CARDIODYNAMICS INTERNATIONAL CORP, DEF 14A, 1996-03-29

CARDIODYNAMICS INTERNATIONAL CORP
DEF 14A, 1996-03-29
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting material Pursuant to Rule 14a-11(c) or Rule 14a-12

CARDIODYNAMICS INTERNATIONAL CORPORATION
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(Name of Registrant as Specified In Its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
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CARDIODYNAMICS INTERNATIONAL CORPORATION

PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 12, 1996

These proxy materials and the enclosed proxy card are being mailed in
connection with the solicitation of proxies by the Board of Directors of
CardioDynamics International Corporation, a California corporation (the
"Company"), for the Annual Meeting of Shareholders to be held at the Del Mar
Country Club, 6001 Clubhouse Drive, Rancho Santa Fe, California at 10:00 a.m. on
June 12, 1996, and at any adjournment or postponement of the Annual Meeting.
These proxy materials were first mailed to shareholders of record beginning on
approximately April 15, 1996.

The mailing address of the principal executive office of the Company is
6155 Cornerstone Court East, Suite 125, San Diego, California 92121.

PURPOSE OF MEETING

The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Shareholders. Each proposal is described in more detail in this Proxy
Statement.

VOTING RIGHTS AND SOLICITATION

Any shareholder executing a proxy has the power to revoke it at any time
before it is voted by delivering written notice of such revocation to the
Secretary of the Company before the Meeting or by properly executing and
delivering a proxy bearing a later date. Proxies may also be revoked by any
shareholder present at the Meeting who elects to vote his shares in person. The
cost of soliciting proxies will be paid by the Company and may include
reimbursement paid to brokerage firms and others for their expense in forwarding
solicitation material. Solicitation will be made primarily through the use of
the mail but regular employees of the Company may, without additional
remuneration, solicit proxies personally by telephone or telegram.

The record date for determining those shareholders who are entitled to
notice of, and to vote at, the Meeting has been fixed as April 15, 1996. At the
close of business on the record date, the Company had 22,486,503 outstanding
shares of Common Stock (the "Common Stock") and 246,793 shares of Preferred
Stock (the "Preferred Stock"). Each share of Common Stock and Preferred Stock
is entitled to one vote on matters brought before the Meeting. In voting for
directors, each shareholder has the right to cumulate his votes and give one
nominee a number of votes equal to the number of directors to be elected
multiplied by the number of shares he holds, or to distribute his votes on the
same principle among the nominees to be elected in such manner as he may see
fit. A shareholder may cumulate his votes if his candidate or candidates have
been placed in nomination prior to the voting and if any shareholder gives
notice at the Annual Meeting prior to the voting of that shareholder's intention
to cumulate his votes. The persons named in the enclosed proxy card may or may
not elect to give such notice and vote the shares they represent in such a
manner. The shares represented by the proxy will be voted at the Annual Meeting
and will be voted by the proxyholder as specified by the person solicited.

California statutes and case law does not give specific instructions
regarding the treatment of abstentions and broker nonvotes for corporations such
as the Company on matters which require the affirmative vote of a majority of
the shares represented and voting at the Annual Meeting; however, the Company
believes that California law provides that if shares are represented and vote on
any issue at a

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shareholder meeting their failure to vote yes on any other issue (through either
abstention or a broker nonvote) has the same effect as a negative vote on that
other issue. On matters which require the affirmative vote of a majority of the
outstanding shares, abstentions and broker nonvotes certainly have the same
effect as a negative vote.

CHANGE OF CONTROL

DESCRIPTION OF TRANSACTIONS EFFECTING CHANGE IN CONTROL

On February 7, 1995, CardioDynamics Holdings, LLC ("LLC") purchased
1,477,910 shares of Common Stock from the Company (902,956 shares delivered
immediately and 574,954 shares deliverable in May 1995 upon amendment of the
Company's Articles of Incorporation to increase the authorized number of shares
of Common Stock) in exchange for $225,739. LLC also loaned the Company
$100,000, subject to the terms of a secured convertible promissory note
(convertible into 200,000 shares of the Common Stock of the Company) and entered
into certain other agreements with the Company, including an agreement which
entitled LLC, at any time prior to February 5, 1997, to loan up to an additional
$1,257,803 on the same terms and conditions as contained in the existing secured
convertible promissory note. LLC also obtained the right to purchase at the
then-applicable note conversion price (currently $.50 per share) the same number
of shares of Common Stock as the Company may from time to time issue to any
other person.

On the same date, LLC purchased 2,404,333 shares held by Helionetics, Inc.
in exchange for $666,458. In addition, in consideration of LLC lending money to
the Company, as set forth above, the holders of no less than 4,552,247 shares of
Common Stock (including DaVinci Scientific Corporation) granted LLC an
irrevocable proxy to vote their shares.

LLC and its members have engaged in subsequent transactions with the
Company. Currently LLC owns 8,482,243 shares of Common Stock and holds a
secured convertible promissory note convertible into an additional 50,000
shares; LLC has covenanted not to exercise its right to loan additional money on
the same terms and conditions contained in the second convertible promissory
note. LLC still holds irrevocable proxies to vote no less than 4,522,247 shares
of Common Stock owned by others. Members of LLC also now own beneficially
5,344,000 shares of Common Stock of the Company (aside from LLC's own holdings);
of the members' shares, Allen E. Paulson owns 4,200,000, James C. Gilstrap owns
1,184,000 and Nicholas Diaco owns 250,000.

As a result of the transactions set forth herein, LLC and its members now
together are the beneficial owners (as determined in accordance with Rule 13d-3
of the Exchange Act) of 81.8% of the Common Stock of the Company.

In October 1993, the Company emerged from Chapter 11 bankruptcy
reorganization proceedings. Helionetics, Inc. and DaVinci Scientific
Corporation obtained their substantial holdings under the court-approved plan of
reorganization. Prior to the transactions described above, DaVinci Scientific
Corporation was the beneficial owner of over 44% of the Common Stock of the
Company. In June 1994, B. Bo Sramek and Hevka Sramek, the Company's founders,
resigned from all their remaining positions with the Company.

SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION

LLC used funds from affiliates (Allen E. Paulson and James C. Gilstrap,
both of now directors of the Company) to purchase on February 7, 1995 the shares
of Common Stock set forth above. Messrs. Paulson and Gilstrap and William
Walters each placed $750,000 in escrow on January 6, 1995 from their personal
funds for the purchase of Common Stock of the Company, before formation of LLC.
Messrs. Paulson, Gilstrap and Walters each assigned their interest in the
escrowed funds to LLC.

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In February 1995, LLC decided to scale back its contemplated initial
investment in the Company. Mr. Walters' $750,000 was returned and $450,000 of
Mr. Gilstrap's $750,000 was returned. Each of Nicholas Diaco and Joseph Diaco
then purchased $50,000 of Mr. Gilstrap's remaining interest.

BASIS OF CONTROL

As the beneficial owner of a substantial majority of the shares of Common
Stock of the Company, LLC controls the Company through its power to elect a
majority of the Company's Board of Directors.

