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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CARDIODYNAMICS INTERNATIONAL CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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CARDIODYNAMICS INTERNATIONAL CORPORATION
6175 Nancy Ridge Drive, Suite 300
San Diego, CA 92121
June 12, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
CardioDynamics International Corporation which will be held at the Del Mar
Country Club, 6001 Clubhouse Drive, Rancho Santa Fe, California on Thursday,
July 23, 1998 at 10:00 a.m.
Additional details relating to the business to be conducted at the Annual
Meeting are given in the attached Notice of Annual Meeting of Shareholders and
Proxy Statement.
In order for us to have an efficient meeting, please promptly sign, date and
return the enclosed proxy in the accompanying reply envelope. If you are able to
attend the Annual Meeting and wish to change your proxy vote, you may do so
simply by voting in person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
On behalf of the Board of Directors,
/s/ MICHAEL K. PERRY
Michael K. Perry
Director and Chief Executive Officer
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YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are requested to
complete, sign and date the enclosed proxy as promptly as possible and return it
in the enclosed envelope. No postage need be affixed if mailed in the United
States.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
6175 NANCY RIDGE DRIVE, SUITE 300
SAN DIEGO, CA 92121
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 23, 1998
The Annual Meeting of Shareholders of CardioDynamics International Corporation,
a California corporation (the "Company"), will be held at the Del Mar Country
Club, 6001 Clubhouse Drive, Rancho Santa Fe, California 92067, on Thursday, July
23, 1998 at 10:00 a.m., to consider and act upon the following matters:
1. To elect a Board of Directors for the following year. Management has
nominated the following persons for election at the meeting: Stephenson M.
Dechant, Nicholas V. Diaco, Louis P. Ferrero, Cam L. Garner, James C.
Gilstrap, Richard O. Martin, Richard E. Otto, Michael D. Padilla, Allen E.
Paulson and Michael K. Perry.
2. To consider and act upon a proposal to amend the 1995 Stock Option/Stock
Issuance Plan to increase the number of shares reserved for issuance
thereunder from 2,529,000 shares to 4,000,000.
3. To consider and act upon a proposed Amendment to the Company's articles of
incorporation to authorize the issuance of Preferred Stock.
4. To ratify the selection of KPMG Peat Marwick LLP as the Company's
independent accountants for the fiscal year ending November 30, 1998.
And to transact any other business which may properly come before the meeting or
any postponement(s) or adjournment(s) thereof. Management has no information of
any such other matters.
Shareholders of record at the close of business on June 4, 1998 will be entitled
to vote at the Annual Meeting. A list of shareholders entitled to vote at the
Meeting is available for inspection at the offices of the Company. Whether or
not you plan to attend the meeting in person, please sign, date and return the
enclosed proxy in the reply envelope provided. If you attend the Meeting and
vote by ballot, your proxy will be revoked automatically and only your vote at
the meeting will be counted. The prompt return of your proxy will assist us in
preparing for the Meeting.
By Order of the Board of Directors
/s/ MICHAEL K. PERRY
Dated: June 12, 1998 Michael K. Perry
Director and Chief Executive Officer
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CARDIODYNAMICS INTERNATIONAL CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 23, 1998
These proxy materials are being mailed in connection with the solicitation of
proxies by the Board of Directors of CardioDynamics International Corporation, a
California corporation (the "Company"), for the Annual Meeting of Shareholders
to be held at the Del Mar Country Club, 6001 Clubhouse Drive, Rancho Santa Fe,
California at 10:00 a.m. on July 23, 1998 and at any adjournment or postponement
of the Annual Meeting. These proxy materials were first mailed to shareholders
of record beginning on approximately June 12, 1998.
The address of the principal executive office of the Company is 6175 Nancy Ridge
Drive, Suite 300, San Diego, California 92121.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual Meeting are
summarized in the accompanying Notice of Annual Meeting of Shareholders. Each
proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION
Any shareholder executing a proxy has the power to revoke it at any time before
it is voted by delivering written notice of such revocation to the Secretary of
the Company before the Annual Meeting or by properly executing and delivering a
proxy bearing a later date. Proxies may also be revoked by any shareholder
present at the Annual Meeting who elects to vote his shares in person. The cost
of soliciting proxies will be paid by the Company and may include reimbursement
paid to brokerage firms and others for their expense in forwarding solicitation
material. Solicitation will be made primarily through the use of the mail but
regular employees of the Company may, without additional remuneration, solicit
proxies personally by telephone or telegram.
The record date for determining those shareholders who are entitled to notice
of, and to vote at, the Annual Meeting has been fixed as June 4, 1998. At the
close of business on the record date, the Company had 32,100,743 outstanding
shares of Common Stock (the "Common Stock"). Each share of Common Stock is
entitled to one vote on matters brought before the Annual Meeting. In voting for
Directors, each shareholder has the right to cumulate his votes and give one
nominee a number of votes equal to the number of Directors to be elected
multiplied by the number of shares he holds, or to distribute his votes on the
same principle among the nominees to be elected in such manner as he may see
fit. A shareholder may cumulate his votes, however, only if his candidate or
candidates have been placed in nomination prior to the voting and if any
shareholder gives notice at the Annual Meeting prior to the voting of that
shareholder's intention to cumulate his votes. The persons named in the enclosed
proxy card may or may not elect to give such notice and vote the shares they
represent in such a manner. The shares represented by the proxy will be voted at
the Annual Meeting and will be voted by the proxy holder as specified by the
person solicited.
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California statutes and case law do not give specific instructions regarding the
treatment of abstentions and broker non-votes for corporations such as the
Company on matters which require the affirmative vote of a majority of the
shares represented and voting at the Annual Meeting; however, the Company
believes that California law provides that if shares are represented and vote on
any issue at a shareholder meeting their failure to vote yes on any other issue
(through either abstention or a broker non-vote) has the same effect as a
negative vote on that other issue. On matters which require the affirmative vote
of a majority of the outstanding shares, abstentions and broker non-votes
certainly have the same effect as a negative vote.
PROPOSAL 1
ELECTION OF DIRECTORS
The ten individuals below have been nominated for election to the Board. Unless
individual shareholders specify otherwise, each returned proxy will be voted for
the election of the nominees of the Board of Directors who are listed herein,
such votes to be distributed among such nominees in the manner as the persons
named in the enclosed proxy card see fit.
If, however, any of those named are unable to serve, or for good cause decline
to serve at the time of the Annual Meeting, the persons named in the enclosed
proxy will exercise discretionary authority to vote for substitutes. The Board
of Directors is not aware of any circumstances that would render any nominee
unavailable for election. Discretionary authority to cumulate votes is being
solicited by the Board of Directors, and it is intended that the proxies
received by the proxy holders pursuant to the solicitation will be voted in a
manner designed to cause the election of the maximum number of the Board of
Directors' nominees. The following schedule sets forth certain information
concerning the nominees for election as Directors.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED
HEREIN.
<TABLE>
<CAPTION>
FIRST YEAR
ELECTED
NAME DIRECTOR AGE
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<S> <C> <C>
Stephenson M. Dechant 1995 42
Nicholas V. Diaco, M.D. 1995 59
Louis P. Ferrero 1997 55
Cam L. Garner 1997 50
James C. Gilstrap 1995 62
Richard O. Martin 1997 58
Richard E. Otto 1996 48
Michael D. Padilla 1995 49
Allen E. Paulson 1995 76
Michael K. Perry 1998 37
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</TABLE>
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Stephenson M. Dechant. Mr. Dechant has been a Director of the Company since
February 1995 and served as Chief Financial Officer of the Company from February
1995 to March 1997 and Corporate Secretary from February 1995 to July 1997. Mr.
Dechant has been Chief Financial Officer for many of Allen Paulson's companies
since 1992. His previous experience involves financial management and reporting
for high net worth individuals and companies primarily involved in the food
industry, including Dole Fresh Fruit and Chart House Enterprises. Mr. Dechant
graduated from the University of Southern California with a Bachelor of Science
in Business Administration and from the University of San Diego with a Masters
in Business Administration.
Nicholas V. Diaco, M.D. Dr. Diaco has served as a Director of the Company and
Chairman of the Company's Medical Advisory Board since February 1995. Since
1994, he has been the Director of the Coronary Care Unit and the Heart
Catheterization Laboratory at St. John's Hospital and Health Center in Santa
Monica, California. He is a Fellow of the American College of Cardiology and is
board certified in Cardiovascular Disease. He serves as a Clinical Assistant
Professor of Medicine at the University of California, Los Angeles. Dr. Diaco
was a Chief of Internal Medicine in the U.S. Air Force and has published
numerous articles on the effects of exercise on the heart. He received his M.D.
with honors from Hahnemann Medical College and Hospital in Pennsylvania.
