<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 31, 1999
[_] 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)
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<S> <C>
California 95-3533362
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
6175 Nancy Ridge Drive, Suite 300, San Diego, California 92121
(Address of principal executive offices) (Zip Code)
</TABLE>
(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 _____
As of July 9, 1999, 39,828,811 shares of common stock were outstanding.
Transitional Small Business Disclosure Format
(Check one):
Yes _____ No X
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Washington, D.C. 20549
FORM 10-QSB
TABLE OF CONTENTS
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Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets at May 31, 1999 (unaudited) and
November 30, 1998 (audited). 3
Statements of Operations (unaudited) for the three and
six months ended May 31, 1999 and May 31, 1998. 4
Statements of Cash Flows (unaudited) for the six
months ended May 31, 1999 and May 31, 1998. 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Balance Sheets
<TABLE>
<CAPTION>
May 31, November 30,
1999 1998
Assets (Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,393,990 $ 2,633,086
Accounts receivable, net of allowance for doubtful accounts
and returns of $84,927 at May 31, 1999 and $32,728 at 2,007,021 632,190
November 30, 1998
Inventory, net 1,259,182 995,364
Other current assets 97,998 81,229
------------ ------------
Total current assets 8,758,191 4,341,869
------------ ------------
Property and equipment, net 256,267 266,917
Deposits 41,765 40,099
------------ ------------
Total assets $ 9,056,223 $ 4,648,885
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 758,759 $ 577,836
Accrued expenses 369,881 112,703
Accrued salaries, wages and benefits 258,838 276,179
Revolving line of credit 815,615 --
Current maturities of note payable to bank 250,000 2,000,000
Current maturities of long-term debt 32,495 37,816
------------ ------------
Total current liabilities 2,485,588 3,004,534
Note payable - related parties 1,000,000 1,000,000
Note payable to bank, less current maturities 1,750,000 --
Long-term debt, less current maturities 113,319 112,215
------------ ------------
Total liabilities 5,348,907 4,116,749
Convertible preferred stock, no par value; 18,000,000 shares
authorized; issued and outstanding 1,720 Series A shares at
May 31, 1999 and 2,240 shares at November 30, 1998 1,647,226 2,152,294
Shareholders' equity (deficit):
Common stock, no par value; 50,000,000 shares authorized;
issued and outstanding 38,215,960 shares at May 31, 1999
and 32,676,029 shares at November 30, 1998 21,203,490 15,598,274
Accumulated deficit (19,143,400) (17,218,432)
------------ ------------
Total shareholders' equity (deficit) 2,060,090 (1,620,158)
------------ ------------
Commitments and contingencies
Total liabilities and shareholders' equity (deficit) $ 9,056,223 $ 4,648,885
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
Statements of Operations
(Unaudited)
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<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31,
--------------------------------------------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 1,528,481 $ 477,726 $ 2,603,407 $ 625,238
Cost of sales 558,327 291,609 965,398 485,578
------------- ------------- ------------- -------------
Gross margin 970,154 186,117 1,638,009 139,660
Operating expenses:
Research and development 370,302 607,408 841,825 1,144,478
Selling, general, and 1,304,863 955,630 2,553,610 1,684,260
administrative
------------- ------------- ------------- -------------
Total operating expenses 1,675,165 1,563,038 3,395,435 2,828,738
------------- ------------- ------------- -------------
Loss from operations (705,011) (1,376,921) (1,757,426) (2,689,078)
Other income (expense):
Interest, net (75,907) (16,650) (133,997) 7,753
Other, net (413) 3,000 (1,025) 3,000
------------- ------------- ------------- -------------
Total other income (expense) (76,320) (13,650) (135,022) 10,753
Loss before income taxes (781,331) (1,390,571) (1,892,448) (2,678,325)
Income taxes -- -- (800) (800)
------------- ------------- ------------- -------------
Net loss (781,331) (1,390,571) (1,893,248) (2,679,125)
Preferred stock dividends (15,405) -- (31,720) --
------------- ------------- ------------- -------------
Net loss to common shareholders $ (796,736) $ (1,390,571) $ (1,924,968) $ (2,679,125)
============= ============= ============= =============
Net loss per common share, basic
and diluted $ (.02) $ (.04) $ (.06) $ (.08)
============= ============= ============= =============
Weighted-average number of common
shares outstanding 33,053,278 32,100,743 32,879,748 32,093,408
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
May 31,
---------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,893,248) $ (2,679,125)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 44,897 37,486
Gain on sale of fixed asset -- (3,000)
Provision for warranty repairs 115,248 19,500
Provision for (reduction of) inventory returns 5,385 (288,704)
Provision for (reduction of) doubtful receivables 52,199 (127,820)
Changes in operating assets and liabilities:
Accounts receivable (1,427,030) (108,777)
Inventory, net (263,818) (33,064)
Other current assets (16,769) 30,595
Deposits (2,611) 4,264
Accounts payable 180,923 160,624
Accrued expenses 140,098 (20,193)
Accrued salaries, wages and benefits (17,341) 18,305
-------------- --------------
Net cash used in operating activities (3,082,067) (2,989,909)
-------------- --------------
Cash flows from investing activities:
Proceeds from sale of fixed assets -- 53,000
Purchases of property and equipment (19,561) (33,479)
-------------- --------------
Net cash provided by (used in) investing activities (19,561) 19,521
-------------- --------------
Cash flows from financing activities:
Repayment of long-term debt (18,903) (5,640)
Repayment of note to bank (2,000,000) --
Borrowings on revolving line of credit 815,615 --
Proceeds from bank borrowing 2,000,000 3,000,000
Preferred stock issuance costs (7,070) --
Increase in long-term debt -- 32,250
Issuance of common stock, net 5,072,890 15,150
-------------- --------------
Net cash provided by financing activities 5,862,532 3,041,760
-------------- --------------
Net increase in cash and cash equivalents 2,760,904 71,372
Cash and cash equivalents at beginning of period 2,633,086 2,655,349
-------------- --------------
Cash and cash equivalents at end of period $ 5,393,990 $ 2,726,721
============== ==============
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
Notes to Financial Statements
(Unaudited)
Description of Business
At CardioDynamics International Corporation, we develop, manufacture and market
heart-monitoring devices that provide physicians with continuous data on a wide
range of parameters relating to blood flow and heart function. Unlike other
cardiac function monitoring technologies, our monitors are non-invasive. Our
primary products, the BioZ(TM) System, the BioZ(TM) Portable, and the
BioZ.com(TM) use a technology called thoracic electrical bioimpedance (TEB) to
obtain data which is typically available only through a time-consuming, costly,
and potentially dangerous invasive procedure known as right heart
catheterization, or pulmonary artery catheterization.
