<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended AUGUST 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Transition Period from ________ to _________
Commission File Number: 0-11868
CARDIODYNAMICS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3533362
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6175 NANCY RIDGE DRIVE, SUITE 300, SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices) (Zip Code)
(619) 535-0202
(Registrant's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check whether the registrant has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No _____
As of September 30, 1998, 32,120,433 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format
(check one):
Yes _____ No X
<PAGE> 2
CARDIODYNAMICS INTERNATIONAL CORPORATION
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited):
Balance Sheets at August 31, 1998 and November 30, 1997. 3
Statements of Operations for the three and nine months
ended August 31, 1998 and August 31, 1997. 4
Statements of Cash Flows for the nine months ended
August 31, 1998 and August 31, 1997. 5
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 16
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARDIODYNAMICS INTERNATIONAL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1998 1997
ASSETS (Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,119,056 $ 2,655,349
Accounts receivable, net of allowance for doubtful accounts
and returns of $26,562 and $161,824, respectively 544,845 51,568
Inventory, net 1,012,202 906,111
Other current assets 54,643 137,735
------------ ------------
Total current assets 5,730,746 3,750,763
Property and equipment, net 182,903 244,654
Deposits 40,099 27,788
------------ ------------
Total assets $ 5,953,748 $ 4,023,205
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 537,852 $ 295,524
Accrued expenses 140,327 22,292
Accrued salaries, wages and benefits 210,224 83,632
Note payable - related parties 1,000,000 --
Note payable to bank 2,000,000 --
Current maturities of long-term debt 11,280 11,300
Customer deposits 1,935 2,995
Reserve for inventory returns 93,850 614,860
------------ ------------
Total current liabilities 3,995,468 1,030,603
Long-term debt, less current maturities 50,333 26,523
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 18,000,000 shares authorized; issued
and outstanding 3,000 Series A shares at August 31, 1998. No
shares authorized or outstanding at November 30, 1997 2,880,903 --
Common stock, no par value; 50,000,000 shares authorized; issued and
outstanding 32,113,743 shares at August 31,
1998 and 32,085,743 at November 30, 1997 14,859,027 14,826,762
Accumulated deficit (15,831,983) (11,860,683)
------------ ------------
Total shareholders' equity 1,907,947 2,966,079
------------ ------------
Total liabilities and shareholders' equity $ 5,953,748 $ 4,023,205
============ ============
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 4
CARDIODYNAMICS INTERNATIONAL CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
AUGUST 31, AUGUST 31,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 670,723 $ 265,000 $ 1,295,961 $ 1,175,456
Cost of sales 299,172 191,717 784,750 653,319
------------ ------------ ------------ ------------
Gross margin 371,551 73,283 511,211 522,137
Operating expenses:
Research and development 564,562 479,183 1,709,040 883,178
Selling, general and
administrative expenses 1,023,944 661,954 2,708,204 2,103,125
------------ ------------ ------------ ------------
Total operating expenses 1,588,506 1,141,137 4,417,244 2,986,303
Loss from operations (1,216,955) (1,067,854) (3,906,033) (2,464,166)
Other income (expense):
Interest, net (76,121) 54,947 (68,368) 130,642
Loss on sales of securities -- -- -- (164,853)
Other, net 901 -- 3,901 --
------------ ------------ ------------ ------------
Total other income (expense) (75,220) 54,947 (64,467) (34,211)
Loss before income taxes (1,292,175) (1,012,907) (3,970,500) (2,498,377)
Income taxes -- -- (800) (800)
------------ ------------ ------------ ------------
Net loss $ (1,292,175) $ (1,012,907) $ (3,971,300) $ (2,499,177)
============ ============ ============ ============
Net loss per common share,
basic and diluted $ (0.04) $ (0.03) $ (0.12) $ (0.08)
============ ============ ============ ============
Weighted-average number of
common shares outstanding 32,105,450 31,926,368 32,097,451 31,159,407
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
4
<PAGE> 5
CARDIODYNAMICS INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED AUGUST 31,
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997
----------- -----------
<S> <C> <C>
Net loss $(3,971,300) $(2,499,177)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 55,359 41,041
Gain on sale of fixed assets (3,000) --
Loss on disposition of marketable securities -- 164,853
Provision for refurbishment of demonstration inventory units 113,307 76,145
Compensatory stock options granted 2,565 15,051
Provision for doubtful receivables (135,262) 7,553
Changes in operating assets and liabilities:
Accounts receivable (358,015) (328,992)
Inventory (219,398) (534,573)
Other current assets 83,092 (97,231)
Deposits (12,311) (15,773)
Accounts payable 242,328 119,998
Accrued expenses 118,035 (66,151)
Accrued salaries, wages and related benefits 126,592 28,859
Customer deposits (1,060) (23,012)
Reserve for inventory returns (521,010) --
----------- -----------
Net cash used in operating activities (4,480,078) (3,111,409)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (43,608) (91,888)
Proceeds from sale of fixed assets 53,000 --
Proceeds from sale of marketable securities -- 164,360
----------- -----------
Net cash provided by investing activities 9,392 72,472
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (8,460) (9,279)
Increase in long-term debt 32,250 --
Due to related parties 1,000,000 --
Repayment of bank debt (1,000,000) --
Proceeds from bank borrowings 3,000,000 --
Issuance of preferred stock - net 2,880,903 --
Issuance of common stock 29,700 5,946,895
----------- -----------
Net cash provided by financing activities 5,934,393 5,937,616
----------- -----------
Net increase in cash and cash equivalents 1,463,707 2,898,679
Cash and cash equivalents at beginning of period 2,655,349 706,190
----------- -----------
Cash and cash equivalents at end of period $ 4,119,056 $ 3,604,869
=========== ===========
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
CARDIODYNAMICS INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
DESCRIPTION OF BUSINESS
CardioDynamics International Corporation (the "Company") develops, manufactures
and markets noninvasive digital cardiac output monitoring devices, which provide
continuous data on a wide range of hemodynamic parameters (measurements of the
heart's ability to deliver oxygen-rich blood throughout the body). The Company's
primary products, the BioZ(TM) System, BioZ Portable(TM), and BioZ.com(TM), use
Thoracic Electrical Bioimpedance ("TEB") technology to obtain data which is
typically obtained through a time-consuming, costly and potentially dangerous
invasive Pulmonary Artery Catheterization ("PAC") procedure. The BioZ(TM)
product line uses the Company's core technology, the proprietary DISQ(TM)
(Digital Impedance Signal Quantifier) Technology, and the Z MARC(TM) (Modulating
Aortic Compliance) Algorithm, which together provide improved measurements of
impedance waveforms and automatic electronic calibration, thereby increasing the
repeatability and reliability of TEB technology. Since TEB monitoring is
noninvasive, it eliminates procedure risk and potentially decreases the length
of a hospital stay, thereby reducing patient cost.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with the
requirements for Form 10-QSB and therefore do not include all information and
footnotes which would be presented were such financial statements prepared in
accordance with generally accepted accounting principles.
These statements should be read in conjunction with the Company's November 30,
1997 audited financial statements and notes thereto as presented in its Annual
Report on Form 10-KSB. Financial presentations for the prior periods have been
reclassified to conform with the current presentation.
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim periods
a fair statement of such operations. All such adjustments are of a normal
recurring nature. The results of operations for the three months and nine ended
August 31, 1998 are not necessarily indicative of the results that may be
expected for the full fiscal year ended November 30, 1998.
Options and warrants to purchase 4,090,848 shares of common stock at an average
exercise price of $2.43 per share were outstanding during the quarter ended
August 31, 1998 but were not included in the computation of earnings per share
because their effect would be anti-dilutive.