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PROPOSAL 1

ELECTION OF DIRECTORS

Unless individual shareholders specify otherwise, each returned proxy will
be voted for the election of the nine (9) nominees of the Board of Directors who
are listed herein, or for as many nominees of the Board of Directors as
possible, such votes to be distributed among such nominees in the manner as the
persons named in the enclosed proxy card see fit.

If, however, any of those named are unable to serve, or for good cause
decline to serve at the time of the Annual Meeting, the persons named in the
enclosed proxy will exercise discretionary authority to vote for substitutes.
The Board of Directors is not aware of any circumstances that would render any
nominee unavailable for election. Discretionary authority to cumulate votes is
being solicited by the Board of Directors, and it is intended that the proxies
received by the proxy holders pursuant to the solicitation will be voted in a
manner designed to cause the election of the maximum number of the Board of
Directors' nominees. The following schedule sets forth certain information
concerning the nominees for election as directors.

THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED
---
HEREIN.

First Year
Elected
Name Director Age
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William P. Cordeiro 1994 51

Stephenson M. Dechant 1995 40

Nicholas Diaco, M.D. 1995 57

James C. Gilstrap 1995 61

Roger S. Kolasinski 1993 50

Kenneth W. Miller 1995 48

Michael D. Padilla 1995 47

Allen E. Paulson 1995 73

Barry M. Zwick 1994 61
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Mr. Cordeiro is the Chief Executive Officer of Bartik, Cordeiro &
Associates, Inc., a consulting firm that emphasizes the analysis and solution of
business problems. In addition, Mr. Cordeiro has served for more than the past
five years as an Assistant Professor in the Management Department of the School
of Business and Economics at California State University, Los Angeles. Mr.
Cordeiro is a director of Harrier, Inc. and Naturade, Inc.

Mr. Dechant has served as the personal accountant and business manager of
Allen E. Paulson and the Chief Financial Officer of various entities controlled
by Mr. Paulson, including without limitation, Allen Leasing & Finance Corp., Del
Mar Country Club and Del Mar Country Club Estates, since 1992. Each of those
entities is controlled by Allen E. Paulson. From 1990 to 1992, Mr. Dechant
served as the controller of I. B. Fischer, Inc.

Dr. Diaco has been, for more than the past five years, the director of the
Coronary Care Unit and Cardio Catheterization Lab at St. John's Hospital in
Santa Monica, California. Dr. Diaco also has been, for more than the past five
years, an Associate Professor of Medicine at the University of California, Los
Angeles.

Mr. Gilstrap has for more than the past five years managed a portfolio of
personal investments. Mr. Gilstrap is also the Chairman and President of the PGA
West Members Association, a non-profit corporation.

Mr. Kolasinski has served as the Chief Executive Officer of Kol Bio Medical
Instruments, Inc., based in Chantilly, Virginia, since the company was founded
in 1971. Kol Bio Medical Instruments, Inc. distributes specialty medical
products within the critical care and cardiovascular markets.

Mr. Miller has been Chairman, President and Chief Executive Officer of Edge
Group, Inc. for more than the past five years. He has also been Chairman of the
Board and Chief Executive Officer of DaVinci Scientific Corporation since
February 1995.

Mr. Padilla is a partner in the San Diego law firm of Thorsnes, Bartolotta,
McGuire and Padilla. Mr. Padilla also serves as the Managing General Partner of
Commonwealth Broadcasting N.C., a California general partnership which operates
six radio stations in Nevada, New Mexico and Arizona.

Mr. Paulson was Chief Executive Officer and Chairman of Gulfstream
Aerospace Corporation for more than five years, becoming Chairman Emeritus in
1993.

Mr. Zwick has served as Chairman and a director of Six Sigma Investment
Corp. since 1993. Six Sigma Investment Corp. is a privately held corporation
which is the general partner of a number of investment partnerships. Prior to
1993, Mr. Zwick worked as a Registered Investment Advisor. Mr. Zwick is a
director of Naturade, Inc.

BOARD MEETINGS AND COMMITTEES

The Company's Board of Directors held twelve (12) meetings during the
fiscal year ended November 30, 1995. Each incumbent Director attended at least
75% of the aggregate of the total meetings of the Board and of all his Board
committees held during the period in which he served as a director. Until July
1995, each director who is not an employee of the Company received a fee of $500
per month (or the equivalent in unregistered Company Common Stock) for his
services as a director. Beginning in August 1995, each director who is not an
employee of the Company automatically receives each month a 1,000-share stock
option for his services as a director. (Such stock options are subject, however,
to shareholder approval at this Annual Meeting of the Company -- see 1995 Stock
Option/Stock Issuance Plan).

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On February 17, 1995, the Board of Directors established a standing
Compensation Committee composed of directors Messrs. Zwick and Gilstrap. The
Compensation Committee reviews and acts on matters relating to compensation
levels and benefit plans for executive officers and key employees of the
Company. Prior to the formation of the Compensation Committee, all matters
relating to compensation were considered at meetings of the full Board of
Directors.

The Board of Directors has not established standing Audit or Nominating
Committees. All matters typically administered by such committees are considered
at meetings of the full Board of Directors.

SPECIAL NOMINATION

Mr. Miller has been designated for inclusion on the Board of Directors'
slate of nominees by DaVinci, pursuant to agreement.

PROPOSAL 2

APPROVAL OF 1995 STOCK OPTION/STOCK ISSUANCE PLAN
(AS AMENDED AND RESTATED THROUGH AUGUST 15, 1995)

PURPOSE OF THE PLAN

The 1995 Stock Option/Stock Issuance Plan (the "Plan") is intended to
promote the interests of CardioDynamics International Corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Company as an incentive
for them to remain in the service of the Company.

STRUCTURE OF THE PLAN

The Plan is divided into three separate equity programs: (1) the
Discretionary Option Grant Program under which employees, consultants and
independent contractors may, at the discretion of the Plan Administrator, be
granted unqualified or incentive stock options to purchase shares of Common
Stock of the Company; (2) the Stock Issuance Program under which employees,
consultants and independent contractors may, at the discretion of the Plan
Administrator, be issued shares of Common Stock of the Company directly, either
through the immediate purchase of such shares or as a bonus for services
rendered; and, (3) the Automatic Option Grant Program under which non-employee
directors shall automatically receive monthly grants of options to purchase
Common Stock of the Company.

ADMINISTRATION OF THE PLAN

The Plan is administered by a compensation committee consisting of two (2)
or more Board members who assume full responsibility for the administration of
the Plan (the "Plan Administrator"). Members of such compensation committee
shall serve for such period of time as the Board may determine and shall be
subject to removal by the Board at any time.

The Plan Administrator will have the sole and exclusive authority, subject
to the provisions of the Plan, to determine the eligible individuals who are to
receive options under the Discretionary Option Grant Program or the Stock
Issuance Program, the number of shares to be covered by each granted option or
issuance, the date or dates on which the option is to become exercisable and the
maximum term for which the option is to remain outstanding. The Plan
Administrator will also have the authority to determine whether the granted
option is to be an incentive stock option under the Federal tax laws and to
establish

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rules and regulations for proper plan administration. Options grants under the
Automatic Option Grant Program will be made in strict compliance with the
express provisions of that program, and the Plan Administrator will not have any
discretionary authority with respect to those option grants.

