<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 13D
Under the Securities Exchange Act of 1934
(Amendment No. 6)
CARDIODYNAMICS INTERNATIONAL CORPORATION
(Name of Issuer)
Common Stock
(Title of Class of Securities)
141597104
(CUSIP Number)
CardioDynamics Holdings, LLC
c/o Steve Dechant
Del Mar Country Club
P.O. Box 9660
Rancho Santa Fe, CA 92067
(619) 759-5990
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
September 9, 1997
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement [ ]. (A
fee is not required only if the reporting person: (1) has a previous statement
on file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
(Continued on following pages)
<PAGE> 2
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CUSIP NO. 141597104 13D Page 2 of 13 Pages
- --------------------------------------------------------------------------------
- -------------- ----------------------------------------------------------------
1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF
ABOVE PERSONS
CARDIODYNAMICS HOLDINGS, LLC
- -------------- ----------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [X]
(b) [ ]
- -------------- ----------------------------------------------------------------
3 SEC USE ONLY
- -------------- ----------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- -------------- ----------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e)
[ ]
- -------------- ----------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
CALIFORNIA
- -------------- ----------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 4,624,490
BENEFICIALLY -------------- ------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH -0-
REPORTING -------------- ------------------------------------------------
PERSON WITH 9 SOLE DISPOSITIVE POWER
102,243
-------------- ------------------------------------------------
10 SHARED DISPOSITIVE POWER
-0-
- -------------- ----------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,624,490
- -------------- ----------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN
SHARES*
[ ]
- -------------- ----------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
14.4%
- -------------- ----------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 2 of 13 Pages
<PAGE> 3
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CUSIP NO. 141597104 13D Page 3 of 13 Pages
- --------------------------------------------------------------------------------
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1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF
ABOVE PERSONS
ALLEN PAULSON
- -------------- ----------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [X]
(b) [ ]
- -------------- ----------------------------------------------------------------
3 SEC USE ONLY
- -------------- ----------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- -------------- ----------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e)
[ ]
- -------------- ----------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- -------------- ----------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 13,725,734
BENEFICIALLY -------------- ------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 4,624,490
REPORTING -------------- ------------------------------------------------
PERSON WITH 9 SOLE DISPOSITIVE POWER
13,827,977
-------------- ------------------------------------------------
10 SHARED DISPOSITIVE POWER
-0-
- -------------- ----------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
18,350,224
- -------------- ----------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN
SHARES*
[ ]
- -------------- ----------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
57.0%
- -------------- ----------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 3 of 13 Pages
<PAGE> 4
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CUSIP NO. 141597104 13D Page 4 of 13 Pages
- --------------------------------------------------------------------------------
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1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF
ABOVE PERSONS
JAMES GILSTRAP
- -------------- ----------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [ ]
- -------------- ----------------------------------------------------------------
3 SEC USE ONLY
- -------------- ----------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- -------------- ----------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e)
[ ]
- -------------- ----------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- -------------- ----------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 3,832,654
BENEFICIALLY -------------- ------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 4,624,490
REPORTING -------------- ------------------------------------------------
PERSON WITH 9 SOLE DISPOSITIVE POWER
3,832,654
-------------- ------------------------------------------------
10 SHARED DISPOSITIVE POWER
-0-
- -------------- ----------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,457,144
- -------------- ----------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN
SHARES*
[ ]
- -------------- ----------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
26.3%
- -------------- ----------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 4 of 13 Pages
<PAGE> 5
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CUSIP NO. 141597104 13D Page 5 of 13 Pages
- --------------------------------------------------------------------------------
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1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF
ABOVE PERSONS
NICHOLAS DIACO
- -------------- ----------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [ ]
- -------------- ----------------------------------------------------------------
3 SEC USE ONLY
- -------------- ----------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- -------------- ----------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e)
[ ]
- -------------- ----------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- -------------- ----------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 687,306
BENEFICIALLY -------------- ------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 4,624,490
REPORTING -------------- ------------------------------------------------
PERSON WITH 9 SOLE DISPOSITIVE POWER
282,000
-------------- ------------------------------------------------
10 SHARED DISPOSITIVE POWER
-0-
- -------------- ----------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,311,796
- -------------- ----------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN
SHARES*
[ ]
- -------------- ----------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
16.5%
- -------------- ----------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 5 of 13 Pages
<PAGE> 6
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CUSIP NO. 141597104 13D Page 6 of 13 Pages
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1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF
ABOVE PERSONS
JOSEPH DIACO
- -------------- ----------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [ ]
- -------------- ----------------------------------------------------------------
3 SEC USE ONLY
- -------------- ----------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- -------------- ----------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e)
[ ]
- -------------- ----------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- -------------- ----------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 405,306
BENEFICIALLY -------------- ------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 4,624,490
REPORTING -------------- ------------------------------------------------
PERSON WITH 9 SOLE DISPOSITIVE POWER
405,306
-------------- ------------------------------------------------
10 SHARED DISPOSITIVE POWER
-0-
- -------------- ----------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,029,796
- -------------- ----------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN
SHARES*
[ ]
- -------------- ----------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
15.6%
- -------------- ----------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 6 of 13 Pages
<PAGE> 7
ITEM 1. SECURITY AND ISSUER
The class of securities to which this Statement relates is the common stock
(the "Common Stock") of CardioDynamics International Corporation, a California
corporation ("Issuer"), whose address is 6155 Cornerstone Court East, Suite 125,
San Diego, California 92121.
ITEM 2. IDENTITY AND BACKGROUND
Pursuant to Rule 13d-1(f) promulgated under the Securities Exchange Act of
1934, as amended (the "Act"), the undersigned hereby jointly file this amended
statement on Schedule 13D ("Statement") on behalf of CardioDynamics Holdings,
LLC ("LLC"), a California limited liability company, Allen Paulson, a Member of
LLC, James Gilstrap, a Member of LLC, Nicholas Diaco, a Member of LLC, and
Joseph Diaco, a Member of LLC. The foregoing persons are sometimes hereinafter
referred to collectively as the "Reporting Persons." The Reporting Persons are
making this single, joint filing to comply with the reporting requirements with
respect to Common Stock of the Issuer that each beneficially owns. With respect
to Mr. Paulson's 1,631,000 privately beneficially-owned shares of Common Stock,
this is also a group filing (Paulson and LLC).
A. CardioDynamics Holdings, LLC
(a) CardioDynamics Holdings, LLC.
(b) LLC's business address is c/o Del Mar Country Club, P.O. Box 9660,
Rancho Santa Fe, California 92067.
(c) LLC's business is to acquire and own the Common Stock and other
securities of Issuer as reported in this Statement.
(d)-(e) LLC has not, during the last five years, been convicted in any
criminal proceeding, excluding traffic violations or similar misdemeanors, nor
been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction as a result of which it was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
(f) LLC is a limited liability company formed under the laws of
California.
B. Allen Paulson -- Member of LLC
(a) Allen Paulson.
(b) Residence address: 6001 Clubhouse Drive, Rancho Santa Fe, CA
92067.
(c) Present principal occupation: private investor.
(d)-(e) Allen Paulson has not, during the last five years, been
convicted in any criminal proceeding, excluding traffic violations or similar
misdemeanors, nor been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of which he was or is
subject to a judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state securities laws
or finding any violation with respect to such laws.
(f) Citizenship: USA.
Page 7 of 13 Pages
<PAGE> 8
C. James Gilstrap -- Member of LLC
(a) James Gilstrap.
(b) Residence address: 5067 Shore Drive, Carlsbad, CA 92008.
(c) Present principal occupation: private investor.
(d)-(e) James Gilstrap has not, during the last five years, been
convicted in any criminal proceeding, excluding traffic violations or similar
misdemeanors, nor been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of which he was or is
subject to a judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state securities laws
or finding any violation with respect to such laws.
(f) Citizenship: USA.
D. Nicholas Diaco -- Member of LLC
(a) Nicholas Diaco.
(b) Business address: 1301 20th St., Suite 400, Santa Monica, CA
90404.
(c) Present principal occupation: Physician; Cardiology Consultants of
Santa Monica, 1301 20th St., Suite 400, Santa Monica, CA 90404.
(d)-(e) Nicholas Diaco has not, during the last five years, been
convicted in any criminal proceeding, excluding traffic violations or similar
misdemeanors, nor been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of which he was or is
subject to a judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state securities laws
or finding any violation with respect to such laws.
(f) Citizenship: USA.
E. Joseph Diaco -- Member of LLC
(a) Joseph Diaco.
(b) Business address: 4700 N. Habana, Suite 403, Tampa, FL 33614.
(c) Present principal occupation: Physician.
(d)-(e) Joseph Diaco has not, during the last five years, been
convicted in any criminal proceeding, excluding traffic violations or similar
misdemeanors, nor been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of which he was or is
subject to a judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state securities laws
or finding any violation with respect to such laws.
(f) Citizenship: USA.
Page 8 of 13 Pages
<PAGE> 9
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
LLC used $2,875,000 contributed by its four Members (from their personal
funds) to purchase the securities set forth in Item 5(a) of this Statement.
$2,849,592 of that $2,875,000 was attributable to the securities which were
distributed to the four Members as set forth in item 5(c) of this Statement.
Allen Paulson used $1,156,500 of his personal funds to purchase 4,626,000
shares of Common Stock, of which he subsequently sold 3,015,000 shares for a
total of $757,500. Approximately $2,200,000 of his personal funds, which is less
than the larger amount he contributed to LLC, is attributable to the 12,088,734
shares of Common Stock distributed by LLC to him as set forth in Item 5(c) of
this Statement. His currently-held shares of outstanding Common Stock are within
the 13,725,734 shares of Common Stock set forth in Item 5(a) of this Statement.
Any exercises of outstanding stock options would also be from his personal
funds.