SIGNIFICANT CHANGES IN CAPITALIZATION
On August 21, 1998, the Company sold 3,000 shares of Series A convertible
preferred stock and 123,000 warrants to institutional investors for
$3,000,000. The Series A preferred stock is convertible into common stock at
the lesser of $2.70 or 95% of the then-current common stock market value. The
preferred stock has a cumulative dividend of 3% per year.
6
<PAGE> 7
CARDIODYNAMICS INTERNATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto included in this report, and with the Company's
audited financial statements and notes thereto for the fiscal year ended
November 30, 1997. Certain statements set forth herein are forward-looking and
involve risks and uncertainties. For information regarding identification of
such statements and potential factors that could have a material adverse effect
on the Company's business, operating results, and financial condition refer to
the Company's November 30, 1997 Form 10-KSB and page 16 of this report.
The Company received FDA 510(k) marketing clearance for the BioZ System in late
November 1996 and in September 1997, the Company received 510(k) marketing
clearance from the FDA for its BioZ Portable monitoring system and the Company's
proprietary Dynamic Impedance Signal Quantifier (DISQ(TM)) technology. In March
1998, the Company received 510(k) marketing clearance for the BioZ.com, the
Company's next generation monitoring system. The BioZ.com is even more compact
than the BioZ Portable and features a transport battery, integrated blood
pressure module and direct data interface to most hospital central monitoring
systems. The BioZ.com is the first product to fully utilize the Company's DISQ
technology which provides improved measurement of impedance waveforms and
automatic electronic calibration. These FDA clearances provide the Company the
opportunity to commercialize the three products, which could result in
significantly increased sales.
Results of Operations (Quarters referred to herein are fiscal quarters ended
August 31)
Net sales for the third quarter of fiscal 1998 increased 153% to $670,723, over
the same quarter of fiscal 1997 in which sales were $265,000. Sales for the
nine-month period ended August 31, 1998 increased to $1,295,961 from $1,175,456
for the same nine-month period in 1997. The increase in sales reflects the
growing demand and acceptance in the medical community of the Company's
noninvasive BioZ product line and technology. In addition, the majority of the
sales recorded in Fiscal 1997 were to domestic distributors for demonstration
and stocking inventory. As a result of the Company's decision in late 1997 to
add a direct sales force in targeted metropolitan areas, a 100% reserve for
distributor returns was established against these distributor sales.
Approximately $766,540 of the distributor reserve related to sales recorded in
the first nine months of Fiscal 1997.
The Company sold 31 BioZ systems, including 12 BioZ.com systems, during the
three month period ended August 31, 1998. During the third quarter of fiscal
1998 the Company's sales of BioZ.com systems included sales to four targeted
Luminary Accounts: UCSF Stanford Health Care (Stanford, California), Crawford
Long Hospital (Atlanta, Georgia), Harper Hospital (Detroit, Michigan), and
Medical University of South Carolina (Charleston, South Carolina). In addition,
four BioZ systems, including one BioZ.com system, were shipped during the third
quarter under the Company's "No Risk" and "Preferred Partnership" rental
programs, whereby a BioZ System and "No Risk" disposable sensors are provided to
targeted accounts for little or no cost for a trial period, in exchange for a
minimum monthly usage-based charge.
7
<PAGE> 8
CARDIODYNAMICS INTERNATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations (Continued)
The Company believes that allowing clinicians the opportunity to experience the
clinical benefits and cost savings of the BioZ products, without the risk
typically associated with a capital equipment purchase, will result in greater
knowledge and acceptance of the Company's products and provide local reference
sites to facilitate additional sales. During the third fiscal quarter of 1998
five "No-Risk" program participants made the decision to purchase the equipment.
The Company achieved a gross margin of 55% in the third quarter and 39% for the
first nine months of fiscal 1998 compared with a 28% gross margin in the third
quarter and 44% for the first nine months of fiscal 1997. The gross margin is
expected to improve as the Company's manufacturing capacity is more fully
utilized, the BioZ.com comprises a greater percentage of the overall product mix
and as average unit sales prices increase as a result of direct sales to
end-users. However, significant increases in sales will be required to enable
the Company to generate enough gross margin to cover operating expenses.
Selling, general and administrative costs for the three and nine months ended
August 31, 1998 increased 55% and 29% over the same quarter and nine months of
fiscal 1997 due to the Company's continued strategic investment in a direct
sales force and marketing related expenses. The Company's investment in sales
activities is expected to continue to increase as it expands its direct sales
force and develops selling and marketing materials customized for direct sales
targeted at both the hospital and outpatient markets. As a result of ongoing
cost containment efforts, general and administrative expenses were reduced by
14% in the third fiscal quarter and 7% in the first nine months of 1998, when
compared with the same periods of 1997.
Research and development expenses increased by $85,379, or 18%, during the third
quarter of fiscal 1998 over last year's same quarter. For the first nine months
of fiscal 1998 the Company's investment in research and development increased by
$825,862, or 94%, over the same period of fiscal 1997. The increases are mainly
due to the accelerated 11-month development cycle, from specification to
shipment, of the BioZ.com product and compliance testing toward European CE Mark
certification. Much of the non-proprietary product development was contracted
from Rivertek Medical Systems.
In April of 1998, the Company signed a distribution alliance agreement with
Cardiomedics, Inc. under which the Company shipped five BioZ.com units during
the third quarter of fiscal 1998. In order to penetrate the BioZ product line's
numerous potential markets, the Company plans to seek additional alliances with
select medical device manufacturers and managed care facilities.
8
<PAGE> 9
CARDIODYNAMICS INTERNATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations (Continued):
The Company incurred interest expense of $76,121, net of interest earned on
invested funds, largely related to the $3 million Imperial Bank term loan at the
Bank's prime interest rate plus one percent, compared with net interest income
of $54,947 in the comparable quarter of fiscal 1997. In the first quarter of
1997, the Company recognized a loss of on the sale of securities of $164,853
related to the disposition of securities that had been held for payment to
preferred shareholders upon the exercise of a right to redeem their preferred
shares for common stock and a pro-rata portion of the proceeds of the marketable
securities.
The Company incurred a net loss for the third quarter and first nine months of
1998 of $1,292,175 and $3,971,300 or $.04 and $.12 per common share
respectively, compared with a net loss of $1,012,907 and $2,499,177 or $.03 and
$.08 per common share in the same fiscal periods last year. The increase in the
weighted average number of common shares outstanding during the third quarter
and first nine months of fiscal 1998 was primarily due to the automatic
conversion in August 1997 of 183,115 shares of the Company's preferred stock
into common stock and the issuance of approximately 2.5 million common shares in
a private placement through EVEREN Securities, Inc., in early 1997.
Liquidity and Capital Resources
In May of 1998, the Company entered into a six month unsecured term loan
agreement with Imperial Bank. Under the terms of the agreement the Company could
borrow up to $4,000,000, of which the Company borrowed $3,000,000. The loan
bears interest at one percent above the Bank's Prime Rate. In August 1998, the
Company repaid $1,000,000 of the $3,000,000, reducing the outstanding balance to
$2,000,000. In exchange, the Bank extended the term of the loan until February
28, 1999.
In March 1998, the Company entered into an 18 month unsecured private line of
credit agreement with the co-chairmen of the Company's Board of Directors. Under
the terms of the agreement the Company may borrow up to $3,000,000 on an
as-needed basis with monthly interest-only payments at an annual interest rate
of 10.0%. In August of 1998 the Company borrowed $1,000,000 on this line of
credit and used the proceeds to reduce outstanding borrowings under the bank
term loan.
In August of 1998, the Company completed the first phase of a $6,000,000 equity
private placement to institutional investors. The first phase provided
$3,000,000 ($2,880,903 net proceeds) through the issuance of Series A
Convertible Preferred Stock. The funding of the remaining $3,000,000 of
Preferred Stock, which is targeted for February 1999, is contingent upon certain
conditions being met. There can be no assurance that this second phase of
financing will be completed then, or ever. The Company is using the net proceeds
from the first phase to further expand its direct sales force and execute
marketing programs for the new BioZ.com product line. If the second phase is
funded, the Company anticipates using the net proceeds to retire its existing
bank and private loans.