Louis P. Ferrero. Mr. Ferrero has served as a Director of the Company since July
1997. Mr. Ferrero has been the Chairman and Chief Executive Officer of Conseco
Global Investments since 1991. Conseco Global Investments is an investment
company, which identifies emerging investment opportunities for Conseco, Inc., a
major insurance holding company. Before joining Conseco Global Investments, Mr.
Ferrero was Chairman and Chief Executive Officer of Anacomp, Inc., a
full-service provider of computer and micrographics equipment, service and
supplies. Mr. Ferrero holds a Bachelor of Economics and Marketing degree from
the University of Florida.
Cam L. Garner. Mr. Garner has served as a Director of the Company since July
1997. Mr. Garner has been Chairman, President and Chief Executive Officer of
Dura Pharmaceuticals, Inc., a respiratory products company, since 1990. Prior to
joining Dura Pharmaceuticals, Inc., Mr. Garner was Senior Vice President of
Sales and Marketing with Hybritech, Inc., a division of Eli Lilly & Co. Mr.
Garner serves as Director for Trega Biosciences, Inc., Nanogen, Inc., Safeskin
Corporation and Spiros Development Corporation, as well as Dura Pharmaceuticals,
Inc. Mr. Garner earned a Masters Degree in Business Administration from
Baldwin-Wallace College and a Bachelor of Arts degree in Biology from Virginia
Wesleyan.
James C. Gilstrap. Mr. Gilstrap served as Chairman of the Board of the Company
from May 1995 to June 1996, and has been Co-Chairman of the Board since June
1996. Mr. Gilstrap is retired from Jefferies & Company, where he served as
Senior Executive Vice President, Partner, and Member of the Executive Committee.
Mr. Gilstrap serves on the board of Full House Resorts, Inc. and is past
President of the Dallas Securities Dealers as well as a past member of the Board
of Governors of the National Association of Securities Dealers, Inc.
Richard O. Martin, Ph.D. Dr. Martin has served as a Director of the Company
since July 1997. Dr. Martin has been Chairman and Chief Executive Officer of
Physio-Control Corporation since 1991, a medical device company which designs,
manufactures and sells external defibrillators and heart monitors. Prior to
joining Physio-Control Corporation, Dr. Martin was Vice President of
Cardiovascular Business Development with Sulzer Medical and has held several
management positions at Intermedics, Inc. and Medtronic, Inc. Dr. Martin serves
on the Boards of Maxxim Medical, Inc., SeaMED Corporation, and Encore Medical
Corp. and is Chairman of the Board of the Medical Device Manufacturers
Association and the American Heart Association, Washington affiliate. Dr. Martin
earned a Doctorate in Electrical/ Biomedical Engineering at Duke University.
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Richard E. Otto. Mr. Otto served as the Chief Executive Officer of the Company
from June 1995 to April 1998 and has served as a Director since September 1996.
He also served as President from June 1995 to June 1997. From September 1987 to
May 1994, Mr. Otto was a founding partner in Sensor Technology, Inc., a
privately held medical distribution company. In 1994, the company was sold to a
division of Eli Lilly and Company. Prior to that time, Mr. Otto held positions
with Medtronic, Inc., Cardiac Pacemakers, Inc., Intermedics, Inc. and Eli Lilly
& Company. Mr. Otto holds a Bachelor of Science degree from the University of
Georgia and serves on the Boards of Directors of Endeavor Technologies Inc., a
tele-medicine company, the Georgia Chapter of the Leukemia Society, the College
Football Hall of Fame Foundation, and the University of Georgia Student
Educational Fund.
Michael D. Padilla. Mr. Padilla has served as a Director of the Company since
1995. Mr. Padilla is a partner with the law firm Thorsnes, Bartolotta, McGuire &
Padilla. He has practiced law in San Diego since 1972, specializing in personal
injury, product liability and medical malpractice litigation. He is a member of
the Consumer Attorney Associations in both California and the local branch in
San Diego. Mr. Padilla received his J.D. from the University of San Diego School
of Law.
Allen E. Paulson. Mr. Paulson has been Co-Chairman of the Board since June 1996
and Director since February 1995. Mr. Paulson owns numerous companies having
substantial investments in diverse industries, including aircraft; energy
exploration; horse breeding, training, and racing; automobile dealerships;
gaming and entertainment; and real estate and resorts. Mr. Paulson is the
founder and Chairman Emeritus of Gulfstream Aerospace Corporation, the world's
leading designer, manufacturer and marketer of large corporate jets. He has
earned numerous awards including the Horatio Alger Award for Distinguished
Americans, and the American Academy of Achievement's Golden Plate Award, as well
as five honorary doctorates.
Michael K. Perry. Mr. Perry joined the Company in April 1998 as Chief Executive
Officer and a Director. From 1994 to 1996, Mr. Perry was Vice President of
Operations at Pyxis Corporation, a publicly traded company that provides
healthcare automation and information management services, in addition to
pharmacy management services to hospitals and outpatient facilities. Mr. Perry
was part of the executive team that successfully acquired and integrated three
businesses into Pyxis, and in 1996 sold the company to Cardinal Health, Inc. for
$980 million dollars. Prior to joining Pyxis, Mr. Perry served in several
increasingly responsible management assignments with Hewlett-Packard's Medical
Products Group in finance and manufacturing and Hewlett-Packard's DeskJet
Printer Group in quality. Mr. Perry holds a Bachelor of Science in Mechanical
Engineering from General Motors Institute and a Masters in Business
Administration from Harvard University. Mr. Perry serves on the Board of
Directors for Junior Achievement of San Diego.
BOARD MEETINGS AND COMMITTEES
The Company's Board of Directors held seven meetings during the fiscal year
ended November 30, 1997. Each incumbent Director attended at least 75% of the
aggregate of the total meetings of the Board and of all his Board committees
held during the period in which he served as a director. Each director who is
not an employee of the Company automatically receives each month a 1,000-share
stock option for his services as a director, pursuant to the 1995 Stock
Option/Stock Issuance Plan.
The Board of Directors has established a standing Compensation Committee
currently composed of Messrs. Garner, Dechant and Gilstrap. The Compensation
Committee reviews and acts on matters relating to compensation levels and
benefit plans for executive officers and key employees of the Company. The
Committee held three meetings during the fiscal year ended November 30, 1997.
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The Board of Directors has established a standing Audit Committee currently
composed of Messrs. Gilstrap, Dechant and Ferrero. The Audit Committee reviews
all matters relating to oversight of the Company's internal control structure,
selection of the independent auditors and oversight of the Company's financial
reporting.
DIRECTORS' FEES
Each non-employee director receives 1,000 automatic monthly stock options
granted at fair market value (or, in the case of 10% shareholders Mr. Paulson
and Mr. Gilstrap, at 110% of fair market value) on the last day of the month for
each full month of service as a director of the Company. On August 1, 1997, Cam
L. Garner, a Director of the Company, entered into a consulting agreement with
the Company whereby Mr. Garner is paid a monthly fee of $2,083.33 and received a
one-time grant of 5,000 stock options to purchase the company's stock in
exchange for consulting services to the Company. Total fees paid to Mr. Garner
in fiscal 1997 were $8,333.32. In addition, Messrs. Ferrero, Garner and Martin
each received 10,000 discretionary stock options to purchase the Company's
Common stock.
PROPOSAL 2
AMENDMENT TO 1995 STOCK OPTION/STOCK ISSUANCE PLAN
PURPOSE
The Company's 1995 Stock Option/Stock Issuance Plan (the "Plan") provides for
the issuance of incentive stock options (i.e., options under Section 422 of the
Internal Revenue Code) and non-qualified stock options to officers, Directors,
key employees, independent contractors and consultants of the Company.
On May 20, 1998, the Board of Directors approved, subject to approval by the
shareholders, an increase in the number of shares reserved for issuance under
the Plan from 2,529,000 to 4,000,000 The purpose of increasing the number of
shares reserved for issuance under the Plan is to permit the Company to continue
to attract and retain officers, Directors, key employees, independent
contractors and consultants of ability and experience by providing them with the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Company as an incentive for them to remain in the
service of the Company. As of June 4, 1998, options for 1,873,000 shares were
outstanding under the Plan.