ISSUABLE SHARES

The maximum number of shares of Common Stock available for issuance over
the ten-year term of the Plan is 1,529,000 shares. The share reserve available
for issuance under the Plan will be subject to periodic adjustment for changes
in the Company's Common Stock occasioned by stock splits, stock dividends,
recapitalization, conversions or other changes affecting the outstanding Common
Stock as a class without the Company's receipt of consideration.

Should an option expire or terminate for any reason prior to exercise in
full (including options cancelled in accordance with the cancellation-regrant
provisions described below), the shares subject to the portion of the option not
so exercised will be available for subsequent option grants or share issuances
under the Plan. Shares subject to any option surrendered or cancelled in
accordance with the stock appreciation right provisions of the Plan and all
shares issued under the Plan, whether or not such shares are subsequently
reacquired by the Company pursuant to its repurchase rights under the Plan, will
reduce on a share-for-share basis the number of shares of Company Common Stock
available for subsequent grants.

No more than 800,000 shares may be issued to any one optionee/grantee over
the lifetime of the Plan.

IDENTITY OF BENEFICIARIES

It is not known how many options under the Plan will be received by Named
Executive Officers, current executive officers, non-officer directors,
employees, their associates, or any other group. The maximum number of options
to be granted to directors each year under the Automatic Option Grant Program
(assuming a Board of 9) is 108,000. The fair market value of a share of Company
Common Stock on March 27, 1996 was $.937.

The Company currently has eleven (11) employees, an unknown number of
consultants and independent contractors who might be selected to receive stock
options or direct issuances, and nine (9) nonemployee directors.

TERMS OF DISCRETIONARY OPTION GRANT PROGRAM

OPTION PRICE AND TERM. The option price per share for incentive stock
options will not be less than 100% of the fair market value of each share of
Company Common Stock issuable under the option on the grant date of such option.
The option price per share for nonstatutory stock options may not be less than
85% of the fair market value per share of each share of Company Common Stock
issuable under the option on the grant date of such option. No option will have
a term in excess of ten (10) years measured from the grant date.

VESTING OF OPTIONS. The vesting schedule for each granted option will be
determined by the Plan Administrator and will be set forth in the instrument
evidencing such grant. The granted option may be (i) immediately exercisable for
vested shares, (ii) immediately exercisable for unvested shares subject to the
Company's repurchase rights or (iii) exercisable in installments for vested
shares over the optionee's period of service.

PAYMENT. Upon exercise of the option, the option price for the purchased
shares will become immediately payable in cash or in shares of common stock
valued at fair market value on the date of exercise. The option may also be
exercised through a cashless exercise procedure pursuant to which the

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optionee provides irrevocable written instructions to a designated brokerage
firm to effect the immediate sale of the purchased shares and remit to the
Company, out of the sales proceeds, an amount equal to the aggregate option
price payable for the purchased shares plus all applicable withholding taxes.

FINANCIAL ASSISTANCE. The Plan administrator may assist any optionee
(including an officer) in the exercise of one or more outstanding options under
the Plan by authorizing a loan from the Company. The terms and conditions of any
such loan will be established by the Plan Administrator in its sole discretion,
but in no event will the maximum credit extended to the optionee exceed the
aggregate option price for the purchased shares plus any Federal or State tax
liability incurred in connection with the option exercise.

TERMINATION OF SERVICE. Should the optionee cease to remain in the
Company's service while holding one or more options under the Plan, then those
options will not remain exercisable beyond the limited post-service period
designated by the Plan Administrator at the time of the option grant (subject to
certain minimum post-service periods). Under no circumstances, however, may any
option be exercised after the specified expiration date of the option term. Each
such option will, during the period it remains exercisable, be exercisable for
the number of shares for which the option was exercisable on the date of the
optionee's cessation of service.

Should the optionee die while holding one or more outstanding options, then
the personal representative of the optionee's estate or the person or persons to
whom each such option is transferred pursuant to the optionee's will or in
accordance with the laws of inheritance will have the right to exercise such
option for any or all of the shares for which the option is exercisable on the
date of the optionee's cessation of service, less any option shares subsequently
purchased by the optionee prior to death. Such right will lapse, and the option
will terminate, upon the earlier of (i) the end of the limited post-service
period designated by the Plan Administrator at the time of the option grant or
(ii) the specified expiration date of the option term.

The Plan Administrator will have complete discretion to extend the period
following the optionee's termination of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability of
such options in whole or in part. Such discretion may be exercised at any time
while the options remain outstanding, whether before or after the optionee's
actual cessation of service.

CORPORATE TRANSACTION. Except to the extend otherwise provided in the
option documents, each option share will become fully vested in the event of
certain Corporate Transactions unless the option is assumed or is replaced with
a cash incentive program which preserves the material benefits of the options.
Upon consummation of the Corporate Transaction, all options which are not
assumed will be cancelled and cease to exist. The options or cash incentive
programs which replace any options which do not accelerate will provide for full
vesting in the event of involuntary termination of employment within eighteen
(18) months following the Corporate Transaction.

For purposes of the above, a Corporate Transaction includes (i) a merger or
consolidation in which the Company is not the surviving entity (except for a
transaction the principal purpose of which is to change the State of
incorporation), (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company, or (iii) any reverse merger in
which the Company is the surviving entity but in which securities possessing
more than fifty percent (50%) of the total combined voting power of the Company
are transferred to holders different from those who held the Company's
securities immediately prior to such merger.

SHAREHOLDER RIGHTS AND OPTION ASSIGNABILITY. No optionee is to have any
shareholder rights with respect to the option shares until such optionee has
exercised the option, paid the option price for the purchased shares and been
issued a stock certificate for such shares. Options are not assignable or
transferable other than by will or by the laws of inheritance following the
optionee's death, and the option may, during the optionee's lifetime, be
exercised only by the optionee.

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STOCK APPRECIATION RIGHTS. At the discretion of the Plan Administrator,
options may be granted with stock appreciation rights. The stock appreciation
rights which are authorized for issuance under the Plan are tandem rights which
require the option holder to elect between the exercise of the underlying option
for shares of common stock and the surrender of such option for an appreciation
distribution.

These tandem stock appreciation rights provide the holders with the right
to receive an appreciation distribution from the Company equal in amount to the
excess of (i) the fair market value (on the date of exercise) of the shares of
common stock for which the underlying option is at the time exercisable over
(ii) the aggregate exercise price payable for such shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in cash
or in common stock.

CANCELLATION/REGRANT. The Plan Administrator will have the authority to
effect, on one or more separate occasions, the cancellation of outstanding
options under the Discretionary Option Grant Program which have exercise prices
in excess of the then current market price of the common stock and to issue
replacement options with an exercise price based on the lower market price of
the common stock at the time of grant.

TERMS OF STOCK ISSUANCE PROGRAM

ISSUE PRICE. The purchase price per share will not be less than 85% of the
fair market value of any share of Company Common Stock being issued on the date
the Plan Administrator authorizes the issuance.

VESTING OF SHARES. The vesting schedule for each share issued will be
determined by the Plan Administrator and set forth in the issuance agreement.
The shares may be fully and immediately vested upon issuance or may vest in one
or more installments, subject to the Company's repurchase right, over the
participant's period of service.