Many patients who might otherwise benefit from cardiac function monitoring are
often not given such treatment because the risks and costs associated with
pulmonary artery catheterization often outweigh the potential benefits. The
BioZ(TM) Systems allow these patients to receive treatment in a safe, efficient,
and cost-effective manner. Since the BioZ(TM) Systems provide cardiac function
monitoring noninvasively, they have the potential to expand the number of
clinical applications well beyond cardiology, intensive care, and surgery. These
include applications for emergency, hypertensive, congestive heart failure, high
risk obstetric, immune suppressed, dialysis, pacemaker, and sports medicine
patients.
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 the information
and footnotes which would be presented if these financial statements had been
prepared in accordance with generally accepted accounting principles.
These statements should be read in conjunction with the Financial Statements and
Notes that go along with our audited financial statements, as well as the other
financial information for the fiscal year ended November 30, 1998 as presented
in our Annual Report on Form 10-KSB. Financial presentations for prior periods
have been reclassified to provide consistency in reporting.
In our opinion, the information contained in this report reflects all
adjustments necessary to make the results of operations for the interim periods
a fair statement of our operations. All such adjustments are of a normal
recurring nature. The results of operations for the three and six months ended
May 31, 1999 are not necessarily indicative of the results that may be expected
for the full fiscal year ended November 30, 1999. Options and warrants to
purchase 4,297,048 shares of common were outstanding during the quarter ended
May 31, 1999 but were not included in the computation of loss per share because
the effect would be anti-dilutive.
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<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
Notes to Financial Statements
(Unaudited)
Footnotes
On May 28, 1999 we completed a $5.2 million private placement of common stock to
institutional and other accredited investors who purchased unregistered shares
with a six-month holding restriction at $1.00 per share, representing a 27%
discount to the closing bid price.
In January of 1999 we established a secured revolving credit line with a bank.
The credit line provides for borrowing of up to $3,000,000 at the bank's prime
rate. The credit line is collateralized by all the assets of our company. At May
31, 1999, we had $815,615 outstanding under the credit line.
In February of 1999 we entered into a three-year unsecured term loan agreement
with a bank. Under the terms of the agreement we borrowed $2,000,000 with
monthly interest-only payments for the first 12 months at the bank's prime rate
and monthly principal installments of $83,333 each, plus interest at one percent
above the bank's prime rate beginning March 2000. In connection with the loan,
we issued to the bank, 50,000 warrants to purchase our common stock at $2.20 per
share. The co-chairmen of our Board of Directors guaranteed the loan. At May 31,
1999 $2,000,000 is outstanding under this agreement.
Subsequent Event
To achieve an orderly conversion of the outstanding shares of our Series A
convertible preferred stock with a minimum impact on the market price of our
common stock, in June of 1999 we identified a group of strategic investors and
facilitated the private sale of the common shares issued upon conversion of the
remaining portion of the preferred stock by reducing the effective purchase
price. As a result of the preferred stock retirement, we will record a one-time,
non-cash accounting charge of approximately $490,000 in our third quarter ended
August 31, 1999.
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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 that go along with our audited financial statements, as
well as the other financial information for the fiscal year ended November 30,
1998. Some of our discussion is forward-looking and involves risks and
uncertainties. For information regarding risk factors that could have a material
adverse effect on the Company's business, refer to our November 30, 1998 Form
10-KSB and page 14 of this report.