Approval of the amendment by the shareholders is necessary under the terms of
the Plan and under certain applicable regulations.
STRUCTURE OF THE PLAN
The Plan is divided into three separate equity programs: (1) the Discretionary
Option Grant Program under which officers, Directors, employees, consultants and
independent contractors may, at the discretion of the Plan Administrator, be
granted non-qualified or incentive stock options to purchase shares of Common
Stock of the Company; (2) the Stock Issuance Program under which officers,
employees, Directors, consultants and independent contractors may, at the
discretion of the Plan Administrator, be issued shares of Common Stock of the
Company directly, either through the immediate purchase of such shares or as a
bonus for services rendered; and (3) the Automatic Option Grant Program under
which non-employee Directors automatically receive monthly grants of options to
purchase Common Stock of the Company.
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ADMINISTRATION OF THE PLAN
The Plan is administered by the "Plan Administrator," which means the full Board
of Directors or a compensation committee consisting of two or more Board members
or (only as to grants and issuances to persons who are not directors, officers
or 10% shareholders, and only if the Chief Executive Officer is a director) the
Chief Executive Officer. The compensation committee, when acting as Plan
Administrator, has full responsibility for the administration of the Plan.
Members of such compensation committee serve for such period of time as the
Board may determine and are subject to removal by the Board at any time. The
Chief Executive Officer's discretion as Plan Administrator can be exercised only
within such limits, based on the personnel category of the optionee or
participant, as are previously established by the Board of such compensation
committee.
The Plan Administrator has the sole and exclusive authority, subject to the
provisions of the Plan, to determine the eligible individuals who are to receive
options under the Discretionary Option Grant Program or the Stock Issuance
Program, the number of shares to be covered by each granted option or issuance,
the date or dates on which the option is to become exercisable and the maximum
term for which the option is to remain outstanding. The Plan Administrator also
has the authority to determine whether the granted option is to be an incentive
stock option under the Federal tax laws and to establish rules and regulations
for proper plan administration. Options grants under the Automatic Option Grant
Program are made in strict compliance with the express provisions of that
program, and the Plan Administrator does not have any discretionary authority
with respect to those option grants.
ISSUABLE SHARES
The Plan currently provides for the issuance of 2,529,000 shares of Common Stock
over the ten-year term of the Plan. The share reserve available for issuance
under the Plan is subject to periodic adjustment for changes in the Company's
Common Stock occasioned by stock splits, stock dividends, recapitalization,
conversions or other changes affecting the outstanding Common Stock as a class
without the Company's receipt of consideration.
Should an option expire or terminate for any reason prior to exercise in full
(including options canceled in accordance with the cancellation-regrant
provisions described below), the shares subject to the portion of the option not
so exercised will be available for subsequent option grants or share issuances
under the Plan. Shares subject to any option surrendered or canceled in
accordance with the stock appreciation right provisions of the Plan and all
shares issued under the Plan, whether or not such shares are subsequently
reacquired by the Company pursuant to its repurchase rights under the Plan, will
reduce on a share-for-share basis the number of shares of Company Common Stock
available for subsequent grants. No more than 800,000 shares may be issued to
any one optionee/grantee over the lifetime of the Plan.
IDENTITY OF BENEFICIARIES
It is not known how many options under the Plan will be received by named
executive officers, current executive officers, non-officer Directors,
employees, their associates, or any other group. The maximum number of options
to be granted to Directors each year under the Automatic Option Grant Program
(assuming a Board of 9 outside directors, all non-employees) is 108,000. The
fair market value of a share of Company Common Stock on June 4, 1998 was $2.69.
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The Company currently has 40 employees, an unknown number of consultants and
independent contractors who might be selected to receive stock options or direct
issuances, and nine non-employee Directors.
TERMS OF DISCRETIONARY OPTION GRANT PROGRAM
OPTION PRICE AND TERM. The option price per share for incentive stock options
will not be less than 100% of the fair market value of each share of Company
Common Stock issuable under the option on the grant date of such option (nor
less than 110% in the case of 10% shareholders of the Company). The option price
per share for non-statutory stock options may not be less than 85% of the fair
market value per share of each share of Company Common Stock issuable under the
option on the grant date of such option. No option will have a term in excess of
ten (10) years measured from the grant date.
VESTING OF OPTIONS. The vesting schedule for each granted option will be
determined by the Plan Administrator and will be set forth in the instrument
evidencing such grant. The granted option may be (i) immediately exercisable for
vested shares, (ii) immediately exercisable for unvested shares subject to the
Company's repurchase rights or (iii) exercisable in installments for vested
shares over the optionee's period of service. The vesting schedule cannot be
slower than the 20% per year over five years beginning on the grant date.
PAYMENT. Upon exercise of the option, the option price for the purchased shares
will become immediately payable in cash or in shares of Common Stock valued at
fair market value on the date of exercise. The option may also be exercised
through a cashless exercise procedure pursuant to which the optionee provides
irrevocable written instructions to a designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Company, out of the
sales proceeds, an amount equal to the aggregate option price payable for the
purchased shares plus all applicable withholding taxes.
FINANCIAL ASSISTANCE. The Plan Administrator may assist any optionee (including
an officer) in the exercise of one or more outstanding options under the Plan by
authorizing a loan from the Company. The terms and conditions of any such loan
will be established by the Plan Administrator in its sole discretion, but in no
event will the maximum credit extended to the optionee exceed the aggregate
option price for the purchased shares plus any Federal or State tax liability
incurred in connection with the option exercise.
TERMINATION OF SERVICE. Should the optionee cease to remain in the Company's
service while holding one or more options under the Plan, then those options
will not remain exercisable beyond the limited post-service period designated by
the Plan Administrator at the time of the option grant (subject to certain
minimum post-service periods). Under no circumstances, however, may any option
be exercised after the specified expiration date of the option term. Each such
option will, during the period it remains exercisable, be exercisable for the
number of shares for which the option was exercisable on the date of the
optionee's cessation of service.
Should the optionee die while holding one or more outstanding options, then the
personal representative of the optionee's estate or the person or persons to
whom each such option is transferred pursuant to the optionee's will or in
accordance with the laws of inheritance will have the right to exercise such
option for any or all of the shares for which the option is exercisable on the
date of the optionee's cessation of service, less any option shares subsequently
purchased by the optionee prior to death. Such right will lapse, and the option
will terminate, upon the earlier of (i) the end of the limited post-service
period designated by the Plan Administrator at the time of the option grant or
(ii) the specified expiration date of the option term.
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The Plan Administrator will have complete discretion to extend the period
following the optionee's termination of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability of
such options in whole or in part. Such discretion may be exercised at any time
while the options remain outstanding, whether before or after the optionee's
actual cessation of service.
CORPORATE TRANSACTION. Except to the extend otherwise provided in the option
documents, each option share will become fully vested in the event of certain
Corporate Transactions unless the option is assumed or is replaced with a cash
incentive program which preserves the material benefits of the options. Upon
consummation of the Corporate Transaction, all options which are not assumed
will be canceled and cease to exist. The options or cash incentive programs
which replace any options which do not accelerate will provide for full vesting
in the event of involuntary termination of employment within 18 months following
the Corporate Transaction.
For purposes of the above, a Corporate Transaction includes (i) a merger or
consolidation in which the Company is not the surviving entity (except for a
transaction the principal purpose of which is to change the State of
incorporation), (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company, or (iii) any reverse merger in
which the Company is the surviving entity but in which securities possessing
more than 50% of the total combined voting power of the Company are transferred
to holders different from those who held the Company's securities immediately
prior to such merger.
SHAREHOLDER RIGHTS AND OPTION ASSIGNABILITY. No optionee is to have any
shareholder rights with respect to the option shares until such optionee has
exercised the option, paid the option price for the purchased shares and been
issued a stock certificate for such shares. Options are not assignable or
transferable other than by will or by the laws of inheritance following the
optionee's death, and the option may, during the optionee's lifetime, be
exercised only by the optionee.
STOCK APPRECIATION RIGHTS. At the discretion of the Plan Administrator, options
may be granted in tandem with stock appreciation rights. The stock appreciation
rights which are authorized for issuance under the Plan are tandem rights which
require the option holder to elect between the exercise of the underlying option
for shares of Common Stock and the surrender of such option for an appreciation
distribution.