SHAREHOLDER RIGHTS. The recipient of the share issuance will have full
shareholder rights, including voting and dividend rights, with respect to the
issued shares, whether or not the shares are vested. However, the recipient may
not sell, transfer or assign any unvested shares issued under the Plan, except
for certain limited family transfers.

REPURCHASE RIGHTS. Should the recipient of unvested shares cease to remain
in the Company's service before vesting in such shares, then those unvested
shares are to be immediately surrendered to the Company for cancellation, and
the recipient will have no further shareholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
recipient for consideration paid in cash or promissory note, the Company will
refund the cash consideration paid for the surrendered shares and cancel the
principal balance of the note to the extent attributable to such surrendered
shares.

PAYMENT. Upon issuance of the shares, the issue price for the purchased
shares will become immediately payable in cash, in shares of Company Common
Stock valued at fair market value on the date of issuance, or by promissory note
payable to the Company's order. The promissory note may, at the discretion of
the Plan Administrator, be subject to cancellation over the participant's period
of service. Shares may also be issued for past or future services, without any
cash or other payment required of the participant.

CORPORATE TRANSACTION. Except to the extent otherwise provided in the stock
issuance documents, all repurchase rights will terminate and each share will
become fully vested in the event of a Corporate Transaction (as defined above)
unless the repurchase rights are assigned to the successor corporation.
Following consummation of the Corporation Transaction, all repurchase rights
which are assigned to the successor will terminate and cease to exist in the
event of involuntary termination of employment with eighteen (18) months
following the Corporate Transaction.

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AUTOMATIC OPTION GRANT PROGRAM

Option grants will be made automatically to each non-employee Board member
who has not otherwise been in the prior employ of the Corporation during the
preceding two years. Each such person shall automatically be granted a
nonstatutory option to purchase 1,000 shares with respect to each calendar month
(beginning August 1995) during all of which he or she serves as a director, on
the last day of each such respective calendar month.

The exercise price per share of each automatic option grant made under this
Program shall be equal to one hundred percent (100%) of the fair market value
per share of Common Stock on the grant date. The exercise price shall be payable
in one of these alternative forms: (1) full payment in cash or check drawn to
the Corporation's order; (2) full payment in shares of Common Stock held for at
least six (6) months and valued at fair market value on the Exercise Date; (3)
full payment in a combination of shares of Common Stock held for at least six
(6) months and valued at fair market value on the Exercise Date and cash or
check; or, (4) full payment through a broker-dealer sale.

Each automatic grant under this Program shall have a maximum term of ten
(10) years measured from the automatic grant date and shall be exercisable in
full immediately.

During the lifetime of the optionee, each automatic option grant, together
with the limited stock appreciation right pertaining to such option, if any,
shall be exercisable only by the optionee and shall not be assignable or
transferable by the optionee other than a transfer of the option effected by
will or by the laws of descent and distribution following optionee's death.

Should the optionee cease to serve as a Board member for any reason (other
than death) while holding one or more automatic option grants, then such
optionee shall have a twenty-four (24) month period following the date of such
cessation of Board membership in which to exercise each such option. In no event
shall any automatic option grant remain exercisable after the specified
expiration date of the ten (10)-year option term. Upon the expiration of the
applicable exercise period as mentioned above or upon the expiration of the ten
(10)-year option term, the automatic grant shall terminate and cease to be
outstanding for any unexercised shares.

The provisions of this Automatic Option Grant Program, together with the
option grants outstanding thereunder, may not be amended at intervals more
frequently than once every six (6) months, other than to the extent necessary to
comply with applicable Federal income tax laws and regulations.

TAX WITHHOLDING

The Corporation's obligation to deliver shares of Common Stock upon the
exercise of options or stock appreciation rights or upon the issuance or vesting
of such shares under the Plan shall be subject to the satisfaction of all
applicable Federal, state and local income and employment tax withholding
requirements.

The Plan Administrator may provide one or more participants in the Plan
with the election to have the Company withhold, from the shares of Company
Common Stock otherwise issuable upon the exercise of non-qualified options or
the vesting of unvested shares, a portion of those shares in satisfaction of the
tax liability incurred in connection with their acquisition or vesting. Any
election so made will be subject to the approval of the Plan Administrator, and
no shares will be accepted in satisfaction of such tax liability except to the
extent the Plan Administrator approves the election. Alternatively, one or more
participants may be granted the right, subject to Plan Administrator approval,
to deliver existing shares of Company Common Stock in satisfaction of such tax
liability. The withheld or delivered shares will be valued at their then current
fair market value.

10
<PAGE>

AMENDMENT AND TERMINATION

The Board of Directors may amend or modify the Plan in any or all respects
whatsoever, subject, however, to the limitation on plan amendments to the
Automatic Option Grant Program. However, no such amendment may adversely affect
the rights of existing optionees without their consent and unless otherwise
necessary to comply with applicable tax laws and regulations. In addition, the
Board may not (i) materially increase the maximum number of shares issuable
under the Plan or the number of shares for which automatic grants may be made to
nonemployee Board members, except in the event of certain changes to the
Company's capital structure as indicated above, (ii) materially modify the
eligibility requirements for option grants or (iii) otherwise materially
increase the benefits accruing to participants under the Plan without the
approval of the Company's shareholders.

The Board may terminate the Plan at any time, and the Plan will in all
events terminate on the tenth anniversary of the Effective Date. Each stock
option outstanding at the time of such termination will remain in force in
accordance with the provisions of the instruments evidencing such grant.

EFFECTIVE DATE AND TERM OF THE PLAN

The Plan became effective on the date the Plan was adopted by the Board.
However, no options granted under the Plan may be exercised, and no shares shall
be issued under the Plan, until the Plan is approved by the Company's
shareholders. If such shareholder approval is not obtained within twelve (12)
months after such effective date, then all options previously granted under the
Plan shall terminate and cease to be outstanding, and no further options shall
be granted and no shares shall be issued under the Plan.

The Plan shall terminate upon the EARLIEST of (i) June 14, 2005, (ii) the
date on which all shares available for issuance under the Plan shall have been
issued pursuant to the exercise of the options or the issuance of shares
(whether vested or unvested) under the Plan, or (iii) the termination of all
outstanding options in connection with a Corporate Transaction.

REGULATORY APPROVALS

The implementation of the Plan, the granting of any option or stock
appreciation right under the Plan and the issuance of any shares of Common Stock
(i) upon the exercise of any option or stock appreciation right or (ii) under
the Stock Issuance Program shall be subject to the Corporation's procurement of
all approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options and stock appreciation rights granted under it and
the shares of Common Stock issued pursuant to it.

NO EMPLOYMENT/ SERVICE RIGHTS

Nothing in the Plan shall confer upon the optionee or the participant any
right to continue in service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Company (or any parent
or subsidiary employing or retaining such person) to terminate such person's
service at any time for any reason, with or without cause.

FEDERAL TAX CONSEQUENCES

Options granted under the Plan may be either incentive stock options which
satisfy the requirements of Section 422 of the Internal Revenue Code or non-
qualified options which are not intended to meet such requirements. The Federal
income tax treatment for the two types of options differs as described below:

<PAGE>

INCENTIVE OPTIONS. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize income for
alternative maximum tax purposes in the year the option is exercised and regular
taxable income in the year in which the purchased shares are sold or otherwise
made the subject of disposition.