Results of Operations (Quarters referred to herein are fiscal quarters ended May
- ---------------------
31)
Net sales in the second quarter of fiscal 1999 increased 220% from $477,726 in
the second quarter of fiscal 1998, to $1,528,481. In the first six months of
fiscal 1999, net sales grew to $2,603,407, an increase of 316% over the first
half of fiscal 1998. The increase in second quarter sales resulted from the
growing recognition in the healthcare community of the validity and clinical
usefulness of the BioZ's TEB technology along with HCFA Medicare reimbursement
coverage and expansion of our domestic direct sales force and international
distribution network. The Bioz.com(TM), which commenced shipments in May 1998,
accounted for 79% of sales in the second quarter. By targeting individual
physician offices as well as primary care facilities, our direct sales force
sold 45 BioZ(TM) systems to end users during the second quarter of 1999.
In November of 1998, we received CE Mark approval and have been actively
pursuing European and Asian markets. As of May 31, 1999 agreements had been
formalized with 17 medical distributors representing 31 countries in Europe,
Asia, Africa, the Middle East and South America. During the second quarter of
fiscal 1999, we sold 13 BioZ(TM) systems to our international distributors which
accounted for 21% of our unit shipments in the quarter.
For the quarter ended May 31, 1999 our gross margin was $970,154, or 64% of
sales, up from 1998's second quarter of $186,117, or 39% of sales. Year to date
gross margin percentages for 1999 and 1998 were 63% and 22%, respectively. With
the introduction of the higher priced BioZ.com(TM) product in mid 1998, our
average unit sales price has increased 34% from $17,864 in the first six months
of 1998 to $23,884 for the same period in 1999. In addition, as sale volumes
increase, our manufacturing capacity is more fully utilized contributing to
improved gross margins.
We continue to invest a significant portion of our resources into sales and
marketing. At May 31, 1999, we had a total of 21 direct sales representatives
placed in strategic cities throughout the United States. In the second fiscal
quarter of 1999, sales and marketing related costs totaled $994,553, a 64%
increase over the same period in 1998 of $607,423. For the first half of 1999,
sales and marketing costs were $1,934,344, a 98% increase over the first half of
1998. We intend to continue expansion of our direct sales force and further
development of selling and marketing materials customized for direct sales
targeted at both the hospital and outpatient markets.
-8-
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations (Continued)
- ---------------------
As a result of ongoing cost management initiatives, general and administrative
expenses continued to decline, falling 11% in the second quarter and 12% in the
first half of 1999 compared with the same periods in 1998. We spent $310,310 and
$619,266, respectively, in the second quarter and first half of 1999 compared
with $348,207 and $705,822 in the same periods last year.
Now that the BioZ.com product development has been completed, our research and
development spending declined by 39% in the second quarter of 1999 compared with
the second quarter of 1998 and 26% in the first half of 1999 from the first half
of 1998. Although research and development costs have decreased in the quarter,
we continue to devote a significant portion of our resources to research,
clinical studies, further enhancements to the BioZ(TM) product line, and new
product development.
We received $8,077 in interest income and incurred $83,984 of interest expense
in the second quarter of 1999 compared with interest income of $17,047 and
interest expense of $33,697 in the same period of fiscal 1998. For the six-month
period ending May 31, 1999, interest income was $29,501 and interest expense was
$163,497 as compared with the same period last year with interest income of
$45,523 and interest expense of $34,670. The higher interest expense in 1999 is
largely a result of increased borrowings under our various financing agreements.
The net loss generated to common shareholders in the second quarter of 1999 was
$796,736, or $.02 per common share, compared with a net loss to common
shareholders of $1,390,571, or $.04 per common share, for the same quarter last
year. The year to date net loss to common shareholders was $1,924,968 or $.06
per common share, a 28% improvement over last year's loss of $2,679,125 or $.08
per common share. Our weighted average number of common shares outstanding
increased by 2% in the first half of 1999, primarily as a result of Series A
convertible preferred stock conversions into shares of our common stock.
Liquidity and Capital Resources
- -------------------------------
On May 28, 1999 we completed a $5.2 million private placement of common stock to
institutional and other accredited investors, providing us with the capital to
continue building our domestic and international sales and marketing presence,
funding our research and product development, and support of additional clinical
studies.
The financing was led by $1 million in investments by the company's Board
members, officers, and customers. Other participants included Domain Associates,
L.L.C., a Princeton, New Jersey-based venture capital group and Veritas Societe
Generale, our largest institutional shareholder at that time.
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<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources (Continued)
- -------------------------------------------
To help provide the cash flow necessary to meet the increasing demand for the
Company's BioZ(TM) systems, in January 1999 we established a secured revolving
credit line with a bank. The credit line provides for borrowings of up to
$3,000,000 at the bank's prime rate. Under the terms of the agreement, we are
required to meet certain loan covenants, including maintenance of a minimum
quick ratio and maximum quarterly losses. The credit line is collateralized by
all the assets of our company. At May 31, 1999, we had $815,615 outstanding
under the credit line.
In February of 1999 we entered into a three-year unsecured term loan agreement
with a bank. Under the terms of the agreement we borrowed $2,000,000 with
monthly interest-only payments for the first 12 months at the bank's prime rate
and monthly principal installments of $83,333 each, plus interest at one percent
above the bank's prime rate beginning March 2000. At May 31, 1999 $2,000,000 is
outstanding under this agreement.