These tandem stock appreciation rights provide the holders with the right to
receive an appreciation distribution from the Company equal in amount to the
excess of (i) the fair market value (on the date of exercise) of the shares of
Common Stock for which the underlying option is at the time exercisable over
(ii) the aggregate exercise price payable for such shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in cash
or in Common Stock.
CANCELLATION/REGRANT. The Plan Administrator has the authority to effect, on one
or more separate occasions, the cancellation of outstanding options under the
Discretionary Option Grant Program which have exercise prices in excess of the
then current market price of the Common Stock and to issue replacement options
with an exercise price based on the lower market price of the Common Stock at
the time of grant.
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TERMS OF STOCK ISSUANCE PROGRAM
ISSUE PRICE. The purchase price per share will not be less than 85% of the fair
market value of any share of Company Common Stock being issued on the date the
Plan Administrator authorizes the issuance (nor less than 110% in the case of
10% shareholders of the Company).
VESTING OF SHARES. The vesting schedule for each share issued will be determined
by the Plan Administrator and set forth in the issuance agreement. The shares
may be fully and immediately vested upon issuance or may vest in one or more
installments, subject to the Company's repurchase right, over the participant's
period of service. The vesting schedule cannot be slower than 20% per year over
5 years from the date the stock is purchased.
SHAREHOLDER RIGHTS. The recipient of the share issuance will have full
shareholder rights, including voting and dividend rights, with respect to the
issued shares, whether or not the shares are vested. However, the recipient may
not sell, transfer or assign any unvested shares issued under the Plan, except
for certain limited family transfers. The vesting schedule cannot be slower than
the 20% per year over five years beginning from the date the stock is purchased.
REPURCHASE RIGHTS. Should the recipient of unvested shares cease to remain in
the Company's service before vesting in such shares, then those unvested shares
are to be immediately surrendered to the Company for cancellation, and the
recipient will have no further shareholder rights with respect to those shares.
To the extent the surrendered shares were previously issued to the recipient for
consideration paid in cash or promissory note, the Company will refund the cash
consideration paid for the surrendered shares and cancel the principal balance
of the note to the extent attributable to such surrendered shares.
PAYMENT. Upon issuance of the shares, the issue price for the purchased shares
will become immediately payable in cash, in shares of Company Common Stock
valued at fair market value on the date of issuance, or by promissory note
payable to the Company's order. The promissory note may, at the discretion of
the Plan Administrator, be subject to cancellation over the participant's period
of service. Shares may also be issued for past or future services, without any
cash or other payment required of the participant.
CORPORATE TRANSACTION. Except to the extent otherwise provided in the stock
issuance documents, all repurchase rights will terminate and each share will
become fully vested in the event of a Corporate Transaction (as defined above)
unless the repurchase rights are assigned to the successor Company. Following
consummation of the Corporation Transaction, all repurchase rights which are
assigned to the successor will terminate and cease to exist in the event of
involuntary termination of employment with 18 months following the Corporate
Transaction.
AUTOMATIC OPTION GRANT PROGRAM
Option grants are made automatically to each non-employee Board member who has
not been employed by the Company during the preceding two years. Each such
person is automatically granted a non-statutory option to purchase 1,000 shares
with respect to each calendar month during all of which he or she serves as a
director, on the last day of each such respective calendar month.
9
<PAGE> 13
The exercise price per share of each automatic option grant made under this
Program is equal to one hundred percent (100%) of the fair market value per
share of Common Stock on the grant date (or, in the case of 10% shareholders, at
110% of fair market value). The exercise price is payable in one of these
alternative forms: (1) full payment in cash or check drawn to the Company's
order; (2) full payment in shares of Common Stock held for at least six months
and valued at fair market value on the Exercise Date; (3) full payment in a
combination of shares of Common Stock held for at least six months and valued at
fair market value on the Exercise Date and cash or check; or (4) full payment
through a broker-dealer sale.
During the lifetime of the optionee, each automatic option grant, together with
the limited stock appreciation right pertaining to such option, if any, is
exercisable only by the optionee and is not assignable or transferable by the
optionee other than a transfer of the option effected by will or by the laws of
descent and distribution following optionee's death.
Should the optionee cease to serve as a Board member for any reason (other than
death) while holding one or more automatic option grants, then such optionee
shall have a 24 month period following the date of such cessation of Board
membership in which to exercise each such option. In no event shall any
automatic option grant remain exercisable after the specified expiration date of
the ten-year option term. Upon the expiration of the applicable exercise period
as mentioned above or upon the expiration of the ten-year option term, the
automatic grant shall terminate and cease to be outstanding for any unexercised
shares.
The provisions of the Automatic Option Grant Program, together with the option
grants outstanding thereunder, may not be amended at intervals more frequently
than once every six months, other than to the extent necessary to comply with
applicable Federal income tax laws and regulations. Each automatic grant under
this Program has a maximum term of 10 years measured from the automatic grant
date and is exercisable in full immediately
TAX WITHHOLDING
The Company's obligation to deliver shares of Common Stock upon the exercise of
options or stock appreciation rights or upon the issuance or vesting of such
shares under the Plan is subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
The Plan Administrator may provide one or more participants in the Plan with the
election to have the Company withhold, from the shares of Company Common Stock
otherwise issuable upon the exercise of non-qualified options or the vesting of
unvested shares, a portion of those shares in satisfaction of the tax liability
incurred in connection with their acquisition or vesting. Any election so made
will be subject to the approval of the Plan Administrator, and no shares will be
accepted in satisfaction of such tax liability except to the extent the Plan
Administrator approves the election. Alternatively, one or more participants may
be granted the right, subject to Plan Administrator approval, to deliver
existing shares of Company Common Stock in satisfaction of such tax liability.
The withheld or delivered shares will be valued at their then current fair
market value.
10
<PAGE> 14
AMENDMENT AND TERMINATION
The Board of Directors may amend or modify the Plan in any or all respects
whatsoever, subject, however, to the limitation on plan amendments to the
Automatic Option Grant Program. However, no such amendment may adversely affect
the rights of existing optionees without their consent and unless otherwise
necessary to comply with applicable tax laws and regulations. In addition, the
Board may not (i) materially increase the maximum number of shares issuable
under the Plan or the number of shares for which automatic grants may be made to
non-employee Board members, except in the event of certain changes to the
Company's capital structure as indicated above, (ii) materially modify the
eligibility requirements for option grants or (iii) otherwise materially
increase the benefits accruing to participants under the Plan without the
approval of the Company's shareholders.
The Board may terminate the Plan at any time, and the Plan will in all events
terminate on the earliest of (i) June 14, 2005, (ii) the date on which all
shares available for issuance under the Plan shall have been issued pursuant to
the exercise of the options or the issuance of shares (whether vested or
unvested) under the Plan, or (iii) the termination of all outstanding options in
connection with a Corporate Transaction. Each stock option outstanding at the
time of such termination will remain in force in accordance with the provisions
of the instruments evidencing such grant.
REGULATORY APPROVAL
The implementation of the Plan, the granting of any option or stock appreciation
right under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any option or stock appreciation right or (ii) under the Stock
Issuance Program are subject to the Company's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the options and stock appreciation rights granted under it and the shares of
Common Stock issued pursuant to it.
NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the optionee or the participant any right
to continue in service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Company (or any parent or
subsidiary employing or retaining such person) to terminate such person's
service at any time for any reason, with or without cause.
FEDERAL TAX CONSEQUENCES
Options granted under the Plan may be either incentive stock options which
satisfy the requirements of Section 422 of the Internal Revenue Code or non-
qualified options which are not intended to meet such requirements. The Federal
income tax treatment for the two types of options differs as described below:
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at the time
of the option grant, and no taxable income is generally recognized at the time
the option is exercised. The optionee will, however, recognize income for
alternative maximum tax purposes in the year the option is exercised and regular
taxable income in the year in which the purchased shares are sold or otherwise
made the subject of disposition.