9
<PAGE> 10
CARDIODYNAMICS INTERNATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources (Continued)
Longer term, the Company's liquidity will depend on its ability to successfully
commercialize the BioZ product line and other diagnostic products and raise
additional funds through public or private financing, bank loans, collaborative
relationships or other arrangements. There can be no assurance that such
additional funding will be available on terms attractive to the Company, or at
all.
Other Matters
Many computer systems experience problems handling dates beyond the year 1999.
Therefore, some computer hardware and software will need to be modified prior to
the year 2000 in order to remain functional. The Company has taken steps to
assess the internal readiness of its computer systems and the compatibility of
its products sold to customers for handling the year 2000 issue. The Company's
primary internal computer operations run on a networked IBM compatible PC
hardware server with Microsoft Windows NT running Fourth Shift manufacturing
requirements planning software which the vendor has certified as being year 2000
compliant. The Company has tested its own products sold to customers and thus
far has not identified any year 2000 problems. In addition, the Company is
assessing the readiness of third-parties (e.g., customers and suppliers) which
interact with the Company's systems. The Company intends to develop a
contingency plan in the event that its internal systems, products or suppliers
are not year 2000 compliant.
At this time the Company is in the assessment stage of the process and expects
to have any necessary implementation completed within the next twelve months.
The Company currently believes that the cost of addressing this issue will not
have a material adverse effect on the Company's business, results of operations,
and financial condition. However, if the vendors of the Company's most important
goods and services, or the suppliers of the Company's necessary energy,
telecommunications and transportation needs, fail to provide the Company with
the materials and services which are necessary to produce and sell its products,
such failure could have a material adverse effect on the results of operations,
liquidity and financial condition of the Company.
10
<PAGE> 11
CARDIODYNAMICS INTERNATIONAL CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
(a) None.
(b) On July 24, 1998, the Company's articles of incorporation were
amended to provide therein for the creation of 18,000,000 shares
of Preferred Stock in one or more series with voting and other
rights as determined by the Board of Directors. In August the
Company issued 3,000 shares of Series A Convertible Preferred
Stock, which has a cumulative preferred dividend of 3% per year
and a liquidation preference of $3,000,000 plus accumulated
dividends. The Company cannot pay cash dividends on the Common
Stock without the consent of a majority of the Series A
Convertible Preferred Stock outstanding.
(c) On August 21, 1998, the Company sold 3,000 shares of Series A
Convertible Preferred Stock and 123,000 common stock warrants to
institutional investors controlled by AG Ramius Partners, L.L.C.
and Angelo, Gordon & Co., L.P. The purchase price was
$3,000,000. The Company incurred $119,097 of expenses related to
the offering including a $60,000 finder's fee paid to EVEREN
Securities, Inc. Under Section 4(2) of the Securities Act, the
transaction was exempt from registration.
The "stated value" of the Series A Convertible Preferred Stock
($3,000,000) and any accumulated dividends are convertible into
Common Stock at the Fixed Conversion Price, or the Floating
Conversion Price, whichever is more favorable to the investor.
The Fixed Conversion Price is $2.70 (subject to certain
adjustments); the Floating Conversion Price is 95% of the
then-current Common Stock market value (calculated using a
formula involving closing bid prices) until August 21, 1999 and
92% of the then-current Common Stock market value (calculated
using the formula) thereafter.
The Series A Convertible Preferred Stock cannot be converted at
all before January 19, 1999 unless certain events occur, and in
certain circumstances the number of shares which could be
converted after January 19, 1999 and before April 19, 1999 is
limited on a per-month basis.
All Series A Convertible Preferred Stock still outstanding on
the Mandatory Conversion Date will automatically be converted
then. The Mandatory Conversion Date is August 21, 2002, subject
to the possibility of extension is certain events occur.
11
<PAGE> 12
CARDIODYNAMICS INTERNATIONAL CORPORATION
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES (CONTINUED)
No holder of Series A Convertible Preferred Stock may elect to
convert for Common Stock which would give it more than a 4.99%
of the Company's outstanding Common Stock, unless it has given
the Company 61 days' advance notice of its intent to do so.
Also, the Company shall not be obligated to issue, upon
conversion of the Series A Convertible Preferred Stock as a
whole, more shares than are allowed by Rule 4460(i) of the
Nasdaq Stock Market, unless such above-the-threshold conversion
is approved by the Company's shareholders; the excess above the
threshold would, absent such shareholder approval, be handled by
redemption rather than by conversion. The Rule 4460(i) threshold
is 6,422,748 shares of Common Stock (19.99% of the Company's
outstanding Common Stock at August 21, 1998.)
In conjunction with the financing, the Company issued 123,000
warrants, exercisable for shares of Common Stock at $2.55 per
share, subject to anti-dilution adjustments. The Warrants expire
on August 21, 2003.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on July 23, 1998, the
shareholders voted on the following proposals. Each such
proposal was approved.
Proposal 1: Election of Directors for the coming year. The
balloting for the directors was as follows:
<TABLE>
<CAPTION>
AGAINST/ ABSTAINED/
FOR WITHHELD NON-VOTES
--------- -------- ---------
<S> <C> <C> <C>
Stephenson M. Dechant 29,454,841 36,404 0
Nicholas V. Diaco 29,454,841 36,404 0
Louis P. Ferrero 29,454,841 36,404 0
Cam L. Garner 29,454,841 36,404 0
James C. Gilstrap 29,454,841 36,404 0
Richard O. Martin 29,454,841 36,404 0
Richard E. Otto 29,454,841 36,404 0
Michael D. Padilla 29,454,841 36,404 0
Allen E. Paulson 29,454,841 36,404 0
Michael K. Perry 29,453,931 37,314 0
</TABLE>
12
<PAGE> 13
CARDIODYNAMICS INTERNATIONAL CORPORATION
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
Proposal 2: Approve certain May 20, 1998 amendments to the
1995 Stock Option/Stock Issuance Plan.
28,152,310 shares voted in favor of the amendments, 223,626
shares were voted against the amendments, 1,045,504 shares
abstained and 66,804 shares were broker non-votes.
Proposal 3: Amend the Company's Articles of Incorporation to
authorize the issuance of up to 18,000,000 shares of Preferred
Stock.
25,183,615 shares voted in favor of the amendment, 232,471
shares voted against, 1,055,876 shares abstained and 3,019,282
shares were broker non-votes.
Proposal 4: Ratify the Board's selection of KPMG Peat Marwick
LLP as the Company's independent accountants for the fiscal
year ending November 30, 1998.
29,449,060 shares voted in favor of the ratification, 8,200
shares voted against ratification, 33,985 shares abstained and
there were no broker non-votes.
ITEM 5. OTHER INFORMATION
In July 1998 the Company received approval from the Japanese
Ministry of Health to begin marketing the Company's BioZ System
throughout Japan. The Japanese approval substantially expands
the Company's available market.
The Securities and Exchange Commission (the "SEC") recently
amended Rule14a-4, which governs the use by Company-affiliated
proxyholders of discretionary voting authority with respect to
shareholder proposals. SEC Rule 14a-4(c)(1) provides that, if
the proponent of a shareholder proposal fails to notify the
Company at least 45 days prior to the month and day of mailing
the prior year's proxy statement, the Company-affiliated
proxyholders would be permitted to use their discretionary
authority at the Company's next annual meeting of shareholders
if the proposal were raised at the meeting without any
discussion of the matter in the proxy statement.
13
<PAGE> 14
CARDIODYNAMICS INTERNATIONAL CORPORATION
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) Exhibits:
3.1 Restated Articles of Incorporation as filed July 24,
1998.