For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of such
shares is made after the optionee has held the shares for more than two years
after the grant date of the option and more than one year after the exercise
date. If the optionee fails to satisfy either of these two holding period prior
to the sale or other disposition of the purchased shares, then a disqualifying
disposition will result.

Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of those
shares on the date the option was exercised over (ii) the exercise price paid
for the shares will be taxable as ordinary income. Any additional gain
recognized upon the disposition will be a capital gain.

If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the date the option was exercised over (ii) the
exercise price paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares.

NON-QUALIFIED OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-qualified option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the date of exercise
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.

Special provisions of the Internal Revenue Code apply to the acquisition of
Company Common Stock under a non-qualified option, if the purchased shares are
subject to repurchase by the Company. These special provisions may be summarized
as follows:

A. If the shares acquired upon exercise of the non-qualified option are
subject to repurchase by the Company at the original exercise price in
the event of the optionee's termination service prior to vesting in
such shares, the optionee will not recognize any taxable income at the
time of exercise but will have to report as ordinary income, as and
when the Company's repurchase right lapses, an amount equal to the
excess of (i) the fair market value of the shares on the date the
Company's repurchase right lapses with respect to such shares over
(ii) the exercise price paid for the shares.

B. The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of
the non-qualified option an amount equal to the excess of (i) the fair
market value of the purchased shares on the date of exercise
(determined as if the shares were not subject to the Company's
repurchase right) over (ii) the exercise price paid for such shares.
If the Section 83(b) election is made, the optionee will not recognize
any additional income as and when the repurchase right lapses.

The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-qualified option. The deduction will

<PAGE>

in general be allowed for the taxable year of the Company in which such ordinary
income is recognized by the optionee.

STOCK APPRECIATION RIGHTS. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. The Company will be entitled to a business
expense deduction equal to the appreciation distribution for the taxable year of
the Company in which the ordinary income is recognized by the optionee.

DIRECT STOCK ISSUANCE. The tax consequences of individuals who receive
direct stock issuances under the Plan will be substantially the same as the
treatment described above the exercise of non-qualified stock options.

ACCOUNTING TREATMENT

Option grants with exercise prices less than the fair market value of the
option shares on the grant date and direct stock issuances at purchase prices
less than the fair market value of the issued shares will result in a
compensation expense to the Company's earnings equal to the difference between
such exercise or purchase prices and the fair market value on the issue date.
Such expense will be accrued by the Company over the period the optionee or
share recipient vests in the option shares or directly-issued shares. Option
grants and direct stock issuances at 100% of fair market value will not result
in any change to the Company's earnings. Whether or not granted at a discount,
the number of outstanding options may be a factor in determining the Company's
earnings per share.

Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to be
charged against the Company's earnings. Accordingly, at the end of each fiscal
quarter, the amount (if any) by which the fair market value of the shares of
Common Stock subject to such outstanding stock appreciation rights has increased
from the prior quarter-end will be accrued as compensation expense, to the
extent such amount is in excess of the aggregate exercise price in effect for
such rights.

APPROVALS REQUIRED

The affirmative vote of the holders of not less than a majority of the
outstanding shares of Common Stock entitled to vote is required to approve the
proposal.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 1995 STOCK
OPTION/STOCK ISSUANCE PLAN (AS AMENDED AND RESTATED THROUGH AUGUST 15, 1995).

<PAGE>

PRINCIPAL SHAREHOLDERS
COMMON STOCK

The following are the only persons known by the Company to own
beneficially, as of March 1, 1996, five percent (5%) or more of the outstanding
shares of its Common Stock.

Shares Beneficially Owned
Name and Address -------------------------
of Beneficial Owner Number (1) Percent (2)
------------------------- ---------- -----------
<S> <C> <C>
CardioDynamics Holdings, LLC (3) 13,054,490 58.1%
5067 Shore Drive
Carlsbad, CA 92008

DaVinci Scientific Corporation (4) 3,902,956 17.4%
16225 Park Ten Place, Suite 380
Houston, TX 77084

Joseph Diaco, M.D. (5) 13,054,490 58.1%
47 North Habana
Tampa, FL 33614

Nicholas Diaco, M.D. (6) 13,304,490 59.2%
1301 20th Street
Santa Monica, CA 90404

James C. Gilstrap (7) 14,238,490 63.3%
5067 Shore Drive
Carlsbad, CA 92008

Allen E. Paulson (8) 17,254,490 76.7%
P. O. Box 9660
Rancho Santa Fe, CA 92067
</TABLE>
________________________________

(2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3(d)(1).

(3) Includes 8,482,243 shares of Common Stock over which LLC exercises sole
voting and investment power, and 4,522,247 shares of Common Stock over which
CardioDynamics Holdings, LLC exercises sole voting, but no investment power.
Also includes 50,000 shares of Common Stock issuable upon conversion of the Note
issued by the Company.

(4) DaVinci Scientific Corporation exercises sole investment power, but no
voting power, over all shares of Common Stock shown as beneficially owned
herein.

(5) Includes 13,054,490 shares of Common Stock of the Company beneficially
owned by CardioDynamics Holdings, LLC, of which Dr. Diaco is a member with a
minority interest. Dr. Diaco

<PAGE>

disclaims beneficial ownership of these shares except to the extent of his
individual ownership interest in CardioDynamics Holdings, LLC. See footnote (3).

(6) Includes 13,054,490 shares of Common Stock of the Company beneficially
owned by CardioDynamics Holdings, LLC, of which Dr. Diaco is a member with a
minority interest. Dr. Diaco disclaims beneficial ownership of these shares
except to the extent of his individual ownership interest in CardioDynamics
Holdings, LLC. See footnote (3). Also includes 100,000 shares of Common Stock of
the Company Dr. Diaco beneficially owns, by virtue of his right to acquire such
shares from the Company under stock options now exercisable or exercisable
within sixty (60) days.

(7) Includes 13,054,490 shares of Common Stock of the Company beneficially
owned by CardioDynamics Holdings, LLC, of which Mr. Gilstrap is a member with a
minority interest. Mr. Gilstrap disclaims beneficial ownership of these shares
except to the extent of his individual ownership interest in CardioDynamics
Holdings, LLC. See footnote (3). Excludes 60,000 shares of Common Stock owned by
Mr. Gilstrap's daughters; Mr. Gilstrap disclaims beneficial ownership of such
shares.

(8) Includes 13,054,490 shares of Common Stock of the Company beneficially
owned by CardioDynamics Holdings, LLC, of which Mr. Paulson is a member with a
majority interest. Mr. Paulson disclaims beneficial ownership of these shares
except to the extent of his individual ownership interest in CardioDynamics
Holdings, LLC. See footnote (3).

<PAGE>

PRINCIPAL SHAREHOLDERS
PREFERRED STOCK

The following are the only persons known by the Company to own
beneficially, as of March 1, 1996, five percent (5%) or more of the outstanding
shares of its Preferred Stock.