11
<PAGE> 15
For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of such
shares is made after the optionee has held the shares for more than two years
after the grant date of the option and more than one year after the exercise
date. If the optionee fails to satisfy either of these two holding period prior
to the sale or other disposition of the purchased shares, then a disqualifying
disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
mid-term or long-term capital gain in an amount equal to the excess of (i) the
amount realized upon the sale or other disposition of the purchased shares over
(ii) the exercise price paid for such shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of those
shares on the date the option was exercised over (ii) the exercise price paid
for the shares will be taxable as ordinary income. Any additional gain
recognized upon the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares, then
the Company will be entitled to an income tax deduction, for the taxable year in
which such disposition occurs, equal to the excess of (i) the fair market value
of such shares on the date the option was exercised over (ii) the exercise price
paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
NON-QUALIFIED OPTIONS. No taxable income is recognized by an optionee upon the
grant of a non-qualified option. The optionee will in general recognize ordinary
income, in the year in which the option is exercised, equal to the excess of the
fair market value of the purchased shares on the date of exercise over the
exercise price paid for the shares, and the optionee will be required to satisfy
the tax withholding requirements applicable to such income.
Special provisions of the Internal Revenue Code apply to the acquisition of
Company Common Stock under a non-qualified option, if the purchased shares are
subject to repurchase by the Company. These special provisions may be summarized
as follows:
A. If the shares acquired upon exercise of the non-qualified option are subject
to repurchase by the Company at the original exercise price in the event of the
optionee's termination service prior to vesting in such shares, the optionee
will not recognize any taxable income at the time of exercise but will have to
report as ordinary income, as and when the Company's repurchase right lapses, an
amount equal to the excess of (i) the fair market value of the shares on the
date the Company's repurchase right lapses with respect to such shares over (ii)
the exercise price paid for the shares.
B. The optionee may, however, elect under Section 83(b) of the Internal Revenue
Code to include as ordinary income in the year of exercise of the non-qualified
option an amount equal to the excess of (i) the fair market value of the
purchased shares on the date of exercise (determined as if the shares were not
subject to the Company's repurchase right) over (ii) the exercise price paid for
such shares. If the Section 83(b) election is made, the optionee will not
recognize any additional income as and when the repurchase right lapses.
The Company will be entitled to a business expense deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-qualified option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
12
<PAGE> 16
STOCK APPRECIATION RIGHTS. An optionee who is granted a stock appreciation right
will recognize ordinary income in the year of exercise equal to the amount of
the appreciation distribution. The Company will be entitled to a business
expense deduction equal to the appreciation distribution for the taxable year of
the Company in which the ordinary income is recognized by the optionee.
DIRECT STOCK ISSUANCE. The tax consequences of individuals who receive direct
stock issuances under the Plan will be substantially the same as the treatment
described above the exercise of non-qualified stock options.
ACCOUNTING TREATMENT
Option grants with exercise prices less than the fair market value of the option
shares on the grant date and direct stock issuances at purchase prices less than
the fair market value of the issued shares will result in a compensation expense
to the Company's earnings equal to the difference between such exercise or
purchase prices and the fair market value on the issue date. Such expense will
be accrued by the Company over the period the optionee or share recipient vests
in the option shares or directly-issued shares. Option grants and direct stock
issuances at 100% or more of fair market value will not result in any charge to
the Company's earnings. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining the Company's earnings per
share.
Should one or more optionees be granted stock appreciation rights which have no
conditions upon exercisability other than a service or employment requirement,
then such rights will result in a compensation expense to be charged against the
Company's earnings. Accordingly, at the end of each fiscal quarter, the amount
(if any) by which the fair market value of the shares of Common Stock subject to
such outstanding stock appreciation rights has increased from the prior
quarter-end will be accrued as compensation expense, to the extent such amount
is in excess of the aggregate exercise price in effect for such rights.
APPROVALS REQUIRED
The affirmative vote of the holders of not less than a majority of the
outstanding shares of Common Stock entitled to vote is required to approve the
proposed amendments to the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE 1995 STOCK
OPTION/STOCK ISSUANCE PLAN.
13
<PAGE> 17
PROPOSAL 3
AMENDMENT OF ARTICLES OF INCORPORATION
(PREFERRED STOCK)
The Company's Board of Directors has approved, and the shareholders are now
asked to approve, an amendment to the Company's Restated Articles of
Incorporation 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. After such amendment, the Company's authorized
capital stock would consist of 50,000,000 shares of Common Stock and 18,000,000
shares of Preferred Stock.
The authorized capital stock of the Company currently consists of 50,000,000
shares of Common Stock, no par value, of which 32,100,743 where issued and
outstanding as of June 4, 1998 and approximately 2,500,000 were reserved for
issuance under outstanding stock options and warrants. Accordingly, as of June
4, 1998, the Company has available for issuance approximately 15,400,000 shares
of Common Stock.
The Board of Directors believes the authorization of the creation of the
Preferred Stock is desirable to enhance the Company's flexibility in connection
with possible future actions, such as public or private offerings of shares for
cash, corporate mergers and acquisitions, and dividends payable in stock of the
Company whether in connection with the possible implementation of a shareholder
rights plan or otherwise. Having such authorized shares for issuance in the
future would allow shares of Preferred Stock to be issued without the expense
and delay of a special meeting of shareholders. The designations, preferences,
conversion rights, cumulative, participating, optional or other rights,
including voting rights, qualifications, limitations or restrictions thereof
(collectively, the "Limitations and Restrictions") will be determined by the
Board of Directors. Thus, the Board of Directors will, in the event of the
approval of this proposal by the Company's shareholders, be entitles to
authorize the creation and issuance of 18,000,000 shares of Preferred Stock in
one or more series with such Limitations and Restrictions as may be determined
in the Board's sole discretion, with no further authorization by the security
holders required for the creation and issuance thereof.
In the event of the approval of this proposal by the Company's shareholders, the
Board of Directors will be required to make any determination to designate,
reserve for issuance or issue shares of Preferred Stock based on its judgment as
to the best interests of the shareholders and the Company. The issuance of
shares of Preferred Stock could, depending on the terms of such series, make
more difficult or discourage an attempt to obtain control of the Company by
means of a merger, tender offer, proxy contest or other means. Such shares could
be used to create voting or other impediments or to discourage persons seeking
to gain control of the Company and could also be privately placed with
purchasers favorable to the Board of Directors in opposing such action. In
addition, the Board of Directors could authorize holders of a series of
Preferred Stock to vote either separately as a class, or with the holders of the
Company's currently outstanding Common Stock, on any merger, sale or exchange of
assets by the Company or any other extraordinary corporate transaction. The mere
existence of the additional authorized shares could have the effect of
discouraging unsolicited takeover attempts. The issuance of new shares also
could have a dilutive effect on the voting power of existing holders of Common
Stock and on earnings per share and could be used to dilute the stock ownership
of a person or entity seeking to obtain control of the Company should the Board
of Directors consider the action of such entity or person not to be in the best
interest of the shareholders and the Company.
14
<PAGE> 18
Under the proposal, Article Three of the Restated Articles of Incorporation
would be amended to read:
"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 un-issued 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."
Approval of this Proposal 3 requires the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the
Meeting. If approved by the shareholders, the amendment to the Restated Articles
of Incorporation will become effective upon filing with the Secretary of the
State of California, a Certificate of Amendment to the Company's Restated
Articles of Incorporation, which filing is expected to take place shortly after
the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE COMPANY'S
ARTICLES OF INCORPORATION TO AUTHORIZE 18,000,000 SHARES OF "BLANK CHECK"
PREFERRED STOCK.
PROPOSAL 4
RATIFICATION OF
SELECTION OF INDEPENDENT ACCOUNTANTS
Ratification and approval by the shareholders is sought for the selection of
KPMG Peat Marwick LLP by the Board of Directors as independent accountants to
audit the accounts and records of the Company for the fiscal year ending
November 30, 1998, and to perform other appropriate services.
KPMG Peat Marwick LLP has been auditors for the Company since 1997. The
Company's financial statements for the fiscal year ended November 30, 1996 and
1997 did not contain an adverse opinion or a disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
In the event that a majority of the shares voted at the Annual Meeting do not
vote for ratification of the selection of KPMG Peat Marwick LLP, the Board of
Directors will reconsider such selection.
A representative of KPMG Peat Marwick LLP is expected to be present at the
Annual Meeting. Such representative will have an opportunity to make a statement
if he desires to do so, and is expected to be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION
OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR FISCAL
1998.