In August of 1998, we raised $3,000,000 through the issuance of Series A
convertible preferred stock to institutional investors. During the second
quarter of 1999, $420,000 of the Series A convertible preferred stock was
converted into 282,206 shares of our common stock under the terms of the
preferred stock agreement. At May 31, 1999, $1,720,000 of Series A convertible
preferred stock remained outstanding.
In March 1998, we entered into an 18-month unsecured private line of credit
agreement with the co-chairmen of our Board of Directors. Under the terms of the
agreement we 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 we
borrowed $1,000,000 on this line of credit and used the proceeds to reduce
outstanding borrowings under the bank term loan. In February 1999, the line of
credit was extended to September 30, 2000. At May 31, 1999 we had $1,000,000
outstanding under this line of credit.
We expect to generate an operating loss for our fiscal year ended November 30,
1999. Longer term, our liquidity will depend on our ability to successfully
commercialize the BioZ(TM) Systems and other diagnostic products and to raise
additional funds through public or private financing, bank loans, collaborative
relationships or other arrangements. We can give no assurance that such
additional funding will be available on terms attractive to us, or at all.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Other Matters
Year 2000 Compliance
- --------------------
Many computer systems experience problems handling dates beyond the year 1999.
This issue will impact virtually any business that relies on computers. In
addition to our own potential problems, there are governmental agencies,
financial institutions, utilities and other basic service providers that may
encounter problems that are outside of our control. In order to correct this
issue, some computer hardware and software will need to be modified prior to the
year 2000 in order for it to remain functional. We have taken steps to assess
the internal readiness of our computer systems and the compatibility of our
products for handling the year 2000 issue. We have created a Year 2000 task
force which is addressing these issues. The project has been broken down into
the following phases.
. Awareness: To create awareness of the potential business implications of
the Year 2000 challenge within CardioDynamics. Our employees, when
appropriate, will be kept informed of the news and issues related to the
Year 2000 issue. We have focused on both our information technology systems
as well as our products.
. Inventory and Assessment: We have inventoried all of our computer software
and hardware as well as facilities, telecommunications, and external
interfaces. Significant third party vendors will be contacted to determine
their Year 2000 readiness.
. Renovation: As problems are discovered, strategies will be developed to
either correct the problem or determine if new equipment or software is
necessary.
. Testing: Testing of our systems will continue to occur to determine whether
they are performing reliably under Year 2000 conditions. All of our
internal systems and workstations have been successfully tested for Year
2000 compliance.
. Implementation: Upon successful completion of the testing process the
assets will be reintroduced into production in order to allow adequate time
to prevent any unforeseen circumstances.
. Contingency: In addition, we will develop a contingency plan in the event
that our internal systems, products or suppliers are not Year 2000
compliant.
As of May 31, 1999 we have completed the inventory and assessment stage and
anticipate completing any necessary renovation, testing and implementation
within the next three to four months. It has already been determined that our
internal information systems including individual workstations and our
manufacturing requirements planning system is certified as Year 2000 complaint.
Additionally, our newest products have been specifically tested for Year 2000
performance and no Year 2000 problems have been identified. We are still in the
process of certifying key third party vendors' Year 2000 compliance. Renovation
and testing has begun as problems are identified. We plan to have all stages of
the Year 2000 project completed no later than the fall of 1999.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Other Matters
Year 2000 Compliance - (Continued)
- ---------------------
Thus far, we have not had to spend significant amounts of money through this
phase of the process. We currently believe that the cost of addressing the year
2000 issue will not have a material adverse effect on our business, results of
operations, and financial condition. However, if our vendors of the most
important goods and services, or our suppliers of necessary energy,
telecommunications and transportation needs, fail to provide us with the
materials and services which are necessary to produce and sell our products,
such failure could have material adverse effect on the results of operations,
liquidity and financial condition of our Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On February 8, 1999, the Official Post Confirmation Committee of
Unsecured Creditors of Helionetics, Inc. ("Plaintiff") filed a
Complaint in United States Bankruptcy Court for the Central District
of California, Santa Ana Division, naming CardioDynamics Holdings, LLC
("Holdings") and the Company as defendants. The Complaint relates to
an alleged fraudulent transfer of certain shares of the Company's
common stock from Helionetics, Inc. to Holdings in February 1995 and
seeks various relief including return of the subject shares to
Plaintiff and compensatory and punitive damages. The Company believes
that the allegations are without merit and that the outcome of the
suit will not have a material adverse effect on our earnings, cash
flow or financial position. On May 3, 1999 the Company filed a motion
to dismiss and the hearing has been set for August 10, 1999.
-12-
<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
Item 2. Changes in Securities
On May 28, 1999 we completed a $5.2 million private placement of
approximately 5.2 million shares of our common stock to institutional
and other accredited investors including Domain Associates, L.L.C., a
Princeton, N.J.-based venture capital group and Veritas Societe
Generale, the company's largest institutional shareholder, along with
several of our Board members, officers, and customers. The financing
was exempt from the registration requirement of the Securities Act of
1933, as amended, in reliance upon Regulation D promulgated under the
Act. In connection with the private placement we incurred a finder's
fee of $96,000 payable to EVEREN Securities, Inc.