James Gilstrap used $219,000 of his personal funds to purchase 876,000 of
the shares of outstanding Common Stock within the 3,832,654 shares of Common
Stock set forth in Item 5(a) of this Statement. Approximately $500,000 of his
personal funds, which is less than the larger amount he contributed to LLC, is
attributable to the 2,780,654 shares of Common Stock distributed by LLC to him
as set forth in Item 5(c) of this Statement. Any exercises of outstanding stock
options would also be from his personal funds. Also, he earlier received 150,000
shares of Common Stock from Issuer as a fee for services in connection with
LLC's February 1995 investment in Issuer.
Nicholas Diaco used $1,500 of his personal funds to purchase 6,000 of the
shares of outstanding Common Stock within the 687,306 shares of Common Stock set
forth in Item 5(a) of this Statement. Approximately $75,000 of his personal
funds, which is less than the larger amount he contributed to LLC, is
attributable to the 405,306 shares of Common Stock distributed by LLC to him as
set forth in Item 5(c) of this Statement. Any exercises of outstanding stock
options would also be from his personal funds. Also, he earlier received 150,000
shares of Common Stock from Issuer as a fee for services in connection with
LLC's February 1995 investment in Issuer.
Approximately $75,000 of Joseph Diaco's personal funds, which is less than
the larger amount he contributed to LLC, is attributable to the 405,306 shares
of Common Stock distributed by LLC to him as set forth in Item 5(c) of this
Statement.
ITEM 4. PURPOSE OF TRANSACTION
LLC acquired control of Issuer through election of a majority of Issuer's
Board of Directors on May 15, 1995, and it and its Members retain that control.
The individual Reporting Persons' acquisitions of securities have been for
investment purposes. The September 9, 1997 distribution of Issuer shares by LLC
to its Members (see Item 5(c) below) may be deemed to have placed control of
Issuer in Allen Paulson. The purpose of the distribution was to give the Members
more flexibility in utilizing and controlling the Issuer shares which they
formerly indirectly owned through LLC. (See, e.g., Item 6.l.) As to Mr. Paulson,
the response to each of sub-items (a)-(j) of Item 4 is "none."
(a) Regarding LLC: See Items 6.d, 6.h, and 6.i, which are incorporated
herein by reference.
(b) None.
(c) None.
(d) None (see original Statement).
Page 9 of 13 Pages
<PAGE> 10
(e) None.
(f) None.
(g) None.
(h) None.
(i) None.
(j) None.
The Members of LLC have no such plans or proposals, or purposes, apart from
LLC's or as stated above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) LLC beneficially owns 2,243 shares of Common Stock outright, and
beneficially owns (by virtue of its sole voting power) an additional 4,522,247
shares of Common Stock owned by others which LLC holds irrevocable proxies to
vote. LLC also beneficially owns, by virtue of its right to acquire them from
Issuer, 100,000 shares of Common Stock issuable upon conversion of the Fifth
Amended and Restated Secured Convertible Promissory Note. Together, all this
represents 14.4% of the Common Stock under the Rule 13d-3(d)(1) calculation
(with 32,055,743 shares outstanding at October 1, 1997 as reported in the
Issuer's most recent Form 10-QSB).
Other than through the LLC, the Members have no such beneficial
ownership except for 13,725,734 shares beneficially owned by Mr. Paulson,
3,832,654 shares beneficially owned by Mr. Gilstrap, 687,306 shares beneficially
owned by Mr. N. Diaco and 405,306 shares beneficially owned by Mr. J. Diaco.
Together, the LLC and its Members beneficially own 72.0% of the Issuer's Common
Stock.
Together, LLC and Mr. Paulson beneficially own 57.0% of the Issuer's
Common Stock.
(b) The Reporting Persons' voting and dispositive power is set forth in the
cover pages under items 7-10 on pages 2-6 of this Statement. Each of Mr.
Paulson, Mr. Gilstrap, Mr. N. Diaco and Mr. J. Diaco has sole voting power and
sole dispositive power for his respective Issuer shares. In addition, each
Member of LLC has given Mr. Paulson a proxy to vote his respective LLC
interests. Mr. Paulson has a sufficient interest in the LLC, even without the
proxies, to control the disposition of LLC's Issuer shares.
(c) No other transactions in the Common Stock were effected by LLC, Mr.
Paulson or any of the other Members since the filing of LLC's Amendment No. 5 to
Schedule 13D, except for the following:
(1) On September 9, 1997, LLC declared and effected a pro-rata in-kind
distribution of 12,088,734 shares of Common Stock to Mr. Paulson, 2,780,654
shares of Common Stock to Mr. Gilstrap, 405,306 shares of Common Stock to Mr. N.
Diaco, and 405,306 shares of Common Stock to Mr. J. Diaco.
(2) Pursuant to Issuer's 1995 Stock Option/Stock Issuance Plan, each
of Messrs. Paulson, Gilstrap and N. Diaco has, on the last day of each month
beginning August 1995, been automatically granted options to purchase 1,000
shares of Issuer Common Stock, with an exercise price equal to the fair market
value of such stock as of each such date, in respect of his service as a
Page 10 of 13 Pages
<PAGE> 11
non-employee director. Such automatic option grants were not considered to
constitute beneficial ownership of the underlying shares until June 12, 1996,
when Issuer's shareholders voted to approve such Plan. Through September 30,
1997, each of Messrs. Paulson, Gilstrap and N. Diaco has received automatic
option grants for a per-person total of 26,000 shares. Beginning in October
1997, new automatic option grants to 10% shareholders (i.e., Mr. Paulson and Mr.
Gilstrap) will have an exercise price equal to 110% of the fair market value of
the stock as of the grant date.
(d) No other person is known to have the right to receive or the power to
direct the receipt of dividends from, or the proceeds from the sale of, the
securities.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
(a) The relationship among the Members of LLC is governed by the Operating
Agreement of LLC, as amended from time to time.
(b) Purchase Agreement. See Item 7.c.
(c) Amendment of Purchase Agreement. See Item 7.m.
(d) Fifth Amended and Restated Secured Convertible Promissory Note
(convertible into Common Stock, currently at $0.25 per share; also provides a
matching purchase right in favor of LLC in the event of Common Stock issuances
by Issuer). Secured by all assets of Issuer. See Items 7.d, 7.j, 7.k, 7.n, 7.o
and 7.p.
(e) Agreement and Irrevocable Proxy (five-year proxy to LLC from DaVinci
Scientific Corporation -- 3,902,956 shares of Common Stock; includes an
agreement to vote such shares so as to cause the election of one nominee of
DaVinci Scientific Corporation as a director of Issuer). See Item 7.e. Now
applicable to those shares in the hands of various transferees.
(f) Agreement and Irrevocable Proxy (five-year proxy to LLC from Dr. L.S.
Smith -- 96,291 shares of Common Stock currently outstanding and 120,365 shares
of Common Stock issuable upon exercise of warrants). See Item 7.f.
(g) Agreement and Irrevocable Proxy (five-year proxy to LLC from Dallas
Gold & Silver Exchange, Inc. -- 523,000 shares of Common Stock). See Item 7.g.
(h) Agreement of Right of First Refusal (Dr. L.S. Smith in favor of LLC for
three years). See Item 7.h.
(i) Agreement of Right of First Refusal (Dallas Gold & Silver Exchange,
Inc. in favor of LLC for three years). See Item 7.i.
(j) Investment Agreement. See Item 7.l.
(k) 1995 Stock Option/Stock Issuance Plan of Issuer, as amended through
October 8, 1997 (entitling each non-employee director of Issuer to automatic
grants of 1,000 stock options on the last day of each month of service beginning
August 1995). Messrs. Paulson, Gilstrap and N. Diaco are non-employee directors
of Issuer. See Item 7.q.
Page 11 of 13 Pages
<PAGE> 12
The Members have no such contracts, arrangements, understandings or
relationships, except as follows:
(l) Pledge Agreement (Allen Paulson pledged 13,310,734 shares of Issuer
Common Stock to Madeleine L.L.C., as collateral for a term loan). See item 7.r.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
a. Letter dated January 6, 1995 from Messrs. Paulson, Gilstrap and
Walters to Messrs. Tate and Schmeltzer (previously filed).
b. Letter dated February 6, 1995 from Arter & Hadden to Messrs.
Paulson, Gilstrap and Walters (previously filed).
c. Purchase Agreement dated February 7, 1995 between LLC and Issuer
(previously filed).
d. Secured Convertible Promissory Note dated February 7, 1995 from
Issuer to LLC (previously filed).
e. Agreement and Irrevocable Proxy dated February 2, 1995 between LLC
and DaVinci Scientific Corporation (previously filed).
f. Agreement and Irrevocable Proxy dated February 7, 1995 between LLC
and Dr. L.S. Smith (previously filed).
g. Agreement and Irrevocable Proxy dated February 7, 1995 between LLC
and Dallas Gold & Silver Exchange, Inc. (previously filed).
h. Agreement of Right of First Refusal dated February 7, 1995 between
LLC and Dr. L.S. Smith (previously filed).
i. Agreement of Right of First Refusal dated February 7, 1995 between
LLC and Dallas Gold & Silver Exchange, Inc. (previously filed).
j. First Amended and Restated Secured Convertible Promissory Note from
Issuer to LLC, as amended March 30, 1995 (previously filed).
k. Second Amended and Restated Secured Convertible Promissory Note
from Issuer to LLC, as amended May 19, 1995 (previously filed).
l. Investment Agreement, as amended, dated as of April 12, 1995
between Issuer and LLC (previously filed).
m. Amendment of Purchase Agreement, dated March 31, 1996 between LLC
and Issuer (previously filed).
n. Third Amended and Restated Secured Convertible Promissory Note from
Issuer to LLC, as amended March 31, 1996 (previously filed).
o. Fourth Amended and Restated Secured Convertible Promissory Note
from Issuer to LLC, as amended as of June 30, 1996 (previously filed).