15
<PAGE> 19
PRINCIPAL SHAREHOLDERS
PRINCIPAL SHAREHOLDERS
The following are the only persons known by the Company to own beneficially, as
of June 4, 1998, five percent (5%) or more of the outstanding shares of its
Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES BENEFICIALLY OWNED
BENEFICIAL OWNER NUMBER (1) PERCENTAGE (2)
- --------------------- ---------- ----------
<S> <C> <C>
Allen E. Paulson (3) 18,013,983 54.6%
P.O. Box 9660
Rancho Santa Fe, CA 92067
James C. Gilstrap (4) 8,120,894 24.6%
5067 Shore Drive
Carlsbad, CA 92008
Nicholas V. Diaco, M.D. (5) 4,975,546 15.0%
1302 - 20th Street, Suite 400
Santa Monica, CA 90404
Joseph F. Diaco, M.D. (6) 4,685,546 14.2%
4700 North Habana Ave., Suite 403
Tampa, FL 33614
CardioDynamics Holdings, LLC (7) 4,280,240 13.0%
P.O. Box 9660
Rancho Santa Fe, CA 92067
Edge Financial Group, Inc. (8) 2,201,559 6.7%
16225 Park Ten Place, Suite 380
Houston, TX 77084
Joe C. Richardson, Jr. (9) 1,982,038 6.0%
P.O. Box 8246
Amarillo, TX 79114
</TABLE>
- ----------------------
1) Except as indicated the footnotes to this table, the persons named in the
table have sole voting and investment power with respect to all shares of
Common stock shown as beneficially owned by them, subject to community
property laws, where applicable.
2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3(d)(1).
3) Includes 4,180,240 shares of Common stock beneficially owned by
CardioDynamics Holdings, LLC ("CDH"), of which Mr. Paulson is a member with
a majority interest. Mr. Paulson disclaims beneficial ownership of these
shares except to the extent of his individual ownership interest in CDH. See
footnote (7). Also includes 34,000 shares of Common stock Mr. Paulson
beneficially owns, by virtue of his right to acquire such shares from the
Company under stock options now exercisable or exercisable within 60 days.
Excludes 3,000,000 shares of Common stock owned by Mr. Paulson's sons; Mr.
Paulson disclaims beneficial ownership of such shares.
16
<PAGE> 20
4) Includes 4,180,240 shares of Common stock beneficially owned by CDH, of
which Mr. Gilstrap is a member with a minority interest. Mr. Gilstrap
disclaims beneficial ownership of these shares except to the extent of his
individual ownership interest in CDH. See footnote (7). Includes 1,015,000
shares held in the Jim and Sue Gilstrap Family Limited Partnership; Mr.
Gilstrap disclaims beneficial ownership of these shares except to the extent
of his and his wife's ownership interest in the Jim and Sue Gilstrap Limited
Family Partnership. Also includes 134,000 shares of Common stock Mr.
Gilstrap beneficially owns, by virtue of his right to acquire such shares
from the Company under stock options now exercisable or exercisable within
60 days. Excludes 65,000 shares of Common stock owned by Mr. Gilstrap's
daughters; Mr. Gilstrap disclaims beneficial ownership of such shares.
5) Includes 4,180,240 shares of Common stock beneficially owned by CDH, of
which Dr. Nicholas Diaco is a member with a minority interest. Dr. Diaco
disclaims beneficial ownership of these shares except to the extent of his
individual ownership interest in CDH. See footnote (7). Also includes
134,000 shares of Common stock Dr. Diaco beneficially owns, by virtue of his
right to acquire such shares from the Company under stock options now
exercisable or exercisable within 60 days.
6) Includes 4,180,240 shares of Common stock beneficially owned by CDH, of
which Dr. Joseph Diaco is a member with a minority interest. Dr. Diaco
disclaims beneficial ownership of these shares except to the extent of his
individual ownership interest in CDH. See footnote (7).
7) Includes 2,243 shares of Common stock over which CDH exercises sole voting
and investment power, and 4,177,997 shares of Common stock over which CDH
exercises sole voting power, but no investment power. Also includes 100,000
shares of Common stock issuable upon conversion of a Note issued by the
Company.
8) Includes 1,196,549 shares of Common stock beneficially owned by Medical
Assets, LLC, of which Edge Financial Group, Inc. is a member. Edge Financial
Group, Inc. disclaims beneficial ownership of these shares except to the
extent of its ownership interest in Medical Assets, LLC. Medical Assets, LLC
exercises sole investment power, but no voting power, over all its shares of
Common stock. See footnote (9). Edge Financial Group, Inc. has investment
power, but not voting power, with respect to all its shares.
9) Includes 1,196,549 shares of Common stock beneficially owned by Medical
Assets, LLC, of which Mr. Richardson is a member. Mr. Richardson disclaims
beneficial ownership of these shares except to the extent of his ownership
interest in Medical Assets, LLC. See footnote (8). Mr. Richardson has
investment power, but not voting power, with respect to these shares. Also
includes 25,109 shares of Vital Energy, Inc. of which Mr. Richardson is
Chief Executive Officer and majority shareholder.
17
<PAGE> 21
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of the
Company as of June 4, 1998 by each director, nominee for director, and Named
Officer, and by all directors and executive officers of the Company as a group.
Each such person has a business address, care of the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
NAME NUMBER (1) PERCENT (2)
- ------------------------------ ---------- -----------
<S> <C> <C>
Stephenson M. Dechant(3) 49,000 *
Nicholas V. Diaco, M.D.(4) 4,975,546 15.0%
Louis P. Ferrero(5) 10,000 *
Cam L. Garner(6) 18,000 *
James C. Gilstrap(7) 8,120,894 24.6%
Stephen P. Loomis(8) 73,334 *
Richard O. Martin, Ph.D.(9) 10,000 *
Richard E. Otto(10) 75,334 *
Michael D. Padilla(11) 45,000 *
Allen E. Paulson(12) 18,013,983 54.6%
Rhonda F. Pederson(13) 25,000 *
Michael K. Perry 7,000 *
All Directors and executive
officers as a group - (15 persons)(14) 23,080,945 70.2%
</TABLE>
- ----------------
*Less than 1%
(1) Except as indicated in the footnotes to this table, the persons named in the
table have sole voting and investment power with respect to all shares of
Common stock shown as beneficially owned by them, subject to community
property laws, where applicable. Share ownership in each case includes
shares issuable on exercise of certain outstanding options as described in
the footnotes below.
(2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3d(1).
(3) Includes 39,000 shares of Common stock Mr. Dechant beneficially owns, by
virtue of his right to acquire such shares under stock options now
exercisable or exercisable within 60 days.
(4) Includes 4,280,240 shares of Common stock beneficially owned by CDH, of
which Dr. Nicholas Diaco is a member with a minority interest. Dr. Diaco
disclaims beneficial ownership of these shares except to the extent of his
individual ownership interest in CDH. See footnote (16). Also includes
134,000 shares of Common stock Dr. Diaco beneficially owns, by virtue of his
right to acquire such shares from the Company under stock options now
exercisable or exercisable within 60 days.
18
<PAGE> 22
(5) Includes 10,000 shares of Common stock Mr. Ferrero beneficially owns, by
virtue of his right to acquire such shares under stock options now
exercisable or exercisable within 60 days.
(6) Includes 10,000 shares of Common stock Mr. Garner beneficially owns, by
virtue of his right to acquire such shares under stock options now
exercisable or exercisable within 60 days.
(7) Includes 4,280,240 shares of Common stock beneficially owned by CDH, of
which Mr. Gilstrap is a member with a minority interest. Mr. Gilstrap
disclaims beneficial ownership of these shares except to the extent of his
individual ownership interest in CDH. See footnote (16). Includes 1,015,000
shares held in the Jim and Sue Gilstrap Family Limited Partnership: Mr.
Gilstrap disclaims beneficial ownership of theses shares to the extent of
his and his wife's ownership interest in the Jim and Sue Gilstrap Family
Limited Partnership. Also includes 34,000 shares of Common stock Mr.
Gilstrap beneficially owns, by virtue of his right to acquire such shares
from the Company under stock options now exercisable or exercisable within
60 days. Excludes 65,000 shares of Common stock owned by Mr. Gilstrap's
daughters; Mr. Gilstrap disclaims beneficial ownership of such shares.
(8) Includes 73,334 shares of Common stock Mr. Loomis beneficially owns, by
virtue of his right to acquire such shares under stock options now
exercisable or exercisable within 60 days.
(9) Includes 10,000 shares of Common stock Dr. Martin beneficially owns, by
virtue of his right to acquire such shares under stock options now
exercisable or exercisable within 60 days.
(10) Includes 35,334 shares of Common stock Mr. Otto beneficially owns, by
virtue of his right to acquire such shares under stock options now
exercisable or exercisable within 60 days.