Subsequent to our second fiscal quarter, in order to achieve an
orderly conversion of all the outstanding shares of our Series A
convertible preferred stock with a minimum impact on the market price
of our common stock, we identified a group of strategic investors and
facilitated the private sale of the common shares issued upon
conversion of the remaining portion of the preferred stock by reducing
the effective purchase price.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Promissory Note dated February 25, 1999 between City National
Bank and the Company.
10.2 Warrants to purchase 50,000 shares of CardioDynamics
International Corporation common stock to City National Bank
dated March 31, 1999.
10.3 Form of Common Stock Purchase Agreement for the May 28, 1999
Private Placement.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
On June 4, 1999, the Company filed a report on Form 8-K with
regard to a May 28, 1999 event: the completion of a $5.2 million
common stock private placement with institutional and accredited
investors. The report included material under Item 5 and Item 7
of Form 8-K.
-13-
<PAGE>
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 recently
introduced BioZO System, BioZ PortableO and BioZ.comO 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-GanzO
PAC device, (v) expansion of its direct sales force, (vi)Year 2000 computer
related issues, and (vii) 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,
1998 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.
Date: July 13, 1999 By: /s/ Michael K. Perry
------------ -------------------------------
Michael K. Perry
Chief Executive Officer
Date: July 13, 1999 By: /s/ Stephen P. Loomis
------------ -------------------------------
Stephen P. Loomis
Vice President, Finance
Chief Financial Officer and
Corporate Secretary
-14-
<PAGE>
Exhibit 10.1
PROMISSORY NOTE
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<S> <C>
Borrower: CARDIODYNAMICS INTERNATIONAL Lender: City National Bank, a National Banking Association
CORPORATION, A CALIFORNIA CORPORATION Westside Commercial Banking Center #067000
6175 Nancy Ridge Drive, Suite 300 400 North Roxbury Drive, Third Floor
San Diego, CA 92121 Beverly Hills, CA 90210
</TABLE>
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Principal Amount: $2,000,000.00 Date of Note: February 25, 1999
PROMISE TO PAY. CARDIODYNAMICS INTERNATIONAL CORPORATION, A CALIFORNIA
CORPORATION ("Borrower") promises to pay to City National Bank, a National
Banking Association ("Lender"), or order, in lawful money of the United States
of America, the principal amount of Two Million & 00/100 Dollars
($2,000,000.00), together with interest on the unpaid principal balance from
March 31, 1999, until paid in full.
PAYMENT. Subject to any payment changes resulting from changes in the Index,
Borrower will pay this loan in accordance with the following payment schedule:
12 consecutive monthly interest payments, beginning May 1, 1999, with
interest calculated on the unpaid principal balances at an interest rate
of 0.00 percentage points over the Index described below; 23 consecutive
monthly interest payments, beginning May 1, 2000, with interest calculated
on the unpaid principal balances at an interest rate of 1.000 percentage
points over the Index described below; 23 consecutive monthly principal
payments of $83,333.33 each, beginning May 1, 2000, with interest
calculated on the unpaid principal balances at an interest rate of 1.000
percentage points over the Index described below; and 1 principal and
interest payment in the initial amount of $83,961.30 on April 1, 2002,
with interest calculated on the unpaid principal balances at an interest
rate of 1.000 percentage points over the Index described below. This
estimated final payment is based on the assumption that all payments will
be made exactly as scheduled and that the Index does not change; the
actual final payment will be for all principal and accrued interest not
yet paid, together with any other unpaid amounts under this Note.
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 accrued unpaid interest, then to principal, and any
remaining amount to any unpaid collection costs and late charges.
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 City National Bank
Prime Rate (the "Index"). Prime Rate shall mean the rate most recently
announced by Lender at its principal office in Beverly Hills, California, as
its "Prime Rate." Any change in the Prime Rate shall become effective on the
same business day on which the Prime Rate shall change, without prior notice
to Borrower. 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 7.750%. The interest rate or rates to be applied to
the unpaid principal balance of this Note will be the rate or rates set forth
above in the "Payment" section. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by applicable
law. Whenever increases occur in the interest rate, Lender, at its option,
may do one or more of the following: (a) increase Borrower's payments to
ensure Borrower's loan will pay off by its original final maturity date, (b)
increase Borrower's payments to cover accruing interest, (c) increase the
number of Borrower's payments, and (d) continue Borrower's payments at the
same amount and increase Borrower's final payment.
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 $100.00. 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 under the payment schedule. Rather, they will
reduce the principal balance due and may result in Borrower making fewer
payments.
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 and such failure continues for more than 10 days.
(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 and such
proceeding has not been dismissed within 10 days. (e) Any guarantor dies or
any of the other events described in this default section occurs with respect
to any guarantor of this Note. (f) A material adverse change occurs in
Borrower's financial condition, or Lender reasonably believes the prospect of
payment or performance of the Indebtedness is materially impaired.
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, increase the variable interest rate on this Note by 5.000
percentage points. 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-judgement 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.
This Note shall be governed by and construed in accordance with the laws of
the State of California.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $10.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
<PAGE>
02-25-1999 PROMISSORY NOTE Page 2
Loan No 32692 (Continued)
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ADDITIONAL EVENT OF DEFAULT. Any material default by Borrower or Allen E.