Page 12 of 13 Pages
<PAGE> 13
p. Fifth Amended and Restated Secured Convertible Promissory Note from
Issuer to LLC, as amended as of February 1, 1997 (previously filed).
q. 1995 Stock Option/Stock Issuance Plan of Issuer, as amended through
October 8, 1997.
r. Pledge Agreement between Allen Paulson and Madeleine, L.L.C., dated
September 18, 1997.
s. Agreement of Joint Filing, dated October 20, 1997 among LLC and
Messrs. A. Paulson, J. Gilstrap, N. Diaco and J. Diaco.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
October 20, 1997 CARDIODYNAMICS HOLDINGS, LLC
By: /s/
--------------------------------
Allen Paulson, Member
By: /s/
--------------------------------
James Gilstrap, Member
/s/
-----------------------------------
ALLEN PAULSON
/s/
-----------------------------------
JAMES GILSTRAP
/s/
-----------------------------------
NICHOLAS DIACO
/s/
-----------------------------------
JOSEPH DIACO
Attention: Intentional misstatements or omissions of fact constitute Federal
criminal violations (see 18 U.S.C. 1001).
Page 13 of 13 Pages
<PAGE> 14
EXHIBIT INDEX
7.q. 1995 Stock Option/Stock Issuance Plan of Issuer, as amended through
October 8, 1997.
7.r. Pledge Agreement between Allen Paulson and Madeleine L.L.C., dated
September 18, 1997.
7.s. Agreement of Joint Filing.
<PAGE> 1
EXHIBIT 7.q
CARDIODYNAMICS INTERNATIONAL CORPORATION
1995 STOCK OPTION/STOCK ISSUANCE PLAN
(AS AMENDED AND RESTATED THROUGH OCTOBER 8, 1997)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option/Stock Issuance Plan (the "Plan") is intended to
promote the interests of CardioDynamics International Corporation, a California
corporation, by providing eligible persons with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in the service of the
Corporation.
Capitalized terms not otherwise defined shall have the meanings assigned
to such terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
(i) the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of common stock of the Corporation,
(ii) the Stock Issuance Program under which eligible persons
may, at the discretion of the Plan Administrator, be issued shares of
common stock of the Corporation directly, either through the immediate
purchase of such shares or as a bonus for services rendered the
Corporation (or any Parent or Subsidiary), and
(iii) the Automatic Option Grant Program under which
non-employee directors shall automatically receive option grants at
periodic intervals to purchase shares of common stock of the
Corporation.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. This Plan shall be administered by the Board or by a compensation
committee consisting of two or more Board members who assume full responsibility
for the administration of the Plan (the "Plan Administrator"). Members of any
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.
B. The Plan Administrator shall have full power and authority (subject
to the express provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for the proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding option grants or stock issuances as it may deem necessary or
advisable. Decisions of the Plan Administrator shall be final and binding on all
parties who have an interest in the Plan or any outstanding option or stock
issuance.
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C. Notwithstanding the above, the administration of the Automatic Option
Grant Program under Article Three shall be self executing in accordance with the
terms and conditions thereof and the Plan Administrator shall not exercise any
discretionary functions in respect to matters governed by Article Three.
D. The Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine, (i) with respect
to the option grants under the Discretionary Option Grant Program, which
eligible persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered by each such
grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times at which each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares
(provided that vesting shall not be slower than 20% per year over five (5) years
from the option grant date) and the maximum term for which the option is to
remain outstanding and (ii) with respect to stock issuances under the Stock
Issuance Program, which eligible persons are to receive stock issuances, the
time or times when such issuances are to be made, the number of shares to be
issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration to be paid by the Participant for such
shares.
E. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
IV. OPTION GRANTS AND STOCK ISSUANCES
A. Subject to Section V.B below, the persons eligible to be a recipient
of stock issuances under the Stock Issuance Program (each recipient, a
"Participant") and/or option grants pursuant to the Discretionary Option Grant
Program (each recipient, an "Optionee") are as follows:
(i) directors, officers and other employees of the Corporation
(or its parent or subsidiary corporations) who render services which
contribute to the management, growth and financial success of the
Corporation (or its parent or subsidiary corporations); and
(ii) those consultants or other independent contractors who
provide valuable services to the Corporation (or its parent or
subsidiary corporations).
B. The individuals eligible to receive option grants under the Automatic
Option Grant Program shall be those individuals who serve as non-employee Board
members during the term of the Plan.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued common stock of the Corporation ("Common Stock"). The maximum number of
shares of Common Stock which may be issued over the term of the Plan shall not
exceed 2,529,000 shares.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 800,000 shares of Common Stock in the aggregate over the term of the
Plan.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. All shares issued under the Plan, whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan. In addition,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which
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<PAGE> 3
vest under the stock issuance, and not by the net number of shares of Common
Stock issued to the holder of such option or stock issuance.
D. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the maximum number and/or class of securities for which the share
reserve is to increase automatically each year, (iii) the number and/or class of
securities for which any one person may be granted options, separately
exercisable stock appreciation rights and direct stock issuances over the term
of the Plan, (iv) the number and/or class of securities for which automatic
option grants are to be subsequently made under the Automatic Option Grant
Program and (v) the number and/or class of securities and the exercise price per
share in effect under each outstanding option or Stock Issuance Agreement in
order to prevent the dilution or enlargement of benefits thereunder. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date; provided that
the price shall be 110% of the Fair Market Value per share of Common Stock on
the option grant date in the case of any person who owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Corporation or any Parent or Subsidiary (a "10% Shareholder").
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Five
and the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the exercise date,
or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to
(a) a Corporation-designated brokerage firm to effect the immediate sale
of the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale
transaction.
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<PAGE> 4
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
exercise date.
B. Exercise and Term of Options. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option
(which shall be at least six months from cessation of Service if
cessation was caused by death or Permanent Disability, and at least 30
days from cessation of Service if cessation was caused by other than
death, Permanent Disability, or termination for Misconduct or other good
cause), but no such option shall be exercisable after the expiration of
the option term.
(ii) Any option exercisable in whole or in part by the Optionee
at the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding to the extent it is not exercisable for
vested shares on the date of such cessation of Service.
(iv) In the event of a Corporate Transaction,the provisions of
Section III of this Article Two shall govern the period for which the
outstanding options are to remain exercisable following the Optionee's
cessation of Service and shall supersede any provisions to the contrary
in this section.
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the
period otherwise in effect for that option to such greater period of
time as the Plan Administrator shall deem appropriate, but in no event
beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post- Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at
the time of the Optionee's cessation of Service but also with respect to
one or more additional installments in which the Optionee would have
vested under the option had the Optionee continued in Service.
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<PAGE> 5
D. Shareholder Rights. The holder of an option shall have no shareholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator, shall be consistent with the provisions of California
Corporations Commissioner Rule 260.140.41(k)(2), and shall be set forth in the
document evidencing such repurchase right.
F. Limited Transferability of Options. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option may
be assigned in accordance with the terms of a Qualified Domestic Relations Order
within the meaning of Internal Revenue Code Section 414(p). The assigned option
may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to such Qualified Domestic Relations Order. The
terms applicable to the assigned option (or portion thereof) shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Five shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options when issued under the
Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Exercise Price. The exercise price per share shall not be less than
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one (1) calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Shareholder. If any Employee to whom an Incentive Option is
granted is a 10% shareholder (within the meaning of Internal Revenue Code
Section 424(d)), then the exercise price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value per share of Common Stock on
the option grant date, and the option term shall not exceed five (5) years
measured from the option grant date.
III. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
However, an outstanding option shall NOT so accelerate if and to the extent: (i)
such option is, in connection with the Corporate Transaction, either to be
assumed
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<PAGE> 6
by the successor corporation (or parent thereof) or to be replaced with a
comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof), (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing on the unvested option shares at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to such option or (iii) the acceleration of such option is subject to
other limitations imposed by the Plan Administrator at the time of the option
grant. The determination of option comparability under clause (i) above shall be
made by the Plan Administrator, and its determination shall be final, binding
and conclusive.
B. All outstanding repurchase rights shall also terminate automatically,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan on both an aggregate and per
Optionee basis following the consummation of such Corporate Transaction and (ii)
the exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same.
E. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time, shall automatically
accelerate (and any of the Corporation's outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction shall
automatically terminate and the shares of Common Stock subject to those
terminated rights shall immediately vest in full) in the event the Optionee's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of such Corporate
Transaction. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination.
F. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
G. The grant of options under the Discretionary Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program and to grant in substitution new options covering the same or
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new option grant
date.
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<PAGE> 7
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant
to selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan Administrator may establish, to elect
between the exercise of the underlying option for shares of Common Stock
and the surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (A) the Fair Market
Value (on the option surrender date) of the number of shares in which
the Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (B) the aggregate exercise price
payable for such shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator. If the surrender is so approved,
then the distribution to which the Optionee shall be entitled may be
made in shares of Common Stock valued at Fair Market Value on the option
surrender date, in cash, or partly in shares and partly in cash, as the
Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the later of (A) five (5) business days after the
receipt of the rejection notice or (B) the last day on which the option
is otherwise exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more persons subject to Section 16 of the Act may be
granted limited stock appreciation rights with respect to their
outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each such
individual holding one or more options with such a limited stock
appreciation right in effect for at least six (6) months shall have the
unconditional right (exercisable for a thirty (30)-day period following
such Hostile Take-Over) to surrender each such option to the
Corporation, to the extent the option is at the time exercisable for
vested shares of Common Stock. In return for the surrendered option, the
Optionee shall receive a cash distribution from the Corporation in an
amount equal to the excess of (A) the Take-Over Price of the shares of
Common Stock which are at the time vested under each surrendered option
(or surrendered portion thereof) over (B) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within
five (5) days following the option surrender date.