(11) Includes 34,000 shares of Common stock Mr. Padilla beneficially owns, by
virtue of his right to acquire such shares under stock options now
exercisable or exercisable within 60 days.
(12) Includes 4,280,240 shares of Common stock beneficially owned by CDH, of
which Mr. Paulson is a member with a majority interest. Mr. Paulson
disclaims beneficial ownership of these shares except to the extent of his
individual ownership interest in CDH. See footnote (16). Also includes
34,000 shares of Common stock Mr. Paulson beneficially owns, by virtue of
his right to acquire such shares from the Company under stock options now
exercisable or exercisable within 60 days. Excludes 3,000,000 shares of
Common stock owned by Mr. Paulson's sons; Mr. Paulson disclaims beneficial
ownership of such shares.
(13) Includes 25,000 shares of Common stock Ms. Pederson beneficially owns, by
virtue of her right to acquire such shares under stock options now
exercisable or exercisable within 60 days.
(14) Shares beneficially owned include shares held by entities affiliated with
certain directors and Named Officers as described above in the footnotes
(but do not include any shares more than once). Also includes 130,000
shares of Common stock Mr. Hepp beneficially owns; 40,000 shares of Common
stock beneficially owned by Mr. Osypka and 33,334 shares of Common stock
Mr. Trayler beneficially owns, all, by virtue of their right to acquire
such shares under stock options now exercisable or exercisable within 60
days.
19
<PAGE> 23
EXECUTIVE OFFICERS
The Company's Directors and executive officers and their ages as of June 4, 1998
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------- --- --------
<S> <C> <C>
Allen E. Paulson 75 Co-Chairman of the Board of Directors
James C. Gilstrap 61 Co-Chairman of the Board of Directors
Michael K. Perry 37 Chief Executive Officer
Rhonda F. Pederson 37 President
Richard E. Trayler 47 Chief Operating Officer
Stephen P. Loomis 38 Vice President Finance,
Chief Financial Officer,
and Corporate Secretary
Dennis G. Hepp 49 Chief Technology Officer
Markus J. Osypka, Ph.D 34 Vice President Research
</TABLE>
---------------------------
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
Allen E. Paulson. See description above under "ELECTION OF DIRECTORS"
James C. Gilstrap. See description above under "ELECTION OF DIRECTORS"
Michael K. Perry. See description above under "ELECTION OF DIRECTORS"
Rhonda F. Pederson. Ms. Pederson has been the President of the Company since
June 1997. She served as Vice President of Operations from June 1995 to January
1996 and as Chief Operating Officer from February 1996 to May 1997. Ms. Pederson
has over 14 years of healthcare experience, including medical product
development, rapid growth transitions, sales and marketing, and executive
management. From July 1992 until May 1995, Ms. Pederson held the positions of
President/Chief Executive Officer, Vice President of Sales and Marketing, and
Board member at Culture Technology, Inc., a privately held biotechnology company
specializing in culturing autologous skin for burn patients. Ms. Pederson has
also held positions at General Electric Medical Systems and Quinton Instrument
Company, both medical device subsidiaries of publicly held companies. Ms.
Pederson holds a Bachelor of Pharmacy from Washington State University.
20
<PAGE> 24
Richard E. Trayler. Mr. Trayler joined the Company in July 1997 as Chief
Operating Officer. From 1982 to 1997, Mr. Trayler held positions of Regional and
Divisional Sales Manager at Quinton Instrument Company, a medical device
subsidiary of American Home Products Corporation. He has also held positions at
the Heart Institute for CARE, the University of Washington, and the Boeing
Company where he assisted cardiologists in the clinical assessment of cardiac
patients. Mr. Trayler was also the founder of the Health Enrichment Institute
and the Amarillo Cardiopulmonary Rehabilitation Program, specializing in
cardiology/health hazard appraisals and the development of cardiopulmonary
exercise programs. Mr. Trayler earned a Bachelor of Science Degree from Texas
A&M University, a Master of Science Degree from the University of Washington,
and a Master of Christian Leadership Degree from Western Conservative Baptist
Seminary (Phoenix Seminary).
Stephen P. Loomis. Mr. Loomis joined the Company in September 1996 as Vice
President of Finance and has held the positions of Vice President of Finance,
Chief Financial Officer and Corporate Secretary since April 1997. Mr. Loomis is
a Certified Public Accountant with more than 12 years experience in finance and
business development with both publicly traded and privately held companies.
From 1993 until joining the Company, he served as Director of Financial
Reporting at the Kinko's Inc. group of companies. From 1988 to 1993, Mr. Loomis
was the Chief Financial Officer for Terminal Data Corporation, a publicly traded
high speed document imaging company. Prior to that, Mr. Loomis was with Peat
Marwick Main & Co. He earned his Bachelor of Science Degree in Business
Administration from California State University at Northridge.
Dennis G. Hepp. Mr. Hepp became Chief Technology Officer of the Company in June
1997. Mr. Hepp has served as a consultant to the Company since July 1995. He has
over 28 years experience in cardiovascular clinical medicine and the medical
device industry. Mr. Hepp founded in 1989, and continues to serve as President
of, Rivertek Medical Systems, Inc., Minneapolis, Minnesota, which serves as an
engineering consulting firm to medical device manufacturers, including Guidant
Corporation and Medtronic, Inc., as well as emerging medical technology
companies such as CardioDynamics. Mr. Hepp holds a Bachelor of Electrical
Engineering from the University of Detroit.
Markus J. Osypka, Ph.D. Dr. Osypka joined the Company's Engineering Department
in January 1996, was promoted to Vice President of Engineering in March 1996 and
has been Vice President of Research since June 1997. Dr. Osypka has more than
nine years experience in the medical device industry in the U.S. and Germany.
From 1993 to 1995, he held the positions of Director of Product Management and
Director of International Sales at Dr. Ing P. Osypka GmbH, a privately held
medical device manufacturer in Germany. Prior to that, he earned a Ph.D. in
Electrical Engineering at the University of Karlsruhe in Germany, where he did
extensive research in Electrical Impedance Tomography.
21
<PAGE> 25
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides information regarding the annual and long-term
compensation earned for services rendered in all capacities to the Company for
the fiscal years ended November 30, 1995, 1996 and 1997 of those persons who
were, at November 30, 1997 (i) the Chief Executive Officer and (ii) the other
executive officers of the Company whose aggregate direct remuneration from the
Company during the fiscal year ended November 30, 1997 exceeded $100,000 ("Named
Officers"). None of the Company's other executive officers had, in fiscal 1997,
total annual salary and bonus exceeding $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------
AWARDS PAYOUTS
---------- ----------
SECURITIES
ANNUAL COMPENSATION(1) UNDERLYING
NAME AND ----------------------------- OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SARS (#) PAYOUTS($) COMPENSATION($)
- ------------------ ---- ---------- --------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Otto 1997 101,271 -0- 50,000 -0- 4,000(2)
Chief Executive 1996 122,870 -0- -0- -0- - 0-
Officer 1995 87,500(3) -0- 500,000 -0- -0-
Rhonda F. Pederson 1997 111,308 17,228 75,000 -0- 14,000(4)
President 1996 95,000 -0- 150,000 -0- -0-
1995 38,750(5) -0- -0- -0- -0-
Stephen P. Loomis 1997 103,416 22,849 70,000 -0- 3,000(2)
Vice President 1996 18,025(6) -0- 80,000 -0- -0-
Finance, Chief 1995 n/a n/a n/a n/a n/a
Financial Officer
</TABLE>
- ------------------
(1) Employee benefits provided to each of the Named Officers under various
Company programs do not exceed the disclosure thresholds established under
the SEC rules and are therefore not included.
(2) Amount represents Company paid allowance for automobile expenses.
(3) Represents compensation earned by Mr. Otto from his employment with the
Company commencing in June 1995.
(4) Amount represents Company paid allowance for automobile expenses and
lodging.
(5) Represents compensation earned by Ms. Pederson from her employment with the
Company commencing in June 1995.
(6) Represents compensation earned by Mr. Loomis from his employment with the
Company commencing in September 1996.