Paulson, Guarantor, in the payment or performance of any obligation, or any
default under any provisions of any contract or instrument pursuant to which
any of such parties has incurred any obligation for borrowed money, any
purchase obligation or any other liability of any kind to any person or
entity, including Lender.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
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 as 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, A CALIFORNIA CORPORATION
By: /s/ Steve P. Loomis By: /s/ Michael K. Perry
--------------------------------- ---------------------------------
STEVE P. LOOMIS, CHIEF FINANCIAL MICHAEL K. PERRY, CHIEF EXECUTIVE
OFFICER/SECY. OFFICER
================================================================================
<PAGE>
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: 50,000 (Fifty Thousand)
Class of Stock: Common
Initial Exercise Price: $2.20 per share
Issue Date: March 31, 1999
Expiration Date: March 31, 2004
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, CITY NATIONAL BANK ("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 in this Warrant.
ARTICLE 1. EXERCISE.
--------
1.1 Method of Exercise. Holder may exercise this Warrant by
------------------
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix I 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 1.4.
1.3 Intentionally Omitted
---------------------
<PAGE>
1.4 Fair Market Value. If the Shares are traded in a public market,
-----------------
the fair market value of the Shares shall be the closing 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, or in the event of Diluting Issuances, for the business
day immediately before such Diluting Issuance. If the Shares are not 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.
1.5 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.
1.6 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.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
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1.7.1. "Acquisition". For the purpose of this Warrant,
-------------
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets 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.
1.7.2. Assumption of Warrant. Upon the closing of any
---------------------
Acquisition the successor entity shall assume the obligations of this Warrant,
and 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.
1.7.3. 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.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
-------------------------
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
----------------------------
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common
2
<PAGE>
stock, or other securities, or subdivides the outstanding common stock into a
greater amount of common stock, or, if the Shares are securities other than
common stock, subdivides the Shares in a transaction that increases the amount
of common stock into which the Shares are convertible, 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 Adjustments for Diluting Issuances. The Warrant Price and the
----------------------------------
number of Shares issuable upon exercise of this Warrant or, if the Shares are
Preferred Stock, the number of shares of common stock issuable upon conversion
of the Shares, shall be subject to adjustment, from time to time in the manner
set forth on Exhibit A in the event of Diluting Issuances (as defined on Exhibit
A).
2.5 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 of 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.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
-----------------
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder amount computed
by multiplying the fractional interest by the fair market value of a full Share.
2.7 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
3
<PAGE>
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.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
--------------------------------------------
3.1 Representations and Warranties. The Company hereby represents
------------------------------
and warrants to the Holder as follows:
(a) Intentionally Omitted
----------------------
(b) 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 20 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 20 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 notices or other written communications 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) such other financial statements required under and in accordance with any
loan documents between Holder and the Company (or if there are no such
requirements [or if the subject loan(s) no longer are outstanding]), then 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 or, if the Shares are convertible into common
stock of the Company, such common stock, shall be subject to the registration
rights set forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
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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. The Company shall
4
<PAGE>
give Holder written notice of Holder's right to exercise this Warrant in the
form attached as Appendix 2 not more than 90 days and not less than 30 days
before the Expiration Date. If the notice is not so given, the Expiration Date
shall automatically be extended until 30 days after the date the Company
delivers the notice to Holder.
4.2 Legends. This Warrant and the Shares (and the securities
-------
issuable, directly or indirectly, upon 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 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, as reasonably
requested by 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 conversion of the Shares, if any) at any time to [City National Bank
Holding Company], or, to any other transferee 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.
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.
5
<PAGE>
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.
By: CARDIODYNAMICS INTERNATIONAL CORPORATION
Name: /s/ Michael K. Perry
-------------------------------
Title: Chief Executive Officer
--------------------------------
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<PAGE>
APPENDIX I
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.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike
one] in the manner specified in the Warrant. This conversion is exercised with
respect to
of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
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:
City National Bank
400 North Roxbury Drive
Beverly Hills, CA 90210
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.
City National Bank
By: _______________________
___________________________
(Signature)
__________________
(Date)
7
<PAGE>
APPENDIX 2
Notice that Warrant Is About to Expire
--------------------------------------
City National Bank
400 North Roxbury Drive
Beverly Hills CA 90210
Attn: Chief Financial Officer
Dear Sir or Madam:
This is to advise you that the Warrant issued to you described below will
expire on:
March 31, 2004.
Issuer: CARDIODYNAMICS INTERNATIONAL CORPORATION
Issue Date: March 31, 1999
Class of Security Issuable: Common Stock
Exercise Price per Share: $2.20
Number of Shares Issuable: 50,000
Procedure for Exercise:
Please contact [name of contact person _________________________________
at (phone number)] __________with any questions you may have concerning
exercise of the Warrant. This is your only notice of pending expiration.
_______________________________________
CARDIODYNAMICS INTERNATIONAL CORPORATION
By: _______________________________
Its: _______________________________
8
<PAGE>
EXHIBIT A
---------
Anti-Dilution Provisions
In the event of the issuance (a "Diluting Issuance") by the Company, after
the Issue Date of the Warrant, of securities at a price per share less than 80%
of the Fair Market Value (as defined in Paragraph 1.4 of the Warrant), and less
than the Warrant Price, the number of Shares issuable upon exercise of the
Warrant shall be adjusted as a result of Diluting Issuances in accordance with
the Holder's standard form of Antidilution Agreement in effect on the Issue
Date.
Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
9
<PAGE>
EXHIBIT B
---------
Registration Rights
-------------------
The Shares (if common stock), or the common stock issuable upon conversion
of 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 rights thereunder without
the consent of Holder. By acceptance of the Warrant to which this Exhibit B is
attached, Holder shall be deemed to be a party to the Agreement, unless Holder
otherwise elects not to become or to cease being a party thereto.
If no Agreement exists, then the Company and the Holder shall enter into
Holder's standard form of Registration Rights Agreement as in effect on the
Issue Date of the Warrant.
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<PAGE>
CITY NATIONAL BANK
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of March 31, 1999,
by and between City National Bank ("Purchaser") and the Company whose name
appears on the last page of this Agreement.
RECITALS
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A. Concurrently with the execution of this Agreement, the Purchaser is
purchasing from the Company a Warrant to Purchase Stock (the "Warrant") pursuant
to which Purchaser has the right to acquire from the Company the Shares (as
defined in the Warrant).
B. By this Agreement, the Purchaser and the Company desire to set forth
the registration rights of the Shares all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants
and conditions hereinafter set forth, the parties hereto mutually agree as
follows:
1. Registration Rights. The Company covenants and agrees as follows:
-------------------
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means (i) the Shares (if
Common Stock) or all shares of Common Stock of the Company issuable or issued
upon conversion of the Shares and (ii) any Common Stock of the Company issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of, any stock referred to in (i).
(c) The terms "Holder" or "Holders" means the Purchaser or
qualifying transferees under subsection 1.8 hereof who hold Registrable
Securities.
(d) The term "SEC" means the Securities and Exchange
Commission.
11
<PAGE>
1.2 Company Registration.
--------------------
(a) Registration. If at any time or from time to time, the
------------
Company shall determine to register any of its securities, for its own account
or the account of any of its shareholders, other than a registration on Form S-
I or S-8 relating solely to employee stock option or purchase plans, or a
registration on Form S-4 relating solely to an SEC Rule 145 transaction, or a
registration on any other form (other than Form S- 1, S-2, S-3 or S-18, or their
successor forms) or any successor to such forms, which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and compliance), and in
any underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within 30 days after receipt of such written
notice from the Company, by any Holder or Holders, except as set forth in
subsection 1.2(b) below.
(b) Underwriting. If the registration of which the Company
------------
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to subsection 1.2(a)(i). In such event the right of any Holder to
registration pursuant to this subsection 1.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company.
1.3 Expenses of Registration. All expenses incurred in connection
------------------------
with any registration, qualification or compliance pursuant to this Section I
including without limitation, all registration, filing and qualification fees,
printing expenses, fees and disbursements of counsel for the Company and
expenses of any special audits incidental to or required by such registration,
shall be borne by the Company except the Company shall not be required to pay
underwriters' fees, discounts or commissions relating to Registrable Securities.
All expenses of any registered offering not otherwise home by the Company shall
be borne pro rata among the Holders participating in the offering and the
Company.
1.4 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this
Registration Rights Agreement, the Company will keep each Holder participating
therein advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. Except as
otherwise provided in subsection 1.3, at its expense the Company will:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to 120 days.
12
<PAGE>
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
1.5 Indemnification.
---------------
(a) The Company will indemnify each Holder of Registrable Securities
and each of its officers, directors and partners, and each person controlling
such Holder, with respect to which such registration, qualification or
compliance has been effected pursuant to this Rights Agreement, and each
underwriter, if any, and each person who controls any underwriter of the
Registrable Securities held by or issuable to such Holder, against all claims,
losses, expenses, damages and liabilities (or actions in respect thereto)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, or any
violation or alleged violation by the Company of the Securities Act, the
Securities Exchange Act of 1934, as amended, ("Exchange Act") or any state
securities law applicable to the Company or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any such state law and relating to
action or inaction required of the Company in connection with any such
registration, qualification of compliance, and will reimburse each such Holder,
each of its officers, directors and partners, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
within a reasonable amount of time after incurred for any reasonable legal and
any other expenses incurred in connection with investigating, defending or
settling any such claim, loss, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 1.5(a) shall not apply
to amounts paid in settlement of any such claim, loss, damage, liability, or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably
13
<PAGE>
withheld); and provided further, that the Company will not be liable in any such
case to the extent that any such claim, loss, damage or liability arises out of
or is based on any untrue statement or omission based upon written information
furnished to the Company by an instrument duly executed by such Holder or
underwriter specifically for use therein.
(b) Each Holder will, if Registrable Securities held by or issuable
to such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company within the meaning of the Securities Act, and each other such
Holder, each of its officers, directors and partners and each person controlling
such Holder, against all claims, losses, expenses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such Holders, such directors, officers, partners, persons or
underwriters for any reasonable legal or any other expenses incurred in
connection with investigating, defending or settling any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder
specifically for use therein; provided, however, that the indemnity agreement
contained in this subsection 1.5(b) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Holder, (which consent shall
not be unreasonably withheld); and provided further, that the total amount for
which any Holder shall be liable under this subsection 1.5(b) shall not in any
event exceed the aggregate proceeds received by such Holder from the sale of
Registrable Securities held by such Holder in such registration.
