, if Distributor has
met the quota of the preceding three months, and Supplier elects to terminate,
without cause, the Agreement, then Supplier agrees to provide Distributor with
the following Stock Options Program:
i. If the termination of the Agreement occurs from January 1, 1997 to
June 30, 1997, then Distributor would have the right to purchase 25,000 options
of CDIc common stock; or
ii. If the termination of the Agreement occurs from July 1, 1997 to
December 31, 1997, then Distributor would have the right to purchase 21,000
options of CDIc common stock; or
iii. If the termination of the Agreement occurs from January 1, 1998 to
June 30, 1998, then Distributor would have the right to purchase 17,000 options
of CDIc common stock; or
iv. If the termination of the Agreement occurs from July 1, 1998 to
December 31, 1998, then Distributor would have the right to purchase 13,000
options of CDIc common stock; or
v. If the termination of the Agreement occurs from January 1, 1999 to
July 31,1999, then Distributor would have the right to purchase 5,000 options of
CDIc common stock; or
vi. If the termination of the Agreement occurs from July 1, 1999 to
December 31, 1999, then Distributor would have the right to purchase 5,000
options of CDIc common stock; or
vii. If the termination of the Agreement occurs from January 1, 2000 to
June 14, 2000, then Distributor would have the right to purchase 1,000 options
of CDIc common stock.
The above mentioned options for rights to purchase CDIc common stock will be
exercisable at a price equal to the fair market value on the day termination of
this Agreement takes effect. The right to exercise the options will be for a
period of three years after the day termination of this Agreement takes effect.
d. Each party understands that the rights of termination hereunder are
absolute. Neither party shall incur any liability whatsoever for any damage,
loss or expenses of any kind suffered or incurred by the other arising from or
incident to any termination of this Agreement by such party which complies with
the terms of the Agreement whether or not such party is aware of any such
damage, loss or expenses.
e. In the event of any termination, Supplier may elect to continue or
terminate any purchase order then pending.
f. In addition to any provisions that survive termination according to
their terms and any restrictions on Distributor's distribution of Products, the
following sections shall survive termination of this Agreement: Sections 2.a;
3.e,g,i,j,k,l; and 4 through 10.
9
<PAGE>
g. Upon termination, if Distributor has any right, title or interest in
any Mark (as defined in Section 3.b) or any registration related thereto or in
anything referred to in Section 3.h, it will immediately assign all such right,
title and interest to Supplier and take all necessary action to ensure that
Supplier obtains the full benefit thereof or, if Supplier so requests in writing
with respect to any such item, take any necessary action to surrender and cancel
such item and the related rights, title and interest.
h. Termination is not the sole remedy under this Agreement and, whether
or not termination is effected, all other remedies will remain available.
12. DUTIES OF DISTRIBUTOR UPON TERMINATION.
Upon the termination of this Agreement for any reason whatsoever,
Distributor shall:
a. Pay to Supplier, in full within thirty (30) days of such termination,
all amounts owed to Supplier. Supplier shall be entitled to set off and deduct
from any money due Distributor, whether or not arising under this Agreement, any
and all amounts due Supplier from Distributor.
b. Promptly return to Supplier any and all Supplier-owned Product or
other materials, documentation or data, including without limitation all
promotional material, in the possession of Distributor for whatever reason or
purpose, such Product, material, documentation and data to be in the same
condition as when delivered to Distributor.
c. Cooperate with Supplier in completing all outstanding obligations to
customers, including the fulfillment, at Distributor's expense, of each warranty
term and condition.
d. Within seven (7) days after notice of termination by either
Distributor or Supplier, prepare a statement listing all active and prospective
customers and the type and amount of orders of Product expected to be sold to
such customers by Distributor during the sixty (60) day period following the
date of termination of this Agreement. Distributor shall also deliver to
Supplier within such seven (7) day period all orders for Product received by
Distributor on or prior to the date of the notice of termination. Supplier
shall fill all such orders on behalf of Distributor, subject to Supplier's
approval of the terms, conditions, credit worthiness and pricing of any such
orders, and shall pay to Distributor a commission equal to thirty-five percent
of the sales price for Product sold pursuant to such orders, within thirty (30)
days after receipt of payment therefore.