Shares Beneficially Owned
Name and Address -------------------------
of Beneficial Owner Number (1) Percent (2)
------------------------- ---------- -----------
<S> <C> <C>
Kol Bio Medical Instruments, Inc. 126,259 51.2%
13901 Willard Blvd.
Chantilly, VA 22021

Zwick Financial Corporation 52,879 21.4%
Profit Sharing Trust
2020 Alameda Padre Serra
Suite 101
Santa Barbara, CA 93103

Roger S. Kolasinski (3) 126,259 51.2%
11135 Sedgefield Road
Fairfax, VA 22030

Barry M. Zwick (4) 52,879 21.4%
202 Alameda Padre Serra
Suite 101
Santa Barbara, CA 93103
</TABLE>
_________________________________

(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares of
Preferred Stock shown as beneficially owned by them, subject to community
property laws, where applicable.

(2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3(d)(1).

(3) Includes 126,259 shares of Preferred Stock of the Company held by Kol Bio
Medical Instruments, Inc. Mr. Kolasinski is a director and the Chief Executive
Officer of Kol Bio Medical Instruments, Inc.

(4) Includes 52,879 shares of Preferred Stock of the Company held by Zwick
Financial Corporation Profit Sharing Trust. Mr. Zwick is the Trustee of the
Zwick Financial Corporation Profit Sharing Trust.

<PAGE>

SECURITY OWNERSHIP OF MANAGEMENT
COMMON STOCK

The following table sets forth the beneficial ownership of Common Stock of
the Company as of March 1, 1996 by each director and nominee to the Board of
Directors and by the Named Executive Officer and by all directors and executive
officers of the company as a group.

Shares Beneficially Owned
----------------------------
Name Number (1) Percent (2)
- ------------------------- ------------- -----------
<S> <C> <C>
William P. Cordeiro, Ph.D. (3) 10,000 *

Stephenson M. Dechant 0 *

Nicholas Diaco, M.D. (4) 13,304,490 59.2%

James C. Gilstrap (5) 14,238,490 63.3%

Roger S. Kolasinski (6) 150,000 *

Kenneth W. Miller (7) 3,902,956 17.4%

Richard E. Otto 40,000 *

Michael D. Padilla 0 *

Allen E. Paulson (8) 17,254,490 63.3%

Rhonda F. Pederson 0 *

G. Robert Tatum III 0 *

Barry M. Zwick (9) 210,000 *

All directors and executive
officers as a group (11) (10) 19,098,490 84.9%
</TABLE>

_________________________________
*Less than 1%

(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them, subject to community property
laws, where applicable. Share ownership in each case includes shares issuable on
exercise of certain outstanding options as described in the footnotes below.

(2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3d(1).

(3) Includes 10,000 shares held by Bartik, Cordeiro & Associates, Inc. Mr.
Cordeiro is the Chief Executive Officer of Bartik, Cordeiro & Associates, Inc.

<PAGE>

(4) Includes 13,054,490 shares of Common Stock of the Company beneficially
owned by CardioDynamics Holdings, LLC, of which Dr. Diaco is a member with a
minority interest. Dr. Diaco disclaims beneficial ownership of these shares
except to the extent of his individual ownership interest in CardioDynamics
Holdings, LLC. Also includes 100,000 shares of Common Stock of the Company Dr.
Diaco beneficially owns, by virtue of his right to acquire such shares from the
Company under stock options now exercisable or exercisable within sixty (60)
days.

(5) Includes 13,054,490 shares of Common Stock of the Company beneficially
owned by CardioDynamics Holdings, LLC, of which Mr. Gilstrap is a member with a
minority interest. Mr. Gilstrap disclaims beneficial ownership of these shares
except to the extent of his individual ownership interest in CardioDynamics
Holdings, LLC. Excludes 60,000 shares of Common Stock owned by Mr. Gilstrap's
daughters; Mr. Gilstrap disclaims beneficial ownership of such shares.

(6) Includes 120,000 shares of Common Stock of the Company beneficially owned
by Kol Bio Medical Instruments, of which Mr. Kolasinski is Chief Executive
Officer and 126,529 shares issuable upon conversion of Preferred Stock owned by
Kol Bio Medical Instruments.

(7) Includes 3,902,956 shares beneficially owned by DaVinci Scientific
Corporation, of which Mr. Miller is Chairman of the Board and Chief Executive
Officer. Mr. Miller disclaims beneficial ownership of these shares.

(9) Includes 200,000 shares of Common Stock of the Company beneficially owned
by a related trust and 52,879 shares issuable upon conversion of Preferred Stock
owned by the related trust.

(10) Shares beneficially owned include shares held by entities affiliated with
certain directors as described above in the footnotes (but do not include any
shares more than once).

<PAGE>

SECURITY OWNERSHIP OF MANAGEMENT
PREFERRED STOCK

The following table sets forth the beneficial ownership of Preferred Stock
of the Company as of March 1, 1996 by each director and nominee to the Board of
Directors and by the Named Executive Officers, and by all directors and
executive officers of the Company as a group.

Shares Beneficially Owned
----------------------------
Name Number (1) Percent (2)
- ------------------------- ------------- -----------
<S> <C> <C>
William P. Cordeiro, Ph.D. 0 *

Stephenson M. Dechant 0 *

Nicholas Diaco, M.D. 0 *

James C. Gilstrap 0 *

Roger S. Kolasinski (2) 126,259 51.2

Kenneth W. Miller 0 *

Richard E. Otto 0 *

Michael D. Padilla 0 *

Allen E. Paulson 0 *

Rhonda F. Pederson 0 *

G. Robert Tatum III 0 *

Barry M. Zwick (3) 52,879 21.4

All directors and executive
officers as a group (11 persons) (4) 179,138 72.6
</TABLE>

________________________________
*Less than 1%

(1) Percentage of ownership is calculated pursuant to SEC Rule 13d-3d(1).

(2) Includes 126,259 shares of Preferred Stock of the Company held by Kol Bio
Medical Instruments, Inc. Mr. Kolasinski is a director and the Chief Executive
Officer of Kol Bio Medical Instruments, Inc.

(3) Includes 52,879 shares of Preferred Stock of the Company held by Zwick
Financial Corporation Profit Sharing Trust. Mr. Zwick is the Trustee of the
Zwick Financial Corporation Profit Sharing Trust.

(4) Shares beneficially owned include all shares held by entities affiliated
with certain directors, as described in the footnotes above.

<PAGE>

EXECUTIVE OFFICERS

Name Age Position
- ------------------------- --- --------
Stephenson M. Dechant . . 40 Secretary and
Chief Financial Officer

Richard E. Otto . . . . . 46 President and
Chief Executive Officer

Rhonda F. Pederson . . . 35 Chief Operating Officer

BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS

Stephenson M. Dechant, Secretary and Chief Financial Officer. Mr. Dechant has
served as the personal accountant and Business Manager of Allen E. Paulson and
the Chief Financial Officer of various entities controlled by Mr. Paulson,
including without limitation, Allen Leasing & Finance Corporation, Del Mar
Country Club and Del Mar Country Club Estates since 1992. From 1990 to 1992, Mr.
Dechant served as the Controller of I. B. Fischer, Inc.

Richard E. Otto, President and Chief Executive Officer. Mr. Otto joined the
Company in June 1995 with 25 years of experience in the health care industry.
Mr. Otto has held positions with Eli Lilly & Co., Medtronics, Inc., and
Intermedics, Inc. From 1986 to 1994, Mr. Otto was President of Sensor
Technology, Inc., a company representing Cardiac Pacemakers. Mr. Otto holds a
Bachelor of Science in Chemistry and Zoology from the University of Georgia.