(iii) Neither the approval of the Plan Administrator nor the
consent of the Board shall be required in connection with such option
surrender and cash distribution.
(iv) The balance of the option (if any) shall continue in full
force and effect in accordance with the documents evidencing such
option.
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<PAGE> 8
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. Purchase Price
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the stock issuance date; provided that
the price shall be 110% of the Fair Market Value per share of Common Stock on
the stock issuance date in the case of any 10% Shareholder.
2. Subject to the provisions of Section I of Article Five,
shares of Common Stock may be issued under the Stock Issuance Program for one or
both of the following items of consideration which the Plan Administrator may
deem appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or
Subsidiary).
B. Vesting Provisions
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant or the
performance objectives to be attained,
(ii) the number of installments in which the shares are to vest,
(iii) the interval or intervals (if any) which are to lapse
between installments, and
(iv) the effect which death, Permanent Disability or other event
designated by the Plan Administrator is to have upon the vesting
schedule,
shall be determined by the Plan Administrator (provided that vesting with
respect to the Participant's period of Service shall not be slower than 20% per
year over five (5) years from the date the stock was purchased) and incorporated
into the stock issuance agreement.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements
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<PAGE> 9
applicable to the Participant's unvested shares of Common Stock and (ii) such
escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full shareholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further shareholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
C. Limited Transferability of Stock Issuance Rights. During the lifetime
of the Participant, the stock issuance right shall be personal to the
Participant and shall not be assignable or transferrable other than by will or
by the laws of descent and distribution following the Participant's death.
II. CORPORATE TRANSACTION
A. All of the outstanding repurchase rights under the Stock Issuance
Program shall terminate automatically, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
of any Corporate Transaction, except to the extent (i) those repurchase rights
are assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed in the stock issuance agreement.
B. Any repurchase rights that are assigned in the Corporate Transaction
shall automatically terminate, and all the shares of Common Stock subject to
those terminated rights shall immediately vest in full, in the event the
Optionee's Service should subsequently terminate by reason of an Involuntary
Termination within eighteen (18) months following the effective date of such
Corporate Transaction.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.
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ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant of Options. 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 number of
shares granted pursuant to this Automatic Grant Program shall be subject to
periodic adjustment pursuant to the applicable provisions of Section V.D. of
Article One.
B. Exercise Price. The exercise price per share of each automatic option
grant made under this Article Four shall be equal to one hundred percent (100%)
of the Fair Market Value per share of Common Stock on the grant date; provided
that the exercise price shall be 110% of the Fair Market Value per share of
Common Stock on the grant date in the case of any 10% Shareholder.
C. Payment.
The exercise price shall be payable in one of the alternative
forms specified below:
(i) full payment in cash or check drawn to the Corporation's
order;
(ii) full payment in shares of Common Stock held for at least
six (6) months and valued at fair market value on the Exercise Date (as
such term is defined below);
(iii) 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
(iv) full payment through a broker-dealer sale and remittance
procedure pursuant to which the non-employee Board member (A) shall
provide irrevocable written instructions to a designated brokerage firm
to effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate option price payable for the
purchased shares plus all applicable Federal and state income taxes
required to be withheld by the Corporation in connection with such
purchase and (B) shall provide written directives to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale transaction.
For purposes of this Section I.C. of Article Four, the Exercise Date
shall be the date on which written notice of the option exercise is delivered to
the Corporation. Except to the extent the sale and remittance procedure is
utilized in connection with the exercise of the option, payment of the option
price for the purchased shares must accompany such notice.
D. Option Term. Each automatic grant under this Article Four shall have
a maximum term of ten (10) years measured from the automatic grant date.
E. Exercisability. Each automatic grant under this Article Four shall be
exercisable in full immediately.
F. Non-Transferability. 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
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<PAGE> 11
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.
G. Effect of Termination of Board Membership.
Should the optionee cease to serve as a Board member for any
reason (other than death) while holding one or more automatic option grants
under this Article Four, 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 grant under this Article Four
remain exercisable after the specified expiration date of the ten (10)-year
option term. Upon the expiration of the applicable exercise period in accordance
with the preceding subparagraph or (if earlier) upon the expiration of the ten
(10) year option term, the automatic grant shall terminate and cease to be
outstanding for any unexercised shares.
II. LIMITED STOCK APPRECIATION RIGHT.
A. Upon the occurrence of a Hostile Take-Over, each non-employee Board
member holding an automatic option grant which has been outstanding under this
Article Four for a period of at least six (6) months shall have the
unconditional right (exercisable for a thirty (30)-day period following such
Hostile Take-Over) to surrender such option in return for a cash distribution
from the Corporation in an amount equal to the excess of (i) the Take-Over Price
of the shares of Common Stock at the time subject to the surrendered option
(whether or not the option is otherwise at the time exercisable for such shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the option surrender
date. Neither the approval of the Plan Administrator nor the consent of the
Board shall be required in connection with such option surrender and cash
distribution.
B. The shares of Common Stock subject to each option surrendered in
connection with the Hostile Take-Over shall NOT be available for subsequent
issuance under this Plan.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. Immediately following the consummation of any Corporate Transaction,
each automatic option grant shall (subject to paragraph B below) terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation (or parent thereof).
B. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each automatic
option held by him or her for a period of at least six (6) months. The Optionee
shall in return be entitled to a cash distribution from the Corporation in an
amount equal to the excess of (i) the Take-Over Price of the shares of Common
Stock at the time subject to the surrendered option over (ii) the aggregate
exercise price payable for such shares. Such cash distribution shall be paid
within five (5) days following the surrender of the option to the Corporation.
No approval or consent of the Board shall be required in connection with such
option surrender and cash distribution.
C. The grant of options under the Automatic Option Grant Program shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. AMENDMENT OF THE AUTOMATIC OPTION GRANT PROGRAM
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.
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V. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
ARTICLE FIVE
MISCELLANEOUS
I. ACCELERATION
The Plan Administrator shall have the discretion, exercisable either at
the time an option is granted under the Discretionary Stock Option Program, at
the time that stock is issued under the Stock Issuance Program or at any time
while the option or stock remains outstanding, to provide for the acceleration
of one or more outstanding options and the termination of repurchase rights on
one or more outstanding shares upon the occurrence of such events as the Plan
Administrator may determine, including upon a Corporate Transaction regardless
of whether or not such options are to be assumed or replaced or the repurchase
rights are to be assigned in the Corporate Transaction.
II. FINANCING
A. The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price for shares issued under the Stock Issuance Program by delivering
a promissory note payable in one or more installments. The terms of any such
promissory note (including the interest rate and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion. Promissory
notes may be authorized with or without security or collateral. In all events,
the maximum credit available to the Optionee or Participant may not exceed the
sum of (i) the aggregate option exercise price or purchase price payable for the
purchased shares plus (ii) any Federal, state and local income and employment
tax liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
B. The Plan Administrator may, in its discretion, determine that one or
more such promissory notes shall be subject to forgiveness by the Corporation in
whole or in part upon such terms as the Plan Administrator may deem appropriate.
III. TAX WITHHOLDING
A. 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.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the federal, state and local income or employment
taxes incurred by such holders in connection with the exercise of their options
or the vesting of their shares. Such right may be provided to any such holder in
either or both of the following formats:
(i) Stock Withholding: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of such taxes (not to exceed one hundred percent (100%))
designated by the holder.
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(ii) Stock Delivery: The election to deliver to the Corporation,
at the time the Non-Statutory Option is exercised or the shares vest,
one or more shares of Common Stock previously acquired by such holder
(other than in connection with the option exercise or share vesting
triggering the taxes) with an aggregate Fair Market Value equal to the
percentage of such taxes (not to exceed one hundred percent (100%))
designated by the holder.
IV. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective on the date the Plan is adopted by
the Board, and options may be granted under the Discretionary Option Grant
Program from and after the effective date. 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 Corporation's shareholders. If such shareholder approval
is not obtained within twelve (12) months after such effective date, then all
options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. 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. Upon such Plan
termination, all options and unvested stock issuances outstanding on such date
shall thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing such options or issuances.
V. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, (i) no such amendment
or modification shall adversely affect the rights and obligations with respect
to options, stock appreciation rights or unvested stock issuances at the time
outstanding under the Plan unless the Optionee or the Participant consents to
such amendment or modification, and (ii) any amendment made to the Automatic
Option Grant Program (or any options outstanding thereunder) shall be in
compliance with the limitations of that program. In addition, the Board shall
not, without the approval of the Corporation's shareholders, (i) materially
increase the maximum number of shares issuable under the Plan, the number of
shares for which options may be granted under the Automatic Option Grant Program
or the maximum number of shares for which any one person may be granted options,
separately exercisable stock appreciation rights and direct stock issuances in
the aggregate over the term of the Plan, except for permissible adjustments in
the event of certain changes in the Corporation's capitalization, (ii)
materially modify the eligibility requirements for Plan participation or (iii)
materially increase the benefits accruing to Plan participants.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs are held in escrow until there is
obtained shareholder approval of an amendment sufficiently increasing the number
of shares of Common Stock available for issuance under the Plan. If such
shareholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
VI. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.
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<PAGE> 14
VII. REGULATORY APPROVALS
A. 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.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the NASD, if applicable) on which Common Stock is then
listed for trading.
VIII. 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 Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
IX. FINANCIAL STATEMENTS
Each Optionee and Participant shall be entitled to receive annually the
Corporation's annual report to shareholders and the financial statements
included therein.
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<PAGE> 15
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934) of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation's shareholders which the Board does not recommend such
shareholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time the Board approved such
election or nomination.
C. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(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 the Company's incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in liquidation or
dissolution 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's outstanding
securities are transferred to holders different from those who held such
securities immediately prior to such merger.
D. CORPORATION shall mean CardioDynamics International Corporation, a
California corporation.
E. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
F. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
Stock Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq Stock Market or any successor system. If there is no closing
selling price for the Common
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<PAGE> 16
Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) If the Common Stock is at the time not traded on the
Nasdaq Stock Market or listed on any Stock Exchange, the Fair Market
Value shall be determined by the Plan Administrator after taking into
account such factors as the Plan Administrator shall deem appropriate.
G. HOSTILE TAKE-OVER shall mean a change in ownership of the Corporation
effected through acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's shareholders which the Board does not recommend such
shareholders to accept.
H. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Internal Revenue Code Section 422.
I. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
any non-discretionary and objective-standard incentive payment or bonus
award) by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without the individual's consent.
J. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
K. NON-STATUTORY OPTION shall mean an option which is not an Incentive
Option.
L. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the
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<PAGE> 17
Corporation) owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
M. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
of the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
N. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
O. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
P. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
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<PAGE> 1
EXHIBIT 7.r
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated September 18, 1997, made by Allen E. Paulson, an
individual residing at Del Mar Country Club, 6001 Clubhouse Drive, Rancho Santa
Fe, California 92067 (the "Pledgor"), in favor of Madeleine L.L.C., a New York
limited liability company (the "Lender").
W I T N E S S E T H:
WHEREAS, the Pledgor and the Lender are parties to a Term Loan Agreement
dated as of the date hereof (such agreement, as amended, restated, supplemented
or otherwise modified from time to time, being hereafter referred to as the
"Term Loan Agreement");
WHEREAS, pursuant to the Term Loan Agreement, the Lender has agreed to
extend credit to the Pledgor consisting of the Term Loan (as defined in the Term
Loan Agreement) to the Pledgor in the principal amount of $20,000,000;
WHEREAS, it is a condition precedent to the making of the Term Loan by
the Lender pursuant to the Term Loan Agreement that the Pledgor shall have
executed and delivered to the Lender this Agreement providing for the pledge to
the Lender of, and the grant to the Lender of a security interest in, among
other things, 463,655 shares of common stock issued by Riviera Holdings
Corporation, 13,710,734 shares of common stock of CardioDynamics International
Corporation and all of the issued and outstanding shares of stock of Carlo
Corporation, together with other collateral hereinafter described and all
proceeds of the foregoing;
NOW, THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Lender to make and maintain the Term Loan, the
Pledgor hereby agrees with the Lender as follows:
SECTION 1. Definitions. Terms that are not otherwise defined herein
shall have the same meanings herein as set forth in the Term Loan Agreement or
in Article 8 or 9 of the Uniform Commercial Code (the "Code") as in effect from
time to time in the State of New York. In addition, the following terms shall
have the respective meanings indicated below (such meanings to be applicable
equally to both the singular and plural forms of the terms defined):
"Entitlement Orders", "Financial Assets", "Investment Property",
"Securities Account" and "Securities Entitlement" have the meanings specified
therefor in Uniform Commercial Code - Investment Securities, 1997 N.Y. Laws Ch.
566.
"Jefferies Account" means account number 29102113 maintained by the
Pledgor with Jefferies & Company, Inc., including, without limitation, all
investments, securities and cash now or hereafter held in such account, together
with any successor or replacement accounts.
SECTION 2. Pledge and Grant of Security Interest. As collateral security
for all of the Obligations (as defined in Section 3 hereof), the Pledgor hereby
pledges and assigns, and grants a continuing security interest in, the following
(the "Collateral") to the Lender:
(a) the Jefferies Account;
(b) all Investment Property now or hereafter delivered, transferred or
assigned to, or deposited or credited to the Jefferies Account;
(c) the indebtedness described in Schedule I hereto (the "Pledged Debt")
issued by the corporation described on Schedule I (such corporation, together
with any successor corporation, being hereinafter
<PAGE> 2
referred to as the "Debt Issuer"), the promissory notes, bonds, certificates and
other instruments evidencing the Pledged Debt and all interest, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Pledged
Debt (including, without , any shares of capital stock received in respect of or
in exchange for or upon conversion of any part of the Pledged Debt);
(d) the shares of capital stock listed in Schedule II hereto (the
"Pledged Shares") issued by the corporations described in such Schedule II (such
corporations, together with any successor corporations, being hereinafter
referred to collectively as the "Stock Issuers", and, together with the Debt
Issuer, the "Issuers" and individually as an "Issuer"), the certificates
representing the Pledged Shares, all options and other rights, contractual or
otherwise, in respect thereof (including, without limitation, any registration
rights) and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of the Pledged Shares, together with all certificates hereafter
delivered to the Lender, the shares of stock from time to time represented by
such certificates, all options and other rights, contractual or otherwise, in
respect thereof and all dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such additional shares;
(e) all cash and cash equivalents, Investment Property, Financial
Assets, capital stock or other equity interests, notes, debentures, bonds,
promissory notes or other evidences of indebtedness and all other securities
deposited from time to time in the Jefferies Account or delivered to the Lender;
(f) all books and records pertaining to the Collateral;
(g) all General Intangibles arising from or relating to the Collateral;
(h) all investment earnings and proceeds of any and all of the
foregoing; and
(i) all Securities Entitlements of the Pledgor in any and all of the
foregoing;
in each case, whether now owned or hereafter acquired by the Pledgor and
howsoever such interest therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
SECTION 3. Security for Obligations. The security interest created
hereby in the Collateral constitutes continuing collateral security for all of
the following obligations, whether now existing or hereafter incurred (the
"Obligations"):
(a) the prompt payment by the Pledgor, as and when due and payable, of
all amounts from time to time owing by the Pledgor to the Lender in respect of
the Term Loan Agreement, the Note and all other Loan Documents, including,
without limitation, principal of and interest on the Term Loan (including,
without limitation, all interest that accrues after the commencement of any
case, proceeding or other action relating to bankruptcy, insolvency or
reorganization of the Pledgor whether or not a claim for post filing interest is
allowed in such proceedings) and all fees, commissions, expense reimbursements,
indemnifications and all other amounts due or to become due under the Term Loan
Agreement and any other Loan Document; and
(b) the due performance and observance by the Pledgor of all of his
other obligations from time to time existing in respect of this Agreement, the
Term Loan Agreement and the other Loan Documents to which he is a party.
SECTION 4. Establishment of Collateral Accounts; Delivery of the
Collateral.
(a) Establishment of Collateral Accounts. The Pledgor has established
and will maintain with Jefferies & Company, Inc. the Jefferies Account. Subject
to the rights of the Pledgor under Section 7(a) hereof and the other terms and
conditions of this Agreement, (A) the Jefferies Account shall be under the sole
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<PAGE> 3
dominion and control of the Lender, (B) the Lender shall have the sole right to
make withdrawals from the Jefferies Account and to exercise rights with respect
to the cash and investments from time to time on deposit or held therein and (C)
the Lender shall have the sole right to provide Entitlement Orders to Jefferies
& Company, Inc. with respect to the Jefferies Account. The Collateral shall be
held by Jefferies & Company, Inc. in the Jefferies Account pursuant to the terms
hereof and the letter regarding Acknowledgment of Bailment for Pledged
Securities (the "Jefferies Consent"), dated September 18, 1997 from the Lender
and consented and agreed to by Jefferies & Company, Inc. and the Pledgor. All
promissory notes, bonds, certificates and instruments in the Jefferies Account
shall be held by Jefferies on behalf of the Lender pursuant hereto and the
Jefferies Consent and shall be in suitable form for transfer by delivery or
shall be accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance satisfactory to the Lender.
(b) Delivery of Collateral. (i) On or prior to the execution and
delivery of this Agreement, all promissory notes, bonds and other instruments
currently evidencing the Pledged Debt and all certificates representing the
Pledged Shares shall be registered in the name of the Lender or delivered to the
Lender and the Pledgor will take all action required to perfect the security
interest of the Lender in all uncertificated or book-entry securities
constituting Collateral. All other promissory notes, bonds, certificates and
instruments constituting Collateral from time to time or required to be pledged
to the Lender pursuant to the terms of this Agreement or the Term Loan
Agreement, and all uncertificated or book-entry securities constituting
collateral from time to time (the "Additional Collateral") shall, in the case of
certificates and instruments, be registered in the name of the Lender or
delivered to the Lender promptly upon the receipt thereof by or on behalf of the
Pledgor and, in the case of uncertificated or book-entry securities, the Pledgor
shall take such action as may be required to perfect the security interest of
the Lender. All such promissory notes, bonds, certificates and instruments shall
be held by or on behalf of the Lender pursuant hereto and shall be delivered in
suitable form for transfer by delivery or shall be accompanied by duly executed
instruments of transfer or assignment or undated stock powers executed in blank,
all in form and substance satisfactory to the Lender. Upon receipt by Pledgor of
the Additional Collateral, a Pledge Amendment, duly executed by the Pledgor, in
substantially the form of Schedule III hereto (a "Pledge Amendment") shall be
delivered to the Lender, in respect of the Additional Collateral which are to be
pledged pursuant to this Agreement, which Pledge Amendment shall from and after
delivery thereof constitute part of Schedules I and II. The Pledgor hereby
authorizes the Lender to attach each Pledge Amendment to this Agreement and
agrees that all promissory notes, bonds, certificates or instruments listed on
any Pledge Amendment delivered to the Lender shall for all purposes hereunder
constitute Collateral and the Pledgor shall be deemed upon delivery thereof to
have made the representations and warranties set forth in Section 5 with respect
to such Additional Collateral.