3.2 Certificate of Determination of Preferences of Series
A Convertible Preferred Stock. (Incorporated by
reference to Form 8-K for the event of August 21,
1998, filed September 3, 1998.)
4.1 Sixth Amended and Restated Secured Convertible
Promissory Note, dated August 15, 1998 between
CardioDynamics Holdings, LLC and the Company.
10.1 Promissory Note and Credit Agreement, dated August
19, 1998 between Imperial Bank and the Company.
10.2 Warrants to purchase 33,334 shares of CardioDynamics
International Corporation Common Stock to Imperial
Bank dated May 14, 1998.
10.3 Warrants to purchase 15,000 shares of CardioDynamics
International Corporation Common Stock to Imperial
Bank dated August 21, 1998.
10.4 1995 Stock Option/Stock Issuance Plan, as amended
June 10, 1997. (Incorporated by reference to August
31, 1997 Form 10-QSB.)
10.5 Amendment to 1995 Stock Option/Stock Issuance Plan
dated May 20, 1998.
10.6 Securities Purchase Agreement dated August 21, 1998
between the Company and certain Selling Shareholders.
(Incorporated by reference to Form 8-K for event of
August 21, 1997, filed September 3, 1998.)
10.7 Form of Warrant issued August 21, 1998 to certain
Selling Shareholders. (Incorporated by reference to
Form 8-K for event of August 21, 1998, filed
September 3, 1998.)
10.8 Registration Rights Agreement dated August 21, 1998
between the Company and certain Selling Shareholders.
(Incorporated by reference to Form 8-K for event of
August 21, 1998, filed September 3, 1998.)
</TABLE>
14
<PAGE> 15
CARDIODYNAMICS INTERNATIONAL CORPORATION
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
27 Financial Data Schedule.
(b) Reports on Form 8-K:
On September 3, 1998, the Company filed a report on From
8-K with regard to an August 21, 1998 event: the
completion of the first phase of a $6,000,000 private
placement of Convertible Preferred Stock through a group
of institutional investors. The report included material
under Item 5 and Item 7 of Form 8-K.
15
<PAGE> 16
CARDIODYNAMICS INTERNATIONAL CORPORATION
This document contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These statements include statements regarding plans, goals, strategies,
intent, beliefs or current expectations of the Company and its management. These
statements are expressed in good faith and are believed to have a reasonable
basis when expressed, but there can be no assurance that these expectations will
be achieved or accomplished. Sentences in this document containing verbs such as
"plan," "intend," "anticipate," "target," "estimate," "expect," etc., and/or
future-tense or conditional constructions ("will," "may," "could," "should,"
etc.) constitute forward-looking statements that involve risks and
uncertainties. Items contemplating, or making assumptions about, actual or
potential future sales, market size, collaborations, trends or operating results
also constitute such forward-looking statements. Among the factors that could
cause the Company's actual results to differ materially from those indicated in
any such forward-looking statements are: (i) sole dependence on the
newly-introduced BioZ(TM) System, BioZ Portable(TM) and BioZ.com(TM) and related
products, (ii) general acceptance in the medical community of invasive
procedures such as PAC and lack of general acceptance in the medical community
of TEB, (iii) its ability to raise additional funds on terms attractive to the
Company, or at all, (iv) competition from Baxter Healthcare Corporation, the
maker of the Swan-Ganz(TM) PAC device, and (v) various uncertainties
characteristic of companies just emerging from the development stage; as well as
other risks detailed in the Company's annual report on Form 10-KSB for the
fiscal year ended November 30, 1997 and any later-filed SEC reports. Any
forward-looking statement speaks only as of the date on which the statement is
made, and the Company does not undertake to update the disclosures contained in
this document or reflect events or circumstances that occur subsequently or to
reflect the occurrence of unanticipated events.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CARDIODYNAMICS INTERNATIONAL CORPORATION
Date: October 15, 1998 By: /s/ MICHAEL K. PERRY
---------------- ------------------------------------
Michael K. Perry
Chief Executive Officer
Date: October 15, 1998 By: /s/ STEPHEN P. LOOMIS
---------------- ------------------------------------
Stephen P. Loomis
Vice President, Finance
Chief Financial Officer and
Corporate Secretary
16
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
CARDIODYNAMICS INTERNATIONAL CORPORATION
Michael K. Perry and Steve P. Loomis hereby certify that:
1. They are the Chief Executive Officer and Secretary,
respectively, of CardioDynamics International Corporation, a California
corporation.
2. Article Three of the Articles of Incorporation of this
corporation is amended in its entirety to read as follows:
"ARTICLE THREE: The corporation is authorized to
issue two classes of stock, to be designated, respectively,
"Common Stock" and "Preferred Stock". The total number of
shares which the corporation is authorized to issue is
68,000,000 shares. 50,000,000 shares shall be Common Stock and
18,000,000 shares shall be Preferred Stock.
The Preferred Stock may be issued from time to time
in one or more series. The Board of Directors is hereby
authorized to fix or alter the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of
redemption (including sinking fund provisions), redemption
price or prices, and the liquidation preferences of any wholly
unissued series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or
any of them; and to increase or decrease the number of shares
of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall
be so decreased, the shares constituting such decrease shall
resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such
series."
3. The foregoing amendment of the Articles of Incorporation
has been duly approved by the Board of Directors.
4. The foregoing amendment of the Articles of Incorporation
has been duly approved by the required vote of shareholders in accordance with
Section 902 of the California Corporations Code. The current total number of
outstanding shares of the corporation is 32,102,743 shares of Common Stock. The
number of shares voting in favor of the amendment equaled or exceeded the vote
required. The percentage vote required was more than 50 percent of all
outstanding shares. No shares of Preferred Stock are outstanding.
<PAGE> 2
We further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this certificate are true
and correct of our own knowledge.
DATED: July 23, 1998
/s/ MICHAEL K. PERRY
-----------------------------------------
Michael K. Perry, Chief Executive Officer
/s/ STEVE P. LOOMIS
-----------------------------------------
Steve P. Loomis, Secretary
<PAGE> 1
EXHIBIT 4.1
SIXTH AMENDED AND RESTATED
SECURED CONVERTIBLE
PROMISSORY NOTE
$25,000.00 February 7, 1995, as
amended March 30, 1995,
May 19, 1995,
March 31, 1996
June 30, 1996,
February 1, 1997,
and August 15, 1998
FOR VALUE RECEIVED, CardioDynamics International Corporation, a
California corporation ("Maker"), 6175 Nancy Ridge Drive, Suite 300, San Diego,
California 92121, hereby promises to pay to the order of CardioDynamics
Holdings, LLC, a California limited liability company ("Lender"), 5067 Shore
Drive, Carlsbad, California 92008, TWENTY-FIVE THOUSAND DOLLARS ($25,000.00), at
such address of Lender, in lawful money of the United States together with
interest on the principal balance outstanding at the lesser of (a) seven and
one-half percent per annum, or (b) if less, the maximum rate permissible by
applicable law. Interest shall be calculated on the basis of a 360-day year for
the actual number of days elapsed, and shall be payable in arrears on each March
31, June 30, September 30 and December 31. The principal amount of and all
unpaid accrued interest under the Note shall become due and payable in full on
March 31, 2000. This Note is an amendment and restatement of a certain Secured
Convertible Promissory Note dated February 7, 1995 in the original principal
amount of $100,000.
1. Additional Provisions Relating to Debt Characteristics.
This Note may not be prepaid in full or in part.
This Note is secured by the collateral identified and described as
security therefor in that certain Security Agreement, dated as of February 7,
1995, by and between Maker and Lender and the collateral identified and
described as security therefor in that certain Patent Security Agreement, dated
as of February 7, 1995, by and between Maker and Lender (collectively, the
"Security Agreement").