Rhonda F. Pederson, Chief Operating Officer. Ms. Pederson joined the Company in
June 1995 with over 12 years of experience in the health care industry. Ms.
Pederson was Chief Executive Officer and Vice President, Sales and Marketing
from 1992 through 1995 and was a Nuclear Sales Specialist with General Electric
Medical Systems from 1991 to 1992. Ms. Pederson holds a Bachelor of Pharmacy
from Washington State University.

<PAGE>

EXECUTIVE COMPENSATION AND OTHER INFORMATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table provides certain summary information concerning the
compensation earned by Named Executive Officers (determined as of the end of the
last fiscal year) for services rendered in all capacities to the Company for the
fiscal years ended November 30, 1993, 1994 and 1995:

SUMMARY COMPENSATION TABLE

Long-Term
Compensation
Annual Compensation Awards
------------------- ------
Other Annual Options/ All Other
Name and Compensation SARs Compensation
Principal Position (1) Year Salary ($) Bonus ($) ($) (#) ($)
______________________ ____ __________ _________ ____________ _______ ____________
<S> <C> <C> <C> <C> <C> <C>
Stephenson M. 1995 $ 0 $ 0 $ 0 0 $ 0
Dechant (1) 1994 $ 0 $ 0 $ 0 0 $ 0
Secretary and Chief 1993 $ 0 $ 0 $ 0 0 $ 0
Financial Officer

Richard E. Otto 1995 $87,500 $ 0 $ 0 500,000 $ 0
President and 1994 $ 0 $ 0 $ 0 0 $ 0
Chief Executive 1993 $ 0 $ 0 $ 0 0 $ 0
Officer

Rhonda F. Pederson 1995 $46,350 $ 0 $ 0 0 $ 0
Chief Operating 1994 $ 0 $ 0 $ 0 0 $ 0
Officer 1993 $ 0 $ 0 $ 0 0 $ 0

G. Robert Tatum, 1995 $48,894 $ 0 $ 23,000 0 $ 0
III (2) (3) 1994 $ 0 $ 0 $ 0 0 $ 0
Chief Executive 1993 $ 0 $ 0 $ 0 0 $ 0
Officer
</TABLE>

__________________________________________
(1) Mr. Dechant became Secretary and Chief Financial Officer of the Company in
May 1995. He served in these capacities as part of his general duties to Allen
E. Paulson, for which he was compensated by Mr. Paulson.

(2) Mr. Tatum became Chief Executive Officer of the Company in April 1994, but
did not receive or accrue any compensation in fiscal year 1994. He was
compensated for this service by DaVinci Scientific Corporation. Mr. Tatum's
compensation for his activities on behalf of DaVinci (which included other
activities besides serving as Chief Executive Officer of the Company) during the
Company's fiscal 1994 was less than $100,000.

(3) From February 1995, when DaVinci terminated its special contractual
arrangements with the Company, until Mr. Tatum's termination by the Company in
June 1995, Mr. Tatum received a salary from the Company. The Company paid Mr.
Tatum $23,000 after his termination in connection with a release and settlement
agreement.

<PAGE>

STOCK OPTIONS

No stock options or stock appreciation rights have been granted to the
Named Executive Officers under the Plan. Richard E. Otto was granted non-Plan
stock options during fiscal 1995 pursuant to a compensation and employment
agreement, as follows:

OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>

Number of Percent of Total Market
Securities Options/SARs Exercise Price on
Underlying Granted to or Base Date of
Options/SARs Employees in Price Grant Expiration
Name Granted (#) Fiscal Year ($/Share) ($/Share) Date
_________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Richard E. Otto 100,000 (1) 0.09% $0.50 $1.75 06/15/05

Richard E. Otto 100,000 (2) $0.50 06/15/05

Richard E. Otto 100,000 (3) $0.50 06/15/05

Richard E. Otto 100,000 (4) $0.50 06/15/05

Richard E. Otto 100,000 (5) $0.50 06/15/05
________________________________________________________________________________________
</TABLE>

(1) Not exercisable until Company Common Stock trades at over $5.00 per share
in the public market for a majority of the business days during one full
calendar quarter.

(2) Not exercisable until Company Common Stock trades at over $6.00 per share
in the public market for a majority of the business days during one full
calendar quarter.

(3) Not exercisable until Company Common Stock trades at over $7.00 per share
in the public market for a majority of the business days during one full
calendar quarter.

(4) Not exercisable until Company Common Stock trades at over $8.00 per share
in the public market for a majority of the business days during one full
calendar quarter.

(5) Not exercisable until Company Common Stock trades at over $9.00 per share
in the public market for a majority of the business days during one full
calendar quarter.

22
<PAGE>

AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES

Value of
Number of Securities Unexercised In-
Underlying Unexercised the-Money
Options/SARs at Options/SARs at
Shares FY-End (#) FY-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
___________________________________________________________________________________________
<S> <C> <C> <C> <C>
Richard E. Otto -0- -0- -0-/500,000 -0-/$345,000
___________________________________________________________________________________________

</TABLE>

EMPLOYMENT AGREEMENT

The Company entered into a Compensation and Employment Agreement, dated as
of June 16, 1995, with its President and Chief Executive Officer, Richard E.
Otto. In addition to providing Mr. Otto the 500,000 stock options described
above, the Agreement provided for a salary of $150,000 per year and standard
fringe benefits. Although the Agreement may be terminated by either party at
will, the stock options will survive termination of the Agreement unless Mr.
Otto's employment terminates due to cause (as defined in the Agreement),
voluntary resignation, death or permanent disability.

CERTAIN TRANSACTIONS

In February 1995, CardioDynamics Holdings, LLC ("LLC") purchased 1,477,910
shares of Common Stock from the Company (902,956 shares delivered immediately
and 574,954 shares deliverable upon amendment of the Company's Articles of
Incorporation to increase the authorized number of shares of Common Stock) in
exchange for $225,739. The Company also issued to LLC, in exchange for an
additional $100,000, a secured convertible promissory note in the principal
amount of $100,000 (convertible into 200,000 shares of the Common Stock of the
Company at the now existing conversion ratio) and entered into certain other
agreements with LLC, including an agreement giving LLC the right to lend, at
LLC's option, up to an additional $1,257,803 on the same terms and conditions as
contained in the existing secured convertible promissory note. LLC also obtained
the right to purchase at the then-applicable note conversion price (currently
$0.50 per share) the same number of shares of Common Stock as the Company may
from time to time issue to any other person. Nicholas Diaco, James C. Gilstrap
and Allen E. Paulson are three (3) of the four (4) members of LLC and hold
respectively 4.8%, 19.0% and 71.4% interests in LLC.

In March 1995, LLC loaned an additional $75,000 to the Company under the
terms and conditions of the secured convertible promissory note. This was part
of the additional $1,257,803 which LLC had the right to lend. The additional
$75,000 is convertible into 150,000 shares of the Common Stock of the Company at
the now existing conversion ratio.