(ii) If the Pledgor shall receive, by virtue of the Pledgor's
being or having been an owner of any Collateral, any (A) certificated security
(including, without limitation, any certificate representing a stock dividend or
distribution in connection with any increase or reduction of capital,
reclassification, merger, consolidation, sale of assets, combination of shares,
stock split, spinoff or split-off), promissory note, chattel paper or other
instrument, (B) option or right, whether as an addition to, substitution for, or
in exchange for, any Collateral, or otherwise, (C) dividends payable in cash
(except such dividends permitted to be retained by the Pledgor pursuant to
Section 7(a) hereof) or in securities or other property or (D) dividends or
other distributions in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in surplus, the Pledgor shall receive such certificated security,
promissory note, chattel paper, instrument, option, right, payment or
distribution in trust for the benefit of the Lender, shall segregate it from the
Pledgor's other property and shall deliver it forthwith to the Lender in the
exact form received, with any necessary indorsement and/or appropriate stock
powers duly executed in blank, to be held by the Lender as Collateral and as
further collateral security for the Obligations.
SECTION 5. Representations and Warranties. The Pledgor represents and
warrants as follows:
(a) The Pledgor has the legal capacity and right to execute, deliver and
perform this Agreement.
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<PAGE> 4
(b) The execution, delivery and performance by the Pledgor of this
Agreement (i) do not and will not contravene any law or any contractual
restriction binding on or affecting the Pledgor or any of his properties; and
(ii) do not and will not result in or require the creation of any Lien upon or
with respect to any of his properties.
(c) This Agreement has been duly executed and delivered by the Pledgor
and constitutes the legal, valid and binding obligation of the Pledgor,
enforceable against the Pledgor in accordance with its terms, except to the
extent that enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
(d) The promissory notes and bonds currently evidencing the Pledged Debt
have been, and all other promissory notes, bonds or other instruments from time
to time evidencing Pledged Debt, when executed and delivered, will have been,
duly authorized, executed and delivered by the respective makers thereof, and
all such promissory notes, bonds or other instruments are or will be, as the
case may be, legal, valid and binding obligations of such makers, enforceable
against such makers in accordance with their respective terms. The information
set forth in Schedule I hereto is accurate and complete.
(e) The Pledged Shares are fully paid and nonassessable and, to the best
of the Pledgor's knowledge, have been duly authorized and validly issued. All
other shares of stock constituting Collateral will be duly authorized and
validly issued, fully paid and nonassessable. The information set forth in
Schedule II hereto is accurate and complete.
(f) There is no action, suit or proceeding pending or, to the Pledgor's
knowledge, threatened or otherwise affecting this Agreement or any other Loan
Document or the Pledgor or the Jefferies Account before any court or other
Governmental Authority or regulatory body or arbitrator that is reasonably
likely to materially adversely affect the financial condition of the Pledgor or
the Pledgor's ability to perform his obligations hereunder, under the Term Loan
Agreement or under any other Loan Documents to which the Pledgor is a party.
(g) No authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority or other regulatory body or any other
Person is required for (i) the due execution, delivery and performance by the
Pledgor of this Agreement, the Term Loan Agreement or any other Loan Document to
which the Pledgor is a party, (ii) the grant by the Pledgor, or the perfection,
of the Lien purported to be created hereby in the Collateral or (iii) the
exercise by the Lender of any of its rights and remedies hereunder, except as
may be required in connection with any sale of any Collateral by laws affecting
the offering and sale of securities generally.
(h) The Pledgor is and will be at all times the legal and beneficial
owner of the Collateral, free and clear of any lien, option or other charge or
encumbrance except for the Lien created by this Agreement. There is no financing
statement naming the Pledgor as debtor (or similar documents or instrument of
registration under the law of any jurisdiction) now on file or registered in any
public office covering any interest of the Pledgor in the Collateral except such
as may have been filed in favor of the Lender relating to this Agreement.
(i) This Agreement creates a valid security interest in favor of the
Lender in the Collateral, as security for the Obligations. Jefferies & Company,
Inc. having credited to the Jefferies Account all certificates, instruments and
cash constituting Collateral from time to time, the execution and delivery of
the Jefferies Consent, the Lender's having possession of the Pledged Shares and
all other certificates, instruments and cash constituting Collateral and the
Lender having control over all other Collateral from time to time collectively
result in the perfection of such security interest. Such security interest is,
or in the case of Collateral in which the Pledgor obtains rights after the date
hereof, will be, a perfected, first priority security interest. All action
necessary or desirable to perfect and protect such security interest has been
duly taken, except for the Lender's and/or Jefferies & Company, Inc.'s having
possession of certificates, instruments and cash constituting Collateral
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after the date hereof or the Lender's and/or Jefferies & Company, Inc.'s having
control over all other Collateral arising after the date hereof.
SECTION 6. Covenants as to the Collateral. So long as any of the
Obligations shall remain outstanding, unless the Lender shall otherwise consent
in writing:
(a) Records. The Pledgor will keep adequate records concerning the
Collateral and permit the Lender or any agents or representatives of the Lender
at any reasonable time and from time to time to examine and make copies of and
abstracts from such records.
(b) Notices. The Pledgor will, at the expense of the Pledgor, promptly
deliver to the Lender a copy of each material notice or other material
communication received by it in respect of any of the Collateral, together with
a copy of any reply by the Pledgor thereto.
(c) Defend Title. The Pledgor will, at the reasonable request of the
Lender and at the expense of the Pledgor, defend his right, title and interest
in and to the Collateral against the claims of any Person.
(d) Further Assurances. The Pledgor will, at the expense of the Pledgor,
at any time and from time to time, promptly execute and deliver all further
instruments and documents and take all further action that may be necessary or
desirable or that the Lender may reasonably request in order (i) to perfect and
protect the security interest created or purported to be created hereby (whether
pursuant to laws, rules, regulations or general practices currently in effect or
adopted subsequent to the date hereof); (ii) to enable the Lender to exercise
and enforce its rights and remedies hereunder in respect of the Collateral; or
(iii) to otherwise effect the purposes of this Agreement, including, without
limitation: (A) at the request of the Lender, marking conspicuously each of the
records of the Pledgor pertaining to the Collateral with a legend, in form and
substance satisfactory to the Lender, indicating that such Collateral is subject
to the security interest created hereby; (B) if any Collateral shall be
evidenced by a certificated security, promissory note or other instrument or
chattel paper, delivering and pledging to the Lender hereunder such certificated
security, note, instrument or chattel paper duly indorsed and accompanied by
executed instruments of transfer or assignment, all in form and substance
satisfactory to the Lender; (C) delivering to the Lender irrevocable proxies in
respect of the Collateral and executing and filing such financing or
continuation statements, or amendments thereto, as may be necessary or desirable
or that the Lender may request in order to perfect and preserve the security
interest created or purported to be created hereby; and (D) furnishing to the
Lender from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Lender may reasonably request, all in reasonable detail.
(e) Transfers and Other Restrictions. The Pledgor will not (i) sell,
assign (by operation of law or otherwise), exchange or otherwise dispose of any
of the Collateral (except as permitted by Section 7(a) hereof); or (ii) create
or suffer to exist any (A) Lien upon or with respect to any of the Collateral
except the Lien created by this Agreement or (B) contractual restriction on the
transferability of any of the Collateral.
(f) Issuance of Additional Securities. In the case of Collateral issued
by Carlo, the Pledgor will not permit the issuance of (i) any additional shares
of any class of capital stock of any such Person, (ii) any securities
convertible voluntarily by the holder thereof or automatically upon the
occurrence or non-occurrence of any event or condition into, or exchangeable
for, any such shares of capital stock or (iii) any warrants, options, contracts
or other commitments entitling any Person to purchase or otherwise acquire any
such shares of capital stock.
(g) Other Actions. The Pledgor will not take or fail to take any action
that would in any manner impair the value or enforceability of the Lender's
security interest in the Collateral.
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SECTION 7. Voting Rights, Dividends, Etc. in Respect of the Collateral;
Withdrawal and Sale of Collateral.