Upon the happening of any of the following events, Lender may, at its
option, declare immediately due and payable the entire unpaid principal amount
of this Note, together with all interest thereon, plus any other amounts payable
at the time of such declaration pursuant to this Note. Such events are the
following: (1) failure to make any interest payment as it falls due, (2) Maker
shall admit in writing its inability to pay its debts as they become due, shall
make a general assignment for the benefit of creditors or shall file any
petition or action for relief under any bankruptcy, reorganization, insolvency
or moratorium law, or any other law or laws for the relief of, or relating to,
debtors; or (3) an involuntary petition shall be filed against Maker under any
bankruptcy, reorganization, insolvency or moratorium law, or any other law or
laws for the relief of, or relating to, debtors unless such petition shall be
dismissed or vacated within sixty
<PAGE> 2
(60) days of the date thereof. Lender shall further be entitled to the remedies
provided in the event of default provided in the Security Agreement.
Maker hereby waives diligence, presentment, demand, protest or other
notice of any kind.
2. Conversion.
2.1 Conversion Privilege. Lender has the right, at Lender's
option, at any time after February 6, 1996 and prior to payment in full of the
principal balance of this Note, to convert this Note, in accordance with the
provisions hereof, in whole or in part, into fully paid and nonassessable shares
of Common Stock of Maker. The number of shares of Common Stock into which this
Note may be converted shall be determined by dividing the aggregate principal
amount together with all accrued interest to the date of conversion by the
Conversion Price (as defined below) in effect at the time of such conversion.
The initial Conversion Price shall be equal to $0.50. On March 31, 1996, the
Conversion Price shall decrease to $0.25, subject to further possible adjustment
under subsection 2.2 hereof.
Before Lender shall be entitled to convert this Note into shares of
Common Stock, it shall surrender this Note at the office of Maker and shall give
written notice by mail, postage prepaid, to Maker at its principal corporate
office, of the election to convert the same, and shall state therein the name or
names in which the certificate or certificates for shares of Common Stock are to
be issued. Maker shall, as soon as practicable thereafter, issue and deliver at
such office to the holder of this Note a certificate or certificates for the
number of shares of Common Stock to which the holder of this Note shall be
entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of this
Note, and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of such date.
Upon the conversion of this Note, Lender shall surrender this Note,
duly endorsed, at the principal office of Maker. At its expense, Maker shall, as
soon as practicable thereafter, issue and deliver to such Lender at such
principal office a certificate or certificates for the number of shares of such
Common Stock to which the Lender shall be entitled upon such conversion (bearing
such legends as may be required by applicable state and federal securities laws
in the opinion of counsel to Maker), together with any other securities and
property to which Lender is entitled upon such conversion under the terms of
this Note. If less than the entire Note is converted, Maker shall issue to
Lender a new Note, of like tenor, for the remaining principal amount.
2.2 Conversion Price Adjustments. In the event Maker should at
any time or from time to time after the date of issuance hereof fix a record
date for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional
-2-
<PAGE> 3
shares of Common Stock issuable upon conversion or exercise thereof), then, as
of such record date (or the date of such dividend distribution, split or
subdivision if no record date is fixed), the Conversion Price of this Note shall
be appropriately decreased so that the number of shares of Common Stock issuable
upon conversion of this Note shall be increased in proportion to such increase
of outstanding shares.
If the number of shares of Common Stock outstanding at any time after
the date hereof is decreased by a combination of the outstanding shares of
Common Stock, then, following the record date of such combination, the
Conversion Price for this Note shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion hereof shall be
decreased in proportion to such decrease in outstanding shares.
In the event Maker shall declare a distribution payable in securities
of other persons, evidences of indebtedness issued by Maker or other persons,
assets (excluding cash dividends) or options or rights, then, in each such case
for the purpose of this subsection 2.2, the holder hereof shall be entitled to a
proportionate share of any such distribution as though such holder was the
holder of the number of shares of Common Stock of Maker into which this Note is
convertible as of the record date fixed for the determination of the holders of
Common Stock of Maker entitled to receive such distribution.
2.3 Notices of Record Date, etc. In the event of:
- any taking by Maker of a record of the holders of
any class of securities of Maker for the purpose of
determining the holders thereof who are entitled to
receive any dividend (other than a cash dividend
payable out of earned surplus at the same rate as
that of the last such cash dividend theretofore paid)
or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to
receive any other right; or
- any capital reorganization of Maker, any
reclassification or recapitalization of the capital
stock of Maker or any transfer of all or
substantially all of the assets of Maker to any other
person or any consolidation or merger involving
Maker; or
- any voluntary or involuntary dissolution, liquidation
or winding-up of Maker,
Maker will mail to the holder of this Note at least ten (10) days prior to the
earliest date specified therein, a notice specifying:
(a) The date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right; and,
(b) The date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding-up is expected to
-3-
<PAGE> 4
become effective and the record date for determining shareholders
entitled to vote thereon.
2.4 Reservation of Stock Issuable Upon Conversion. Maker shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
Note such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of the Note; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the entire outstanding principal amount of this Note,
in addition to such other remedies as shall be available to the holder of this
Note, Maker will use its reasonable best efforts to take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
3. Miscellaneous.
The rights and obligations of Maker and Lender shall be binding upon
and benefit the successors, assigns, heirs, administrators, and transferees of
Maker and Lender.
Lender shall not be deemed by any act or omission or commission to have
waived any of its rights or remedies hereunder unless such waiver is in writing
and expressly stated as such and signed by Lender and then only to the extent
specifically set forth in the writing. A waiver of one event shall not be
construed as continuing or a bar to or waiver of any right or remedy as to a
subsequent event. Maker expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and consents to the acceptance of
security, if any, or the release of security, if any, from this Note, all
without in any way affecting the liability of Maker.
Any notice that Maker or Lender desires to give to the other related to
this Note shall be in writing and shall be deemed delivered when personally
delivered by any courier service which obtains a receipt upon delivery to an
officer or registered agent of the respective corporation, or two business days
after deposit in the United States mail, certified mail, return receipt
requested, postage prepaid, addressed to the party being notified at its
respective address specified in this Note.
If Lender should institute collection efforts, of any nature
whatsoever, to attempt to collect any and all amounts due hereunder upon the
default of Maker on this Note or under the Security Agreement, or any other
efforts to enforce any of its rights under this Note, Maker shall be liable to
pay to Lender immediately and without demand all reasonable costs and expenses
of collection incurred by Lender, including without limitation reasonable
attorneys fees, whether or not suit or other action or proceeding be instituted
and specifically including but not limited to collection efforts that may be
made on appeal or through a bankruptcy court, and all such sums shall be fully
secured by all instruments securing this Note.
The provisions of this Note are intended by Maker to be severable and
divisible and the invalidity or unenforceability of a provision or term herein
shall not invalidate or render unenforceable the remainder of this Note or any
part thereof.
-4-
<PAGE> 5
This Note shall be construed in accordance with the laws of the State
of California without giving effect to principles of conflict of laws.
IN WITNESS WHEREOF, Maker has executed this instrument in San Diego,
California.