In April 1995, the Company and LLC agreed to the following transaction,
subject to amendment of the Articles of Incorporation to increase the authorized
number of shares of Common Stock: (i) LLC will purchase 4,000,000 shares of
newly issued Common Stock for $1,000,000 cash; (ii) of the $175,000 outstanding
principal amount under the amended secured convertible promissory note, $150,000
will be converted into 600,000 shares of Common Stock at a special conversion
price of $0.25 per share; (iii) the secured convertible promissory note will
remain in place with a principal balance of $25,000; and (iv) LLC will surrender
its right to lend the Company, at LLC's option, up to an additional $1,257,803
(of

<PAGE>

which $75,000 was lent in March 1995) on the same terms and conditions as the
secured convertible promissory note.

Beginning in July of 1995, the following private purchases of the Common
Stock of the Company were made by James C. Gilstrap: July 1995, 160,000 shares;
September 1995, 190,000 shares, October 1995, 100,000 shares and November 1995,
120,000 shares. After the end of the fiscal year Mr. Gilstrap made additional
private purchases of 324,000 shares of the Common Stock of the Company.

Beginning in July of 1995, the following private purchases of the Common
Stock of the Company were made by Allen E. Paulson: July 1995, 240,000 shares;
August 1995, 200,000 shares, September 1995, 400,000 shares; October 1995,
1,000,000 shares; and November 1995, 480,000 shares. After the end of the fiscal
year Mr. Paulson made additional private purchases of 2,500,000 shares of the
Common Stock of the Company.

In October 1995, Richard E. Otto made a private purchase of 40,000 shares
of the Common Stock of the Company.

By virtue of (and giving effect to) this agreement, LLC's current
beneficial ownership percentage of the Company's Common Stock is 81.8%.

In February 1995, the Company entered into commitment letters with two of
their directors, Nicholas Diaco and James C. Gilstrap. In May 1995, the Company
issued to each Dr. Diaco and Mr. Gilstrap, 150,000 shares of Common Stock in
exchange for their services in the transaction described above by and between
LLC and the Company.

In June 1994, the Company entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement") with DaVinci Scientific Corporation ("DaVinci"),
pursuant to which the Company sold to DaVinci 3,902,956 shares of Common Stock
of the Company in exchange for $350,000 and agreed to sell the number of
additional shares of Common Stock to DaVinci as would, when added to the shares
of Common Stock previously acquired, provide DaVinci with 60% of the outstanding
capital stock of the Company. In February 1995, the Company and DaVinci entered
into an agreement, pursuant to which (i) DaVinci agreed to provide an
irrevocable proxy to LLC to vote its shares of Common Stock for five (5) years,
(ii) the Company issued to DaVinci an unsecured promissory note in the amount of
$162,147, bearing interest at the rate of 8% per annum, against advances
previously made by DaVinci to the company, and (iii) DaVinci and the Company
each agreed to terminate the other party's remaining obligations under the Stock
Purchase Agreement, including but not limited to, the obligation to purchase
additional shares of the Common Stock of the Company, and also agreed to release
each other from any liability potentially arising under the Stock Purchase
Agreement. H. Stephen Cookston, a former director of the Company, is also a
director, the President and the Chief Operating Officer of DaVinci. Kenneth W.
Miller, a director of the Company, is also Chairman of the Board of Directors
and the Chief Executive Officer of DaVinci. G. Robert Tatum, III served as
Chairman of the Board of Directors and Chief Executive Officer of DaVinci
between June 1992 and February 1995.

INDEPENDENT ACCOUNTANTS

The Company dismissed its former principal independent accountants,
Oppenheim & Ostrick, on August 26, 1994. Oppenheim & Ostrick had been engaged
effective December 1, 1993. (From before December 1, 1992 through November 30,
1993, the Company had no principal independent accountants.) Oppenheim &
Ostrick's report on the Company's fiscal 1993 and fiscal 1992 financial
statements contained an emphasis of matter regarding the Company's ability to
continue as a going concern and a qualification regarding such adjustments, if
any, as might have been determined to be necessary had such accountants been
able to observe the physical inventories taken as of November 30, 1992 and
November

<PAGE>

30, 1991. The decision to change accountants was recommended by the Company's
Board of Directors. There were no disagreements between the Company and
Oppenheim & Ostrick on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to the satisfaction of Oppenheim & Ostrick, would have caused it to
make reference to the subject matter of the disagreement(s) in connection with
its report, except for Oppenheim & Ostrick's qualification concerning the
observation of inventory. The Company found this qualification unacceptable, but
Oppenheim & Ostrick was unable to satisfy itself concerning the inventories by
other methods.

On August 26, 1994, the Company engaged Peterson & Co. as its new principal
independent accountants. Peterson & Co., which was also the auditor for DaVinci,
a major shareholder of CDIc, had advised the Company that by other auditing
techniques it believed it might be able to satisfy itself regarding the November
30, 1992 and 1991 inventory levels. This was in fact accomplished, and Peterson
& Co. assisted in the preparation of and gave an audit report on new Company
financial statements for fiscal years 1993 and 1992, which did not contain the
above mentioned qualification.

The Company has authorized Oppenheim & Ostrick to respond fully to the
inquiries of Peterson & Co. concerning all matters, including the qualification
concerning the observation of inventory.

On the recommendation of the Company's management, the Board of Directors
has selected Peterson & Co. to continue in the capacity of independent
accountants for the current fiscal year.

A representative of Peterson & Co. is expected to be present at the
meeting. Such representative will have an opportunity to make a statement if he
desires to do so, and is expected to be available to respond to appropriate
questions.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC. Officers, directors and greater
than ten percent (10%) shareholders required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.

Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that, during the period from December 1994 through November 1995, all
Section 16(a) filing requirements applicable to its officers, directors, and
greater than ten percent (10%) beneficial owners were complied with.

SHAREHOLDER PROPOSALS FOR 1997 PROXY STATEMENT

Under the present rules of the Securities and Exchange Commission (the
"Commission"), the deadline for shareholders to submit proposals to be
considered for inclusion in the Company's Proxy Statement for next year's Annual
Meeting of Shareholders is March 12, 1997. Such proposals may be included in
next year's Proxy Statement if they comply with certain rules and regulations
promulgated by the Commission.

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FORM 10-KSB

THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, TO ANY
SHAREHOLDER OF THE COMPANY A COPY OF THE ANNUAL REPORT ON FORM 10-KSB, INCLUDING
THE FINANCIAL STATEMENTS, SCHEDULES AND LIST OF EXHIBITS. REQUESTS SHOULD BE
SENT TO CARDIODYNAMICS INTERNATIONAL CORPORATION, 6155 CORNERSTONE COURT EAST,
SUITE 125, SAN DIEGO, CALIFORNIA 92121, ATTENTION: GAYLE A. MANAKAS.

OTHER MATTERS

The Board of Directors is not aware of any matter to be presented for
action at the meeting other than the matters set forth in this Proxy Statement.
Should any other matter requiring a vote of the shareholders arise, the persons
named as proxies on the enclosed proxy card will vote the shares represented
thereby in accordance with their best judgment in the interest of the Company.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed proxy card.

By Order of the Board of Directors

Dated: March 27, 1996 _______________________________
Richard E. Otto
President and Chief Executive Officer