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) the Pledgor may exercise any and all voting and other
consensual rights pertaining to the Collateral in a manner not inconsistent with
the terms of this Agreement or the other Loan Documents; provided, however, that
(A) the Pledgor will not exercise or refrain from exercising any such right, as
the case may be, if the Lender gives the Pledgor notice that, in the Lender's
judgment, such action would have an adverse effect on the value of any
Collateral and (B) the Pledgor will give the Lender at least five days' notice
of the manner in which the Pledgor intends to exercise, or the reasons for
refraining from exercising, any such right;
(ii) Any and all dividends or interest paid or payable in cash
in respect of the Collateral shall forthwith be paid to the Lender pursuant to
Section 2.05(a) of the Term Loan Agreement and shall, if received by the
Pledgor, be received in trust for the benefit of the Lender, shall be segregated
from the other property or funds of the Pledgor, and shall forthwith be paid to
the Lender. Any and all dividends or interest paid or payable other than in cash
in respect of the Collateral shall forthwith be delivered to the Lender or
Jefferies & Company, Inc., as applicable, to hold as Collateral and shall, if
received by the Pledgor , be received in trust for the benefit of the Lender,
shall be segregated from the other property or funds of the Pledgor, and shall
forthwith be delivered to the Lender or Jefferies & Company, Inc., as
applicable, in the exact form received with any necessary indorsement and/or
appropriate stock powers duly executed in blank, to be held, by the Lender or by
Jefferies & Company, Inc. in the Jefferies Account, as the case may be, as
Collateral hereunder;
(iii) the Lender will execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other instruments as
the Pledgor may reasonably request for the purpose of enabling the Pledgor to
exercise the voting and other rights that the Pledgor is entitled to exercise
pursuant to paragraph (i) of this Section 7(a) and to receive the dividends, if
any, that it is authorized to receive and retain pursuant to paragraph (ii) of
this Section 7(a); and
(iv) all investments from time to time in the Jefferies Account
and the non-cash proceeds thereof shall remain in the Jefferies Account (except
for withdrawals by the Lender after an Event of Default) and the Pledgor may not
withdraw any part of the Collateral from the Jefferies Account.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) all rights of the Pledgor to exercise the voting and other
consensual rights that the Pledgor would otherwise be entitled to exercise
pursuant to paragraph (i) of this Section 7(a), and to receive the dividends and
interest payments and other distributions that the Pledgor would otherwise be
authorized to receive and retain pursuant to paragraph (ii) of this Section
7(a), shall cease, and (A) all such rights shall thereupon become vested in the
Lender, which shall thereupon have the sole right to exercise such voting and
other consensual rights and to receive and hold as Collateral such dividends and
interest payments, and (B) the Pledgor shall execute and deliver all such
proxies and other instruments as the Lender may reasonably request for the
purpose of enabling the Lender to exercise the voting and other rights that it
is entitled to exercise pursuant to this Section 7(b)(i);
(ii) the Lender is authorized to notify each debtor with respect
to the Pledged Debt to make payment directly to the Lender and may collect any
and all moneys due or to become due to the Pledgor in respect of the Pledged
Debt and the Pledgor hereby authorizes each such debtor to make such payment
directly to the Lender without any duty of inquiry;
(iii) without limiting the generality of the foregoing, the
Lender may at its option exercise any and all rights of conversion, exchange,
subscription or any other rights, privileges or options
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pertaining to any of the Collateral as if it were the absolute owner thereof,
including, without limitation, the right to exchange, in its discretion, any and
all of the Collateral upon the merger, consolidation, reorganization,
recapitalization or other adjustment of any Issuer of Collateral, or upon the
exercise by any Issuer of Collateral of any right, privilege or option
pertaining to any Collateral, and, in connection therewith, to deposit and
deliver any and all of the Collateral with any committee, depository, transfer
agent, registrar or other designated agent upon such terms and conditions as it
may determine; and
(iv) all dividends and interest payments and other distributions
that are received by the Pledgor contrary to the provisions of paragraph (i) of
this Section 7(b) shall be received in trust for the benefit of the Lender,
shall be segregated from the other funds of the Pledgor, and shall be forthwith
paid over to the Lender and/or Jefferies & Company, Inc. as Collateral in the
exact form received with any necessary indorsement and/or appropriate stock
powers duly executed in blank, to be held by the Lender and/or Jefferies &
Company, Inc. as Collateral hereunder.
SECTION 8. Additional Provisions Concerning the Collateral.
(a) The Pledgor hereby authorizes the Lender to file, without the
signature of the Pledgor where permitted by law, one or more financing or
continuation statements, and amendments thereto, relating to the Collateral.
(b) The Pledgor hereby irrevocably appoints the Lender the Pledgor's
attorney-in-fact and proxy, with full authority in the place and stead of the
Pledgor and in the name of the Pledgor or otherwise, from time to time in the
Lender's discretion, to take any action and to execute any instrument (at the
expense of the Pledgor) that the Lender may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement including, without
limitation, (i) at any time and from time to time, to receive, indorse and
collect all instruments made payable to the Pledgor representing any
distribution in respect of any Collateral and to give full discharge for the
same, and (ii) to receive, indorse and collect any drafts or other instruments,
documents and chattel paper representing any dividend or other distribution in
respect of the Collateral and, in addition to the foregoing and without
limitation: (A) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral and to receive, indorse, and collect any drafts
or other instruments, documents and chattel paper in connection therewith; and
(B) for the collection of any of the Collateral or otherwise to enforce the
rights of the Lender with respect to any of the Collateral; provided, however,
that the Lender shall exercise such powers only during the occurrence and
continuance of an Event of Default.
(c) If the Pledgor fails to perform any agreement contained herein, the
Lender (immediately after giving notice to the Pledgor) may itself perform, or
cause performance of, such agreement or obligation, and the expenses of the
Lender incurred in connection therewith shall be payable by the Pledgor pursuant
to Section 10 hereof, together with interest from the date such expenses are
paid by the Lender until repaid in full, at the rate for overdue principal under
the Term Loan Agreement, all payable on demand.
(d) The Lender may at any time in its discretion (i) without prior
notice to the Pledgor, transfer or register in the name of the Lender or any of
its nominees any or all of the Collateral (it being understood that the Lender
will give prompt notice to the Pledgor immediately after any such transfer or
register), and (ii) exchange certificates or instruments constituting Collateral
for certificates or instruments of smaller or larger denominations.
(e) Other than the exercise of reasonable care to assure the safe
custody of the Collateral while held by the Lender hereunder, the Lender shall
have no duty or liability to preserve rights pertaining thereto and shall be
relieved of all responsibility for the Collateral upon surrendering it or
tendering surrender of it to the Pledgor. The Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which the Lender accords its own property, it being understood that the
Lender shall not have responsibility for (i) ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other matters
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relating to any Collateral, whether or not the Lender has or is deemed to have
knowledge of such matters, or (ii) taking any necessary steps to preserve rights
against any parties with respect to any Collateral.
SECTION 9. Remedies Upon Event of Default. If any Event of Default shall
have occurred and be continuing:
(a) The Lender may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available to it, all
of the rights and remedies of a secured party on default under the Code then in
effect in the State of New York (whether or not the Code applies to the affected
Collateral); and without limiting the generality of the foregoing, also may (i)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any exchange or
broker's board or elsewhere, at such price or prices and on such other terms as
the Lender may deem commercially reasonable. In addition, the Lender may, at any
time and from time to time, upon the occurrence and during the continuance of an
Event of Default, direct that Jefferies & Company, Inc. immediately deliver to
the Lender all or part of the Collateral. The Lender may apply all or part of
the cash and/or other investments constituting Collateral to the payment of all
or any part of the Obligations in such manner as the Lender may elect. The
Pledgor agrees that, to the extent notice of sale shall be required by law, at
least 10 days' notice to the Pledgor of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification. The Lender shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Lender may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
(b) The Pledgor agrees that in any sale of any Collateral hereunder the
Lender is hereby authorized to comply with any limitation or restriction in
connection with such sale as it may be advised by counsel is necessary in order
to avoid any violation of applicable law, rule or regulation (including, without
limitation, compliance with such procedures as may restrict the number of
prospective bidders and purchasers, require that such prospective bidders and
purchasers have certain qualifications, and restrict such prospective bidders
and purchases to Persons who will represent and agree that they are purchasing
for their own account for investment and not with a view to the distribution or
resale of such Collateral), or in order to obtain any required approval of the
sale or of the purchasers by any Governmental Authority or official, and the
Pledgor further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall the Lender be liable or accountable to the Pledgor for any discount
allowed by reason of the fact that such Collateral is sold in compliance with
any such limitation or restriction.
(c) Notwithstanding the provisions of subsection (b) of this Section 9,
the Pledgor recognizes that the Lender may deem it impracticable to effect a
public sale of all or any part of the Collateral and that the Lender may,
therefore, determine to make one or more private sales of any such Collateral to
a restricted group of purchasers who will be obligated to agree, among other
things, to acquire such Collateral for their own account, for investment and not
with a view to the distribution or resale thereof. The Pledgor acknowledges that
any such private sale may be at prices and on terms less favorable to the seller
than the prices and other terms that might have been obtained at a public sale
and, notwithstanding the foregoing, agrees that such private sales shall be
deemed to have been made in a commercially reasonable manner and that the Lender
shall have no obligation to delay sale of any such securities for the period of
time necessary to permit the Issuer of any securities constituting Collateral to
register such securities for public sale under the Securities Act of 1933, as
amended. The Pledgor further acknowledges and agrees that any offer to sell such
securities that has been (i) publicly advertised on a bona fide basis in a
newspaper or other publication of general circulation in the financial community
of New York, New York (to the extent that such an offer may be so advertised
without prior registration under the Securities Act of 1933, as amended) or (ii)
made privately in the manner described above to not less than fifteen bona fide
offerees shall be deemed to involve a "public sale" for the purposes of Section
9-504(3) of the Code (or any successor or similar, applicable statutory
provision) as then in effect in the State of New York, notwithstanding that such
sale may not constitute a "public offering" under the Securities Act of 1933, as
amended, and that the Lender may, in such event, bid for and purchase such
securities.
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(d) Any cash held by the Lender as Collateral and all cash or other
proceeds received by the Lender in respect of any sale of, collection from, or
other realization upon, all or any part of the Collateral may, in the discretion
of the Lender, be held by the Lender as collateral for, and/or then or at any
time thereafter applied (after payment of any amounts payable to the Lender
pursuant to Section 10 hereof) in whole or in part by the Lender against, all or
any part of the Obligations in such order as the Lender shall elect. Any surplus
of cash or other proceeds held by the Lender and remaining after payment in full
of all of the Obligations shall be paid over to the Pledgor or to such Person as
may be lawfully entitled to receive such surplus.
(e) The Pledgor shall (i) subject to clause (ii) below, hold any
dividends, interest or other distributions which it receives with respect to the
Collateral in trust for the Lender, separate from all other moneys of the
Pledgor, and (ii) forthwith transfer such dividends, interest or other
distributions to the Lender. Notwithstanding the foregoing, the Pledgor may not
take any action under this Section with respect to the Collateral that, in the
Lender's judgment, (i) would in any way affect the lien of this Agreement with
respect to any Collateral, or impair the interest or rights of the Lender
therein or (ii) would otherwise be inconsistent with the provisions of this
Agreement or the Term Loan Agreement or result in a violation hereof or thereof.