MAKER:
CARDIODYNAMICS INTERNATIONAL CORPORATION
By: /s/ MICHAEL K. PERRY
-----------------------------------------
Michael K. Perry, Chief Executive Officer
By: /s/ STEVE P. LOOMIS
-----------------------------------------
Steve P. Loomis, Secretary
-5-
<PAGE> 1
EXHIBIT 10.1
PROMISSORY NOTE
<TABLE>
<S> <C>
BORROWER: CARDIODYNAMICS LENDER: Imperial Bank
INTERNATIONAL Emerging Growth Industries
CORPORATION Group
6175 Nancy Ridge Drive, Suite 300 Southern California Regional Office
San Diego, CA 92121 701 B Street, Suite 600
San Diego, CA 92101-8120
===================================================================================================
PRINCIPAL AMOUNT: $3,020,250.00 INITIAL RATE: 9.500% DATE OF NOTE: August 19, 1998
</TABLE>
PROMISE TO PAY. CARDIODYNAMICS INTERNATIONAL CORPORATION ("Borrower") promises
to pay to Imperial Bank ("Lender"), or order, in lawful money of the United
States of America, the principal amount of Three Million Twenty Thousand Two
Hundred Fifty & 00/100 Dollars ($3,020,250.00) or so much as may be outstanding,
together with interest on the unpaid outstanding principal balance of each
advance. Interest shall be calculated from the date of each advance until
repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on February 28, 1999. In addition, Borrower
will pay regular monthly payments of accrued unpaid interest beginning September
30,1998, and all subsequent interest payments are due on the last day of each
month after that. The annual interest rate for this Note is computed on a
365/360 basis; that is, by applying the ratio of the annual interest rate over a
year of 360 days, multiplied by the outstanding principal balance, multiplied by
the actual number of days the principal balance is outstanding. Borrower will
pay Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to any unpaid collection costs and any late
charges, then to any unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the Imperial Bank Prime Rate
(the "Index"). The Prime Rate is the rate announced by Lender as its Prime Rate
of interest from time to time. Lender will tell Borrower the current Index rate
upon Borrower's request. Borrower understands that Lender may make loans based
on other rates as well. The interest rate change will not occur more often than
each day. The Index currently is 8.500%. The interest rate to be applied to the
unpaid principal balance of this Note will be at a rate of 1.000 percentage
point over the Index, resulting in an Initial rate of 9.500%. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of
this Note, Borrower understands that Lender is entitled to a minimum interest
charge of $250.00. Other than Borrower's obligation to pay any minimum interest
charge, Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(e) Any creditor takes any of Borrower's property on or in which Lender has a
lien or security interest. This includes a garnishment of any of Borrowers
accounts with lender. (f) Any guarantor dies or any of the other events
described in this default section occurs with respect to any guarantor of this
Note. (g) A material adverse change occurs in Borrower's financial condition, or
-1-
<PAGE> 2
lender believes the prospect of payment or performance of the indebtedness is
impaired. (h) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within ten (10) days; or (b) if the
cure requires more than ten (10) days, immediately initiates steps which Lender
deems in Lender's sole discretion to be sufficient to cure the default and
thereafter continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the variable interest rate on
this Note to 6.000 percentage points over the Index, and (b) add any unpaid
accrued interest to principal and such sum will bear interest therefrom until
paid at the rate provided in this Note (including any increased rate). Lender
may hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
in the State of California. If there is a lawsuit, Borrower agrees upon Lender's
request to submit to the jurisdiction of the courts of Los Angeles County, the
State of California. Lender and Borrower hereby waive the right to any jury
trial in any action, proceeding, or counterclaim brought by either Lender or
Borrower against the other. (Initial here/s/ SPL) This Note shall be governed by
and construed in accordance with the law of the State of California.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if Borrower
makes a payment on Borrower's loan and the check or pre-authorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
LINE OF CREDIT. This Note evidences a straight line of credit. Once the total
amount of principal has been advanced Borrower is not entitled to further loan
advances. Advances under this Note may be requested orally by Borrower or by an
authorized person. All oral requests shall be confirmed in writing on the day of
the request. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following parties are authorized to request advances under the line of credit
until Lender receives from Borrower at Lender's address shown above written
notice of revocation of their authority: MICHAEL PERRY, CEO; STEVE LOOMIS,
SECRETARY/CFO; AND RHONDA PEDERSON, PRESIDENT. Borrower agrees to be liable for
all sums either; (a) advanced in accordance with the instructions of an
authorized person or (b) credited to any of Borrower's accounts with Lender. The
unpaid principal balance owing on this Note at any time maybe evidenced by
endorsement of this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under this
Note if: (a) Borrower or any guarantor is in default under the terms of this
Note or any agreement that Borrower or any guarantor has with Lender, including
any agreement made in connection with the signing of this Note; (b) Borrower or
any guarantor ceases doing business or is insolvent; (c) any guarantor seeks,
claims, or otherwise attempts to limit, modify or revoke such guarantors
guarantee of this Note or any other loan with Lender; (d) Borrower has applied
funds provided pursuant to this Note for purposes other than those authorized by
Lender; or (e) Lender in good faith deems itself insecure under this Note or any
other agreement between Lender and Borrower.
REFERENCE PROVISION. 1. Other than (i) non-judicial foreclosure and all matters
in connection therewith regarding security interest in real or personal
property; or (ii) the appointment of receiver, or the exercise of other
provisional remedies (any and all of which may be initiated pursuant to
applicable law), each controversy, dispute or
-2-
<PAGE> 3
claim between the parties arising out of or relating to this document
("Agreement"), which controversy, dispute or claim is not settled in writing
within thirty (30) days after the "Claim Date"(defined as the date on which a
party subject to the Agreement gives written notice to all other parties that a
controversy, dispute or claim exists), will be settled by a reference proceeding
in California in accordance with the provisions of Section 638 et seq. of the
California Code of Civil Procedure, or their successor section ("CCP"), which
shall constitute exclusive remedy for the settlement of any controversy, dispute
or claim concerning this Agreement, including whether such controversy, dispute
or claim is subject to the reference proceeding and except as set forth above,
the parties waive their rights to initiate any legal proceedings against each
other in any court or jurisdiction other than the Superior Court in the County
where the Real Property, if any, is located or Los Angeles County if none (the
"Court"). The referee shall be a retired Judge of the Court selected by mutual
agreement of the parties, and if they cannot so agree within forty-five (45)
days after the Claim Date, the referee shall be promptly selected by the
Presiding Judge of the Court (or his representative). The referee shall be
appointed to sit as a temporary judge, with all of the powers for a temporary
judge, as authorized by law, and upon selection should take and subscribe to the
oath of office as provided for in Rule 244 of the California Rules of Court (or
any subsequently enacted Rule). Each party shall have one preemptory challenge
pursuant to CCP 170.6. The referee shall (a) be requested to set the matter for
hearing within sixty (60)days after the Claim Date and (b) try any and all
issues of law or fact and report a statement of decision upon them. If possible,
within ninety (90) days of the Claim Date. Any decision rendered by the referee
will be final, binding and conclusive and judgment shall be entered pursuant to
CCP 644 in any court in the State of California having jurisdiction. Any party
may apply for a reference proceeding at any time after thirty (30) days
following notice to any other party of the nature of the controversy, dispute or
claim, by filing a petition for a hearing and/or trial. All discovery permitted
by this Agreement shall be completed no later than fifteen (15) days before the
first hearing date established by the referee. The referee may extend such
period in the event of a party's refusal to provide requested discovery for any
reason whatsoever, including, without limitation, legal objections raised to
such discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents shall be responded to within ten (10) days
after service. All disputes relating to discovery which cannot be resolved by
the parties shall be submitted to the referee whose decision shall be final and
binding upon the parties. Pending appointment of the referee as provided herein,
the Superior Court is empowered to issue temporary and/or provisional remedies
as appropriate.
2. Except as expressly set forth in this Agreement, the referee shall determine
the manner in which the reference proceeding is conducted including the time and
place of all hearings, the order of presentation of evidence, and all other
questions that arise with respect to the course of the reference proceeding. All
proceedings and hearings conducted before the referee, except for trial shall be
conducted without a court reporter, except that when any party so requests, a
court report will be used at any hearing conducted before the referee. The party
making such a request shall have the obligation to arrange for and pay for the
court reporter. The costs of the court reporter at the trial shall be borne
equally by the parties.
3. The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of California. The rules
of evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that will be binding upon the parties.
The referee shall issues a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are at
the subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to findings of fact, conclusion of law, a written statement of decision, and the
right to move for a new trial or different judgment, which new trial if granted,
is also to be a reference proceeding under this provision.