13. GENERAL.
a. Amendment and Waiver - Except as otherwise expressly provided herein,
any provision of this Agreement may be amended and the observance of any
provision of this Agreement may be waived (either generally or any particular
instance and either retroactively or prospectively) only with the written
10
<PAGE>
consent of the parties. However, it is the intention of the parties that this
Agreement be controlling over additional or different terms of any purchase
order, confirmation, invoice or similar document, even if accepted in writing by
both parties, and that waivers and amendments shall be effective only if made by
non-preprinted agreements clearly understood by both parties to be an amendment
or waiver.
b. Governing Law and Legal Actions - This Agreement shall be governed by
and construed under the laws of the State of California and the United States
without regard to conflicts of laws provisions thereof and without regard to the
United Nations Convention on Contracts for the International Sale of Goods.
Unless otherwise elected by Supplier for the particular instance (which Supplier
may do at its option), the sole jurisdiction and venue for actions related to
the subject matter hereof shall be the California state and U.S. federal courts
having within their jurisdiction of such courts and agree that process may be
served in the manner provided herein for giving of notices or otherwise as
allowed by California or federal law. In any action or proceeding to enforce
rights under this Agreement, the prevailing party shall be entitled to recover
costs and attorney's fees.
c. Headings and Language - Headings and captions are for convenience only
and are not to be used in the interpretation of this Agreement. The official
text of this Agreement shall be the English language, and such English text
shall be controlling in all respects, notwithstanding any translation hereof
required under the laws or regulations of any other country. The parties
undertake to translation hereof required under the laws or regulations of any
other country. The parties undertake to use the English language in respect of
all documents and communications contemplated hereby, except where another
language must be used under the laws and regulations of another country. In any
such case, a certified English translation shall be supplied to the other party
by the party using such document or making such communication.
d. Notices - For purposes of this Agreement, and for all notices and
correspondence hereunder, the addresses of the respective parties have been set
out at the beginning of this Agreement, and no change of address shall be
binding upon the other party hereto until written notice thereof is received by
such party at the address shown herein. All notices shall be deemed received
when personally delivered or two (2) days after being sent via telecopy, or
three (3) after being sent by overnight courier, return receipt requested.
e. Entire Agreement - This Agreement supersedes all proposals, oral or
written, all negotiations, conversations or discussions between or among parties
relating to the subject matter of this Agreement and all past dealing or
industry custom. This Agreement does not contain or constitute any express or
implied license to make, have made or modify any Product under any
circumstances.
11
<PAGE>
f. Severability - If any provision of this Agreement is held to be
illegal or unenforceable, that provision shall be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable.
SUPPLIER DISTRIBUTOR
CardioDynamics International Landice International
Corporation Corporation, Inc.
a California corporation a Washington corporation
BY /s/ Richard Otto BY /s/ Glen Safadago
-------------------- --------------------
Name: Richard Otto Name: Glen Safadago
Title: President, CEO Title: President
12
<PAGE>
FOURTH AMENDED AND RESTATED
SECURED CONVERTIBLE
PROMISSORY NOTE
$25,000.00 February 7, 1995, as
amended March 30, 1995,
May 19, 1995,
March 31, 1996
and June 30, 1996
FOR VALUE RECEIVED, CardioDynamics International Corporation, a California
corporation ("Maker"), 6155 Cornerstone Court East, Suite 125, San Diego,
California 92121, hereby promises to pay to the order of CardioDynamics
Holdings, LLC, a California limited liability company ("Lender"), 5067 Shore
Drive, Carlsbad, California 92008, TWENTY-FIVE THOUSAND DOLLARS ($25,000.00), at
such address of Lender, in lawful money of the United States together with
interest on the principal balance outstanding at the lesser of (a) eight percent
per annum, or (b) if less, the maximum rate permissible by applicable law.
Interest shall be calculated on the basis of a 360-day year for the actual
number of days elapsed, and shall be payable in arrears on each March 31,
June 30, September 30 and December 31. The principal amount of and all unpaid
accrued interest under the Note shall become due and payable in full on March
31, 1998. This Note is an amendment and restatement of a certain Secured
Convertible Promissory Note dated February 7, 1995 in the original principal
amount of $100,000.
1. ADDITIONAL PROVISIONS RELATING TO DEBT CHARACTERISTICS.
This Note may not be prepaid in full or in part.
This Note is secured by the collateral identified and described as security
therefor in that certain Security Agreement, dated as of February 7, 1995, by
and between Maker and Lender and the collateral identified and described as
security therefor in that certain Patent Security Agreement, dated as of
February 7, 1995, by and between Maker and Lender (collectively, the "Security
Agreement").