(d) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Lender is legally
entitled, the Pledgor shall be liable for the deficiency, together with interest
thereon at the highest rate specified in the Term Loan Agreement for interest on
overdue principal thereof or such other rate as shall be fixed by applicable
law, together with the costs of collection and the reasonable fees of any
attorneys employed by the Lender to collect such deficiency.
SECTION 10. Indemnity and Expenses.
(a) The Pledgor agrees to indemnify the Lender from and against any and
all claims, losses and liabilities (including, without limitation, the
reasonable fees, client charges and other expenses of the Lender's counsel)
growing out of or resulting from this Agreement or the enforcement of any of the
terms hereof (including, without limitation, the sale of Collateral pursuant to
a public or private offering and each and every document produced in furtherance
thereof), except claims, losses or liabilities resulting from the Lender's gross
negligence or willful misconduct.
(b) The Pledgor agrees to pay to the Lender on demand the amount of any
and all costs and expenses, including the reasonable fees and other client
charges of the Lender's counsel and of any experts and agents, that the Lender
may incur in connection with (i) the administration and termination of this
Agreement, (ii) the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, any of the Collateral (including,
without limitation, fees or commissions of any broker), (iii) the exercise or
enforcement of any of the rights of the Lender hereunder, (iv) the failure by
the Pledgor to perform or observe any of the provisions hereof, or (v) obtaining
any public information regarding any Issuer of Collateral which the Lender, in
its sole discretion, deems prudent to obtain.
SECTION 11. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing and shall be mailed, telecopied, telexed or
delivered, if to the Pledgor, to him at the address set forth in the Term Loan
Agreement, if to the Lender, to it at its address set forth in the Term Loan
Agreement; or as to any such Person at such other address as shall be designated
by such Person in a written notice to such other Persons complying as to
delivery with the terms of this Section 11. All such notices and other
communications shall be effective (i) if mailed, when received or three Business
Days after mailing, whichever occurs first; (ii) if telecopied, when transmitted
and the appropriate confirmation is received, (iii) if telexed, when the
appropriate answerback is received; or (iv) if delivered, upon delivery.
SECTION 12. Miscellaneous.
(a) No amendment of any provision of this Agreement shall be effective
unless it is in writing and signed by the Pledgor and the Lender, and no waiver
of any provision of this Agreement, and no consent to any departure by the
Pledgor therefrom, shall be effective unless it is in writing and signed by the
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Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
(b) No failure on the part of the Lender to exercise, and no delay in
exercising, any right hereunder or under any other Loan Document shall operate
as a waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The rights and remedies of the Lender provided herein and in the other
Loan Documents are cumulative and are in addition to, and not exclusive of, any
rights or remedies provided by law. The rights of the Lender against the Pledgor
under any Loan Document are not conditional or contingent on any attempt by the
Lender to exercise any of its rights under any other Loan Document against the
Pledgor or against any other Person.
(c) Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
portions hereof or thereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
(d) This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until the Obligations
have been satisfied in full; and (ii) be binding on the Pledgor and his heirs,
executors, administrators, successors and assigns and shall inure, together with
all rights and remedies of the Lender hereunder, to the benefit of the Lender
and its successors, transferees and assigns. The Lender may assign or transfer,
as collateral or otherwise, any or all of its interest hereunder and under the
other Loan Documents. None of the rights or obligations of the Pledgor hereunder
may be assigned or otherwise transferred without the prior written consent of
the Lender.
(e) Upon the satisfaction in full of the Obligations after the
termination of the Term Loan Agreement (i) this Agreement and the security
interest created hereby shall terminate and all rights to the Collateral shall
revert to the Pledgor, and (ii) the Lender will, upon the Pledgor's request and
at the Pledgor's expense, (A) return to the Pledgor such of the Collateral held
by the Lender, and instruct Jefferies & Company, Inc. to return to the Pledgor
such of the Collateral held in the Jefferies Account as shall not have been sold
or otherwise disposed of or applied pursuant to the terms hereof and (B) execute
and deliver to the Pledgor such documents as the Pledgor shall reasonably
request to evidence such termination.
(f) This Agreement shall be governed by and construed in accordance with
the law of the State of New York, except as required by mandatory provisions of
law and except to the extent that the perfection and the effect of perfection or
non-perfection of the security interest created hereby, or remedies hereunder,
in respect of any particular Collateral are governed by the law of a
jurisdiction other than the State of New York.
(g) Section headings in this Agreement are included herein for the
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
(h) This Agreement may be executed in any number of counterparts and by
the different parties hereto on separate counterparts each of which, when so
executed, shall be deemed an original, but all such counterparts shall
constitute but one and the same instrument.
SECTION 13. Security Interest Absolute. All rights of the Lender, all
security interests and all obligations of the Pledgor hereunder shall be
absolute and unconditional irrespective of (i) any lack of validity or
enforceability of the Term Loan Agreement or of any Loan Document or any other
agreement, instrument or document relating thereto, (ii) any change in the time,
manner or place of payment of, or in any other term in respect of, all or any of
the Obligations, or any other amendment or waiver of or consent to any departure
from the Term Loan Agreement or any Loan Document or any other agreement,
instrument or document relating thereto, (iii) any exchange or release of, or
non-perfection of any lien on, any collateral for any of the Obligations, or any
release or amendment or waiver of or consent to departure from any guaranty, for
all or any of the Obligations or (iv) any other circumstance which might
otherwise constitute a defense available
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to, or a discharge of, the Pledgor in respect of any of his obligations under
the Term Loan Agreement or the other Loan Documents, or the Pledgor in respect
of any of the Obligations.
SECTION 14. OTHER AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
SECTION 15. CONSENT TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE
PLEDGOR HEREBY IRREVOCABLY ACCEPTS FOR HIMSELF IN RESPECT OF HIS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE
PLEDGOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PLEDGOR
AT HIS ADDRESS FOR NOTICES CONTAINED IN SECTION 7.01 OF THE TERM LOAN AGREEMENT,
SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. THE
PLEDGOR HEREBY IRREVOCABLY APPOINTS THE SECRETARY OF STATE OF THE STATE OF NEW
YORK AS ITS AGENT FOR SERVICE OF PROCESS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVICE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE PLEDGOR IN ANY OTHER JURISDICTION.
SECTION 16. WAIVER OF JURY TRIAL, ETC. THE PLEDGOR AND THE LENDER EACH
HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER
AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION
HEREWITH OR THEREWITH, AND AGREES THAT ANY SUCH ACTION, PROCEEDINGS OR
COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE PLEDGOR
HEREBY WAIVES ANY RIGHT HE MAY HAVE TO CLAIM OR RECOVER IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE
PLEDGOR CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE
LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT, IN
THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE
FOREGOING WAIVERS. THE PLEDGOR HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS AGREEMENT.
-11-
<PAGE> 12
IN WITNESS WHEREOF, the Pledgor has executed and delivered this
Agreement as of the date first above written.
/s/
-----------------------------------
ALLEN E. PAULSON
Acknowledged and Consented to:
MADELEINE L.L.C.
By: /s/
--------------------------------
Name:
Title:
-12-
<PAGE> 13
SCHEDULE I
TO
PLEDGE AGREEMENT
Pledged Debt
<TABLE>
<CAPTION>
Description and Original
Name of Payee Date of Instrument Principal Amount
------------- ------------------ ----------------
<S> <C> <C>
Borrower Promissory Note dated December 31, $21,371,194.35
1996 made by Carlo Corporation to the
Borrower
Borrower Promissory Note dated ________ __, $__________
199__ made by R&E Gaming Corp. to
the Borrower
</TABLE>
<PAGE> 14
SCHEDULE II
TO
PLEDGE AGREEMENT
Pledged Shares
<TABLE>
<CAPTION>
Number of
Name of Issuer/Payee Shares/Amount Class/Description Certificate Numbers
-------------------- ------------- ----------------- -------------------
<S> <C> <C> <C>
Riviera Holdings Corporation 463,655 Common *
Carlo Corporation 1,000 Common 1
CardioDynamics International 13,699,734 Common C0898
Corporation
C0661
C0409
C0507
CardioDynamics International
Corporation
11,000 Common *
</TABLE>
- --------
* Held through Jefferies & Company, Inc.
*
<PAGE> 15
SCHEDULE III
TO
PLEDGE AGREEMENT
PLEDGE AMENDMENT
This Pledge Amendment, dated ____________, is delivered pursuant to
Section 4 of the Pledge Agreement referred to below. The undersigned hereby
agrees that this Pledge Amendment may be attached to the Pledge Agreement, dated
September 18, 1997, as it may heretofore have been or hereafter may be amended
or otherwise modified or supplemented from time to time, and that the shares
listed on this Pledge Amendment shall be and become part of the Collateral
referred to in said Pledge Agreement and shall secure all of the Obligations
referred to in said Pledge Agreement.
<TABLE>
<CAPTION>
Number of
---------
Shares/Amount
-------------
Name of Issuer/Payee Class/Description Certificate No(s)
-------------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
-----------------------------------
ALLEN E. PAULSON
<PAGE> 1
EXHIBIT 7.s
Agreement of Joint Filing
The undersigned hereby agree that they are filing jointly pursuant to
Rule 13d-1(f)(1) of the Securities Exchange Act of 1934, as amended, the
Statement dated October 20, 1997 containing the information required by Schedule
13D, for the shares of Common Stock of CardioDynamics International Corporation,
held by CardioDynamics Holdings, LLC, a California limited liability company,
and by the undersigned individuals.
October 20, 1997
CARDIODYNAMICS HOLDINGS, LLC
By: /s/
--------------------------------
Allen Paulson, Member
By: /s/
--------------------------------
James Gilstrap, Member
/s/
-----------------------------------
ALLEN PAULSON
/s/
-----------------------------------
JAMES GILSTRAP
/s/
-----------------------------------
NICHOLAS DIACO
/s/
-----------------------------------
JOSEPH DIACO