4. In the event that the enabling legislation which provides for appointment of
a referee is repealed (and no successor statute is enacted), any dispute between
the parties that would otherwise be determined by the reference procedure herein
described will be resolved and determined by arbitration. The arbitration will
be conducted by a retired Judge of the Court, in accordance with the California
Arbitration Act, 1280 through 1294.2 of the CCP as amended from time to time.
The limitations with respect to discovery as set forth herein above shall apply
to any such arbitration proceeding.
CREDIT AGREEMENT. This Note is subject to the provisions of the Credit Agreement
dated May 14, 1998 and all amendments thereto and replacements thereof.
-3-
<PAGE> 4
PRINCIPAL REDUCTION. Borrower agrees to reduce principal balance in the amount
of $1,020,250.00 upon execution of this Note.
After said principal reduction the maximum available under the Note shall not
exceed $2,000,000.00.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its right to
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether by
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect lender's security
interest in the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this loan without the consent of or notice to anyone other
than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
CARDIODYNAMICS INTERNATIONAL CORPORATION
BY: /s/ MICHAEL PERRY BY: /s/ STEVE LOOMIS
--------------------------- ----------------------------------
MICHAEL PERRY, CEO STEVE LOOMIS, SECRETARY/CFO
-4-
<PAGE> 1
EXHIBIT 10.2
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: CardioDynamics International Corporation.
Number of Shares: 33,334
Class of Stock: Common
Initial Exercise Price: $3.00
Issue Date: May 14, 1998
Expiration Date: May 14, 2003 (Subject to Article 4.1)
THIS WARRANT CERTIFIES THAT, in consideration of the payment of $1.00
and for other good and valuable consideration, IMPERIAL BANK or registered
assignee ("Holder") is entitled to purchase the number of fully paid and
nonassessable shares of the class of securities (the "Shares") of the
corporation (the "Company") at the initial exercise price per Share (the
"Warrant Price") all as set forth above and as adjusted pursuant to Article 2 of
this Warrant, subject to the provisions and upon the terms and conditions set
forth of this Warrant.
ARTICLE 1. EXERCISE
1.1 Method of Exercise. Holder may exercise this Warrant by delivering
this Warrant and a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.5.
1.3 Fair Market Value. If the Shares are traded regularly in a public
market, the fair market value of the Shares shall be the closing sale price of
the Shares (or the closing price of the Company's stock into which the Shares
are convertible) reported for the business day immediately before Holder
delivers its Notice of Exercise to the Company. If the Shares are not regularly
traded in a public market, the Board of Directors of the Company shall determine
fair market value in its reasonable good faith judgment. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that Holder
disagrees with such determination, then the Company and Holder shall promptly
agree upon a reputable investment banking firm to undertake such valuation. If
the valuation of such investment banking firm is greater than that determined by
the Board of Directors, then all fees and expenses of such investment banking
firm shall be paid by the Company. In all other circumstances, such fees and
expenses shall be paid by Holder.
<PAGE> 2
1.4 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.5 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.6 Repurchase on Sale, Merger, or Consolidation of the Company.
1.6.1. "Acquisition". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets (including intellectual property) of the
Company, or any reorganization, consolidation, or merger of the Company where
the holders of the Company's securities before the transaction beneficially own
less than 50% of the outstanding voting securities of the surviving entity after
the transaction.
1.6.2. Assumption of Warrant. If upon the closing of any
Acquisition the successor entity assumes the obligations of this Warrant, then
this Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly. The Company shall use reasonable efforts to cause the surviving
corporation to assume the obligations of this Warrant.
1.6.3. Nonassumption. If upon the closing of any Acquisition
the successor entity does not assume the obligations of this Warrant and Holder
has not otherwise exercised this Warrant in full, then the unexercised portion
of this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the Acquisition on the
same terms as other holders of the same class of securities of the Company.
1.6.4. Purchase Right. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
2
<PAGE> 3
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock payable in common stock, or other securities, or
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 No Impairment. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out all the provisions of this Article 2 and in
taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
2.5 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
3
<PAGE> 4
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
All Shares which may be issued upon the exercise of the purchase right
represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time (a)
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 15 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 15 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all communiques to the shareholders of the Company, (b)
within ninety (90) days after the end of each fiscal year of the Company, the
annual audited financial statements of the Company certified by independent
public accountants of recognized standing and (c) within forty-five (45) days
after the end of each of the first three quarters of each fiscal year, the
Company's quarterly, unaudited financial statements.
3.4 Registration Under Securities Act of 1933, as amended. The Company
agrees that the Shares shall be subject to the registration rights set forth on
Exhibit A.
4
<PAGE> 5
ARTICLE 4. MISCELLANEOUS.
4.1 Term: Notice of Expiration. This Warrant is exercisable, in whole
or in part, at any time and from time to time on or before the Expiration Date
set forth above.
4.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon exercise or conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon exercise or conversion of the Shares, if any) may
not be transferred or assigned in whole or in part without compliance with
applicable federal and state securities laws by the transferor and the
transferee (including, without limitation, the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company). The Company shall not require Holder to provide an opinion of counsel
if the transfer is to an affiliate of Holder or if there is no material question
as to the availability of current information as referenced in Rule 144(c),
Holder represents that it has complied with Rule 144(d) and (e) in reasonable
detail, the selling broker represents that it has complied with Rule 144(f), and
the Company is provided with a copy of Holder's notice of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon exercise or conversion of the Shares, if any) by giving the Company notice
of the portion of the Warrant being transferred setting forth the name, address
and taxpayer identification number of the transferee and surrendering this
Warrant to the Company for reissuance to the transferee(s) (and Holder, if
applicable). Unless the Company is filing financial information with the SEC
pursuant to the Securities Exchange Act of 1934, the Company shall have the
right to refuse to transfer any portion of this Warrant to any person who
directly competes with the Company.
4.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
5
<PAGE> 6
4.7 Attorneys' Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
CARDIODYNAMICS INTERNATIONAL CORPORATION
By:/s/ STEVE P. LOOMIS
------------------------------------------
Name: Steve P. Loomis
----------------------------------------
Title: Vice President Finance, CFO
---------------------------------------
6
<PAGE> 7
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _________ shares of the
Common Stock of CardioDynamics International Corporation pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase price of
such shares in full.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
Chief Financial Officer
Controllers Department
Imperial Bank
P.O. Box 92991
Los Angeles, CA 90009
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
IMPERIAL BANK
- ----------------------------------
(Signature)
- ----------------------------------
(Date)
7
<PAGE> 8
EXHIBIT A
Registration Rights
The Shares shall be deemed "registrable securities" or otherwise
entitled to "piggy back" registration rights in accordance with the terms of the
following agreement (the "Agreement") between the Company and its investor(s):
----------------------------------------------------------------
[Identify Agreement by date, title and parties. If no Agreement
exists, indicate by "none."]
The Company agrees that no amendments will be made to the Agreement
which would have an adverse impact on Holder's registration thereunder without
the consent of Holder. By acceptance of the Warrant to which this Exhibit C is
attached, Holder shall not be deemed to be a party to the Agreement, but solely
entitled to the registration rights created thereby.
If no Agreement exists, then the Company and the Holder shall enter
into Holder's standard form of piggy back Registration Rights Agreement as in
effect on the Issue Date of the Warrant.
8
<PAGE> 1
EXHIBIT 10.3
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: CardioDynamics International Corporation.
Number of Shares: 15,000
Class of Stock: Common
Initial Exercise Price: $2.00
Issue Date: August 21, 1998
Expiration Date: August 21, 2003 (Subject to Article 4.1)
THIS WARRANT CERTIFIES THAT, in consideration of the payment of $1.00
and for other good and valuable consideration, IMPERIAL BANK or registered
assignee ("Holder") is entitled to purchase the number of fully paid and
nonassessable shares of the class of securities (the "Shares") of the
corporation (the "Company") at the initial exercise price per Share (the
"Warrant Price") all as set forth above and as adjusted pursuant to Article 2 of
this Warrant, subject to the provisions and upon the terms and conditions set
forth of this Warrant.