22
<PAGE> 26
The following table provides information regarding option
exercises during the fiscal year ended November 30, 1997, as well
as information with respect to unexercised options to purchase
the Company's Common stock granted to the Named Officers in
fiscal 1997. None of the Named Officers exercised any stock
options during fiscal 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
% OF TOTAL
OPTIONS GRANTED
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION
NAME GRANTED IN FISCAL 1997 PRICE(1) DATE
- ---- ------- -------------- -------- ----
<S> <C> <C> <C> <C>
Richard E. Otto 10,000 1.2% $ 3.25 4/2/2007
40,000 4.8% $ 3.09 6/9/2007
Rhonda F. Pederson 75,000 9.0% $ 3.09 6/9/2007
Stephen P. Loomis 70,000 8.4% $ 3.09 6/9/2007
</TABLE>
- ---------------
(1) All options were granted at fair market value (closing sale price for the
Company's Common stock on The NASDAQ Stock Market on the date of grant).
The following table provides further information regarding the Named Officers'
outstanding stock options as of November 30, 1997. No stock appreciation rights
were granted or exercised, and no stock options were exercised during fiscal
1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE(1) OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT FY-END (#) AT FY-END($)
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(2)
---- ------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C>
Richard E. Otto -0- -0- -0-/300,000 -0-/531,250
Rhonda F. Pederson -0- -0- -0-/225,000 -0-/243,750
Stephen P. Loomis -0- -0- 50,000/100,000 -0-/-0-
-----------------
</TABLE>
(1) Represents the difference between the closing sale price of the Company's
Common stock as reported on NASDAQ on November 30, 1997 and the exercise
price of the options.
(2) These options could not be exercised by the respective Named Officers as of
November 30, 1997 and future exercisability is subject to certain vesting
provisions including specific stock price thresholds and/or remaining in the
employ of the Company for up to three additional years.
23
<PAGE> 27
EMPLOYMENT AGREEMENT
The Company entered into a Compensation and Employment Agreement, dated June 16,
1995, with its then Chief Executive Officer, Richard E. Otto. Under the terms of
the agreement Mr. Otto was granted 500,000 non-transferable stock options (not
under the 1995 Plan) at an exercise price of $0.50 per share. The options were
to vest when and if the quoted market price of the Company's Common stock
attains and holds specific price levels. At November 30, 1997, none of the
options were vested. The options expire June 15, 2005. The Agreement provided
for a salary of $150,000 per year and standard fringe benefits. In January 1996,
Mr. Otto and the Company agreed to reduce his annual salary to $120,000 per year
and then again in June 1997, they agreed to reduce it to $72,000 per year and
reduced the number of stock options to 250,000. Upon the appointment of Mr.
Perry as Chief Executive Officer, Mr. Otto's salary ceased and he and the
Company agreed that the 250,000 stock options would continue to be outstanding,
subject to vesting when and if the Company's Common stock attains and holds such
specific price levels.
LONG TERM INCENTIVE PLANS
The Company does not have any long-term incentive plans (as defined in the
Securities and Exchange Commission regulations).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1996, CardioDynamics Holdings, LLC and its members engaged in
several significant transactions with the Company, substantially all resulting
in the issuance of unregistered Common stock or convertible note amounts
convertible (and later converted) into Common stock at $0.25 per share. Of the
Company's outstanding shares of Common stock, currently CDH owns 2,243 shares
and has the right under a Note to obtain an additional 100,000 shares upon
conversion. members of CDH individually own 18,473,009 shares of Common stock of
the Company (aside from CDH's own holdings); of the members' shares, Allen E.
Paulson owns 13,699,743, James C. Gilstrap owns 3,806,654 and Nicholas V. Diaco,
M.D. owns 561,306. At June 4, 1998, CDH and its members together are the
beneficial owners of 70% of the Common stock of the Company.
In March 1998, the Company entered into an 18 month unsecured private line of
credit agreement with Allen E. Paulson and James C. Gilstrap. 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%. The Company
will repay this line of credit from the net proceeds of any future-arranged debt
or equity financing.
Before and after becoming an executive officer of the Company in June 1997,
Dennis G. Hepp has served as a consultant and vendor to the Company since July
1995 through the company he founded in 1989, Rivertek Medical Systems, Inc.,
located in Minneapolis, Minnesota. Rivertek, which is 100% owned by Mr. Hepp and
his wife, provides engineering consulting to medical device manufacturers, and
continues to be one of the Company's largest vendors. In fiscal 1996 and fiscal
1997, the Company paid $219,232 and $238,278, respectively, to Rivertek.
24
<PAGE> 28
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that each person who, at any time during the fiscal year
ended November 30, 1997, was a director, officer, or beneficial owner of more
than 10% of a class of registered equity securities of the Company filed on a
timely basis all reports required by Section 16(a) of the Securities Exchange
Act.
SHAREHOLDER PROPOSALS FOR 1998 PROXY STATEMENT
The deadline for shareholders to submit proposals to be considered for inclusion
in the Company's Proxy Statement for the next year's Annual Meeting of
Shareholders is March 31, 1999. Such proposals may be included in the next
year's Proxy Statement if they comply with certain rules and regulations
promulgated by the Securities and Exchange Commission.
FORM 10-KSB
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, TO ANY SHAREHOLDER
OF THE COMPANY A COPY OF THE ANNUAL REPORT ON FORM 10-KSB, INCLUDING THE
FINANCIAL STATEMENTS, SCHEDULES AND LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO
CARDIODYNAMICS INTERNATIONAL CORPORATION, 6175 NANCY RIDGE DRIVE, SAN DIEGO,
CALIFORNIA 92121, ATTENTION: SHAREHOLDER RELATIONS.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for action at
the meeting other than the matters set forth in this Proxy Statement. Should any
other matter requiring a vote of the shareholders arise, the persons named as
proxies on the enclosed proxy card will vote the shares represented thereby in
accordance with their best judgment in the interest of the Company.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed proxy card.
By Order of the Board of Directors
/s/ MICHAEL K. PERRY
------------------------------------
Dated: June 12, 1998 Michael K. Perry
Director and Chief Executive Officer
25
<PAGE> 29
CARDIODYNAMICS INTERNATIONAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James C. Gilstrap, Michael K. Perry and
Stephenson M. Dechant, jointly and severally, as proxies, with full power of
substitution, to vote all shares of stock which the undersigned is entitled to
vote at the Annual Meeting of Shareholders of CardioDynamics International
Corporation to be held on Thursday, July 23, 1998, or at any postponements or
adjournments thereof, as specified below, and to vote in their discretion on
such other business as may properly come before the Meeting and any
postponements or adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, AND 4. TO VOTE
IN ACCORDANCE WITH THE BOARD OF DIRECTORS RECOMMENDATIONS JUST SIGN BELOW, NO
BOXES NEED TO BE CHECKED.
1. Election of Directors:
Nominees: Stephenson M. Dechant, Nicholas V. Diaco, Louis P. Ferrero,
Cam L. Garner, James C. Gilstrap, Richard O. Martin, Richard E. Otto,
Michael D. Padilla, Allen E. Paulson and Michael K. Perry.
Vote FOR all nominees above (except as withheld in the space below)
Vote WITHHELD from all nominees
Instruction: To withhold authority to vote for any individual nominee,
check the box "Vote FOR" and write the nominee's name on the line below.
2. To consider and act upon a proposal to amend the 1995 Stock Option/Stock
Issuance Plan to increase the number of shares reserved for issuance
thereunder from 2,529,000 shares to 4,000,000.
Vote FOR Vote AGAINST ABSTAIN
3. To consider and act upon a proposed Amendment to the Company's articles
of incorporation to authorize the issuance of Preferred Stock.
Vote FOR Vote AGAINST ABSTAIN
4. To ratify the selection of KPMG Peat Marwick LLP as the independent
accountants for the fiscal year ending November 30, 1998.
Vote FOR Vote AGAINST ABSTAIN
UNLESS OTHERWISE SPECIFIED BY THE UNDERSIGNED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2, 3, AND 4 AND WILL BE VOTED BY THE PROXYHOLDERS AT THEIR
DISCRETION AS TO ANY OTHER MATTERS PROPERLY TRANSACTED AT THE MEETING OR ANY
POSTPONEMENTS OR ADJOURNMENTS THEREOF. TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS RECOMMENDATIONS JUST SIGN BELOW, NO BOXES NEED TO BE CHECKED.
Dated: ____________________, 1998
------------------------------------------------
Signature of Shareholder
------------------------------------------------
Printed Name of Shareholder
------------------------------------------------
Title (if appropriate)
Please sign exactly as name appears hereon. If
signing as attorney, executor, administrator,
trustee or guardian, please give full title as
such, and, if signing for a corporation, give
your title. When shares are in the names of more
than one person, each should sign.
CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL
MEETING ______