Upon the happening of any of the following events, Lender may, at its
option, declare immediately due and payable the entire unpaid principal amount
of this Note, together with all interest thereon, plus any other amounts payable
at the time of such declaration pursuant to this Note. Such events are the
following: (1) failure to make any interest payment as it falls due, (2) Maker
shall admit in writing its inability to pay its debts as they become due, shall
make a general assignment for the benefit of creditors or shall file any
petition or action for relief under any bankruptcy, reorganization, insolvency
or moratorium law, or any other law or laws for the relief of, or relating to,
debtors; or (3) an involuntary petition shall be filed against Maker under any
bankruptcy, reorganization, insolvency or moratorium law, or any other law or
laws for the relief of, or relating to, debtors unless such petition shall be
dismissed or vacated within sixty (60)
<PAGE>
days of the date thereof. Lender shall further be entitled to the remedies
provided in the event of default provided in the Security Agreement.
Maker hereby waives diligence, presentment, demand, protest or other notice
of any kind.
2. CONVERSION.
2.1 CONVERSION PRIVILEGE. Lender has the right, at Lender's option,
at any time after February 6, 1996 and prior to payment in full of the principal
balance of this Note, to convert this Note, in accordance with the provisions
hereof, in whole or in part, into fully paid and nonassessable shares of Common
Stock of Maker. The number of shares of Common Stock into which this Note may
be converted shall be determined by dividing the aggregate principal amount
together with all accrued interest to the date of conversion by the Conversion
Price (as defined below) in effect at the time of such conversion. The initial
Conversion Price shall be equal to $0.50. On March 31, 1996, the Conversion
Price shall decrease to $0.25, subject to further possible adjustment under
subsection 2.2 hereof.
Before Lender shall be entitled to convert this Note into shares of Common
Stock, it shall surrender this Note at the office of Maker and shall give
written notice by mail, postage prepaid, to Maker 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. Maker shall, as soon as practicable thereafter, issue and deliver at
such office to the holder of this Note a certificate or certificates for the
number of shares of Common Stock to which the holder of this Note 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 this
Note, 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.
Upon the conversion of this Note, Lender shall surrender this Note, duly
endorsed, at the principal office of Maker. At its expense, Maker shall, as
soon as practicable thereafter, issue and deliver to such Lender at such
principal office a certificate or certificates for the number of shares of such
Common Stock to which the Lender shall be entitled upon such conversion (bearing
such legends as may be required by applicable state and federal securities laws
in the opinion of counsel to Maker), together with any other securities and
property to which Lender is entitled upon such conversion under the terms of
this Note. If less than the entire Note is converted, Maker shall issue to
Lender a new Note, of like tenor, for the remaining principal amount.
2.2 CONVERSION PRICE ADJUSTMENTS. In the event Maker should at any
time or from time to time after the date of issuance hereof 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
-2-
<PAGE>
Common Stock entitled to receive a dividend or other distribution payable in
additional 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 this Note
shall be appropriately decreased so that the number of shares of Common Stock
issuable upon conversion of this Note shall be increased in proportion to such
increase of outstanding shares.
If the number of shares of Common Stock outstanding at any time after the
date hereof is decreased by a combination of the outstanding shares of Common
Stock, then, following the record date of such combination, the Conversion Price
for this Note shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion hereof shall be decreased in proportion to
such decrease in outstanding shares.
In the event Maker shall declare a distribution payable in securities of
other persons, evidences of indebtedness issued by Maker or other persons,
assets (excluding cash dividends) or options or rights, then, in each such case
for the purpose of this subsection 2.2, the holder hereof shall be entitled to a
proportionate share of any such distribution as though such holder was the
holder of the number of shares of Common Stock of Maker into which this Note is
convertible as of the record date fixed for the determination of the holders of
Common Stock of Maker entitled to receive such distribution.
-3-
<PAGE>
2.3 NOTICES OF RECORD DATE, ETC. In the event of:
- any taking by Maker of a record of the holders of any class of
securities of Maker for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a
cash dividend payable out of earned surplus at the same rate as
that of the last such cash dividend theretofore paid) or other
distribution, or 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; or
- any capital reorganization of Maker, any reclassification or
recapitalization of the capital stock of Maker or any transfer of
all or substantially all of the assets of Maker to any other
person or any consolidation or merger involving Maker; or
- any voluntary or involuntary dissolution, liquidation or winding-
up of Maker,
Maker will mail to the holder of this Note at least ten (10) days prior to the
earliest date specified therein, a notice specifying:
(a) 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; and,
(b) The date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding-up is
expected to become effective and the record date for determining
shareholders entitled to vote thereon.