ARTICLE 1. EXERCISE
1.1 Method of Exercise. Holder may exercise this Warrant by delivering
this Warrant and a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.5.
1.3 Fair Market Value. If the Shares are traded regularly in a public
market, the fair market value of the Shares shall be the closing sale price of
the Shares (or the closing price of the Company's stock into which the Shares
are convertible) reported for the business day immediately before Holder
delivers its Notice of Exercise to the Company. If the Shares are not regularly
traded in a public market, the Board of Directors of the Company shall determine
fair market value in its reasonable good faith judgment. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that Holder
disagrees with such determination, then the Company and Holder shall promptly
agree upon a reputable investment banking firm to undertake such valuation. If
the valuation of such investment banking firm is greater than that determined by
the Board of Directors, then all fees and expenses of such investment banking
firm shall be paid by the Company. In all other circumstances, such fees and
expenses shall be paid by Holder.
<PAGE> 2
1.4 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.5 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.6 Repurchase on Sale, Merger, or Consolidation of the Company.
1.6.1. "Acquisition". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets (including intellectual property) of the
Company, or any reorganization, consolidation, or merger of the Company where
the holders of the Company's securities before the transaction beneficially own
less than 50% of the outstanding voting securities of the surviving entity after
the transaction.
1.6.2. Assumption of Warrant. If upon the closing of any
Acquisition the successor entity assumes the obligations of this Warrant, then
this Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly. The Company shall use reasonable efforts to cause the surviving
corporation to assume the obligations of this Warrant.
1.6.3. Nonassumption. If upon the closing of any Acquisition
the successor entity does not assume the obligations of this Warrant and Holder
has not otherwise exercised this Warrant in full, then the unexercised portion
of this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the Acquisition on the
same terms as other holders of the same class of securities of the Company.
1.6.4. Purchase Right. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
2
<PAGE> 3
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock payable in common stock, or other securities, or
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 No Impairment. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out all the provisions of this Article 2 and in
taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
2.5 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
3
<PAGE> 4
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
All Shares which may be issued upon the exercise of the purchase right
represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time (a)
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 15 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 15 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all communiques to the shareholders of the Company, (b)
within ninety (90) days after the end of each fiscal year of the Company, the
annual audited financial statements of the Company certified by independent
public accountants of recognized standing and (c) within forty-five (45) days
after the end of each of the first three quarters of each fiscal year, the
Company's quarterly, unaudited financial statements.
3.4 Registration Under Securities Act of 1933, as amended. The Company
agrees that the Shares shall be subject to the registration rights set forth on
Exhibit A.
4
<PAGE> 5
ARTICLE 4. MISCELLANEOUS.
4.1 Term: Notice of Expiration. This Warrant is exercisable, in whole
or in part, at any time and from time to time on or before the Expiration Date
set forth above.
4.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon exercise or conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon exercise or conversion of the Shares, if any) may
not be transferred or assigned in whole or in part without compliance with
applicable federal and state securities laws by the transferor and the
transferee (including, without limitation, the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company). The Company shall not require Holder to provide an opinion of counsel
if the transfer is to an affiliate of Holder or if there is no material question
as to the availability of current information as referenced in Rule 144(c),
Holder represents that it has complied with Rule 144(d) and (e) in reasonable
detail, the selling broker represents that it has complied with Rule 144(f), and
the Company is provided with a copy of Holder's notice of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon exercise or conversion of the Shares, if any) by giving the Company notice
of the portion of the Warrant being transferred setting forth the name, address
and taxpayer identification number of the transferee and surrendering this
Warrant to the Company for reissuance to the transferee(s) (and Holder, if
applicable). Unless the Company is filing financial information with the SEC
pursuant to the Securities Exchange Act of 1934, the Company shall have the
right to refuse to transfer any portion of this Warrant to any person who
directly competes with the Company.
4.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
5
<PAGE> 6
4.7 Attorneys' Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
CARDIODYNAMICS INTERNATIONAL CORPORATION
By: /s/ STEVE P. LOOMIS
-------------------------------------
Name: Steve P. Loomis
-----------------------------------
Title: Vice President Finance, CFO
----------------------------------
6
<PAGE> 7
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase __________ shares of the
Common Stock of CardioDynamics International Corporation pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase price of
such shares in full.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
Chief Financial Officer
Controllers Department
Imperial Bank
P.O. Box 92991
Los Angeles, CA 90009
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
IMPERIAL BANK
- -----------------------------------------
(Signature)
- -----------------------------------------
(Date)
7
<PAGE> 8
EXHIBIT A
Registration Rights
The Shares shall be deemed "registrable securities" or otherwise
entitled to "piggy back" registration rights in accordance with the terms of the
following agreement (the "Agreement") between the Company and its investor(s):
----------------------------------------------- ---------------
[Identify Agreement by date, title and parties. If no Agreement
exists, indicate by "none."]
The Company agrees that no amendments will be made to the Agreement
which would have an adverse impact on Holder's registration thereunder without
the consent of Holder. By acceptance of the Warrant to which this Exhibit C is
attached, Holder shall not be deemed to be a party to the Agreement, but solely
entitled to the registration rights created thereby.
If no Agreement exists, then the Company and the Holder shall enter
into Holder's standard form of piggy back Registration Rights Agreement as in
effect on the Issue Date of the Warrant.
8
<PAGE> 1
EXHIBIT 10.5
AMENDMENT OF
CARDIODYNAMICS INTERNATIONAL CORPORATION
1995 STOCK OPTION/STOCK ISSUANCE PLAN
May 20, 1998
The following amendments of the CardioDynamics International
Corporation 1995 Stock Option/Stock Issuance Plan are adopted by the Board of
Directors of CardioDynamics International Corporation. The amendments are
adopted in compliance with Article Five, Section V.A of the Plan. The amendment
of Article One, Section III.A does not require shareholder approval and shall
become effective immediately. The amendment of Article One, Section V.A shall
become effective upon shareholder approval. For convenience of reference, the
changed language is set forth in italics.
1. Article One, Section III.A of the Plan is amended to read
in its entirety:
A. This Plan shall be administered by the Plan
Administrator. The "Plan Administrator" means the Board or a compensation
committee consisting of two or more Board members or (only as to grants and
issuances to persons who are not Board members, officers or 10% Shareholders,
and only if the Chief Executive Officer is a Board member) the Chief Executive
Officer. The compensation committee, when acting as Plan Administrator, shall
have full responsibility for Plan administration. Members of such compensation
committee shall serve for such period of time as the Board may determine and
shall be subject to removal by the Board at any time. The Chief Executive
Officer's discretion as Plan Administrator shall be exercised only within such
limits, based on the personnel category of the Optionee or Participant, as are
previously established by the Board or such compensation committee.
2. Article One, Section V.A. of the Plan is amended to read
in its entirety:
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 4,000,000 shares.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> JUN-01-1998
<PERIOD-END> AUG-31-1998
<CASH> 4,119,056
<SECURITIES> 0
<RECEIVABLES> 571,407
<ALLOWANCES> 26,562
<INVENTORY> 1,012,202
<CURRENT-ASSETS> 5,730,746
<PP&E> 433,076
<DEPRECIATION> 250,173
<TOTAL-ASSETS> 5,953,748
<CURRENT-LIABILITIES> 3,995,468
<BONDS> 0
0
2,880,903
<COMMON> 14,859,027
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,953,748
<SALES> 670,723
<TOTAL-REVENUES> 670,723
<CGS> 299,172
<TOTAL-COSTS> 1,588,506
<OTHER-EXPENSES> (901)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,121
<INCOME-PRETAX> (1,292,175)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,292,175)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