2.4 RESERVATION OF STOCK ISSUABLE UPON CONVERSION. Maker 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 Note
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of the Note; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the entire outstanding principal amount of this Note,
in addition to such other remedies as shall be available to the holder of this
Note, Maker will use its reasonable best efforts to 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.
-4-
<PAGE>
3. MATCHING RIGHT.
If during the term of this Note, Maker shall issue any Common Stock to any
person in any circumstances, Lender shall have the right (exercisable by written
notice of exercise delivered to Maker no later than 60 days after Maker's
written notice to Lender of such issuance to such other person, accompanied by a
cashier's check for payment in full), but not the obligation, to purchase from
Maker (at the Conversion Price in effect on the date of the issuance to the
other person) the same number of shares of Common Stock issued to the other
person. This right may be exercised any number of times, and no non-exercise
shall affect such right in future instances.
4. MISCELLANEOUS.
The rights and obligations of Maker and Lender shall be binding upon and
benefit the successors, assigns, heirs, administrators, and transferees of Maker
and Lender.
Lender shall not be deemed by any act or omission or commission to have
waived any of its rights or remedies hereunder unless such waiver is in writing
and expressly stated as such and signed by Lender and then only to the extent
specifically set forth in the writing. A waiver of one event shall not be
construed as continuing or a bar to or waiver of any right or remedy as to a
subsequent event. Maker expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and consents to the acceptance of
security, if any, or the release of security, if any, from this Note, all
without in any way affecting the liability of Maker.
Any notice that Maker or Lender desires to give to the other related to
this Note shall be in writing and shall be deemed delivered when personally
delivered by any courier service which obtains a receipt upon delivery to an
officer or registered agent of the respective corporation, or two business days
after deposit in the United States mail, certified mail, return receipt
requested, postage prepaid, addressed to the party being notified at its
respective address specified in this Note.
If Lender should institute collection efforts, of any nature whatsoever, to
attempt to collect any and all amounts due hereunder upon the default of Maker
on this Note or under the Security Agreement, or any other efforts to enforce
any of its rights under this Note, Maker shall be liable to pay to Lender
immediately and without demand all reasonable costs and expenses of collection
incurred by Lender, including without limitation reasonable attorneys fees,
whether or not suit or other action or proceeding be instituted and specifically
including but not limited to collection efforts that may be made on appeal or
through a bankruptcy court, and all such sums shall be fully secured by all
instruments securing this Note.
The provisions of this Note are intended by Maker to be severable and
divisible and the invalidity or unenforceability of a provision or term herein
shall not invalidate or render unenforceable the remainder of this Note or any
part thereof.
-5-
<PAGE>
This Note shall be construed in accordance with the laws of the State of
California without giving effect to principles of conflict of laws.
IN WITNESS WHEREOF, Maker has executed this instrument in San Diego,
California.
MAKER:
CARDIODYNAMICS INTERNATIONAL CORPORATION
By: /s/ Richard E. Otto
------------------------------------------
Richard E. Otto, President
By: /s/ Stephenson M. Dechant
------------------------------------------
Stephenson M. Dechant, Secretary
-6-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTER
ENDED AUGUST 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719722
<NAME> CARDIODYNAMICS INTERNATIONAL CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 678,096
<SECURITIES> 263,549
<RECEIVABLES> 64,616
<ALLOWANCES> 22,254
<INVENTORY> 390,010
<CURRENT-ASSETS> 1,386,167
<PP&E> 430,580
<DEPRECIATION> 275,121
<TOTAL-ASSETS> 1,545,876
<CURRENT-LIABILITIES> 106,091
<BONDS> 0
0
589,985
<COMMON> 7,524,880
<OTHER-SE> (76,052)
<TOTAL-LIABILITY-AND-EQUITY> 1,545,876
<SALES> 97,330
<TOTAL-REVENUES> 97,330
<CGS> 43,884
<TOTAL-COSTS> 637,495
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,632
<INCOME-PRETAX> (585,681)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (585,681)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