(c) Each party entitled to indemnification under this subsection 1.5
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense; and provided further, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations hereunder, unless such failure resulted in prejudice to the
Indemnifying Party; and provided further, that an Indemnified Party (together
with all other Indemnified Parties which may be represented without conflict by
one counsel) shall have the right to retain one separate counsel, with the fees
and expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
14
<PAGE>
1.6 Information by Holder. Any Holder or Holders of Registrable
---------------------
Securities included in any registration shall promptly furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to herein.
1.7 Rule 144 Reporting. With a view to making available to Holders
------------------
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees at all times to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, after 90 days after the effective
date of the first registration filed by the Company for an offering of its
securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(c) so long as a Holder owns any Registrable Securities, to
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
by the Company as the Holder may reasonably request in complying with any rule
or regulation of the SEC allowing the Holder to sell any such securities without
registration.
1.8 Transfer of Registration Rights. Holders' rights to cause the
-------------------------------
Company to register their securities and keep information available, granted to
them by the Company under subsections 1.2 and 1.7 may be assigned to a
transferee or assignee of a Holder's Registrable Securities not sold to the
public, provided, that the Company is given written notice by such Holder at the
time of or within a reasonable time after said transfer, stating the name and
address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being assigned. The Company may
prohibit the transfer of any Holders' rights under this subsection 1.8 to any
proposed transferee or assignee who the Company reasonably believes is a
competitor of the Company.
2. General.
-------
2.1 Waivers and Amendments. With the written consent of the record
----------------------
or beneficial holders of at least a majority of the Registrable Securities, the
obligations of the Company and the rights of the Holders of the Registrable
Securities under this agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively, and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such modification, amendment or waiver shall reduce
the aforesaid percentage of Registrable Securities without the consent of all of
the Holders of the Registrable Securities. Upon the effectuation of each such
waiver, consent, agreement of amendment or modification, the Company shall
promptly give written notice thereof to the record holders of the Registrable
Securities who have not previously consented thereto in writing. This Agreement
or any provision hereof may be changed, waived,
15
<PAGE>
discharged or terminated only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, except to the extent provided in this subsection 2.1.
2.2 Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
2.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
2.4 Entire Agreement. Except as set forth below, this Agreement and
----------------
the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
2.5 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Holder, at such Holder's address as set forth below, or at
such other address as such Holder shall have furnished to the Company in
writing, or (b) if to the Company, at the Company's address set forth below, or
at such other address as the Company shall have furnished to the Holder in
writing.
2.6 Severability. In case any provision of this Agreement shall be
------------
invalid, illegal, or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement or any provision of the other
Agreement s shall not in any way be affected or impaired thereby.
2.7 Titles and Subtitles. The titles of the sections and subsections
--------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
2.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
PURCHASER COMPANY
CITY NATIONAL BANK CARDIODYNAMICS
INTERNATIONAL CORPORATION
By: /s/ Raymond Forgette By: /s/ Michael K. Perry
--------------------------------- ---------------------------------
Name: Raymond Forgette Name: Michael K. Perry
----------------------------
(print)
Title: Vice President Title: Chief Executive Officer
Address: 400 North Roxbury Drive Address: 6175 Nancy Ridge Drive #300
Beverly Hills, CA 90210 San Diego, CA 92121
CITY NATIONAL BANK
16
<PAGE>
ANTIDILUTION AGREEMENT
THIS ANTIDILUTION AGREEMENT is entered into as of March 31, 1999, by and
between City National Bank ("Purchaser") and the Company whose name appears on
the last page of this Antidilution Agreement.
RECITALS
--------
A. Concurrently with the execution of this Antidilution Agreement, the
Purchaser is purchasing from the Company a Warrant to Purchase Stock (the
"Warrant') pursuant to which Purchaser has the right to acquire from the Company
the Shares (as defined in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the Company desire
to set forth the adjustment in the number of Shares issuable upon exercise of
the Warrant as a result of a Diluting Issuance (as defined in Exhibit A to the
Warrant).
C. Capitalized terms used herein shall have the same meaning as set
forth in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. Definitions. As used in this Antidilution Agreement, the following
-----------
terms have the following respective meanings:
(a) "Option" means any right, option, or warrant to
subscribe for, purchase, or otherwise acquire common stock or Convertible
Securities.
(b) "Convertible Securities" means any evidences of
indebtedness, shares of stock, or other securities directly or indirectly
convertible into or exchangeable for common stock.
(c) "Issue" means to grant, issue, sell, assume, or fix a
record date for determining persons entitled to receive, any security (including
Options), whichever of the foregoing is the first to occur.
(d) "Additional Common Shares" means all common stock
(including reissued shares) issued (or deemed to be issued pursuant to Section
2) after the date of the Warrant. Additional Common Shares does not include,
however, any common stock issued in a transaction described in Sections 2.1 and
2.2 of the Warrant; any common stock Issued upon conversion of preferred stock
outstanding on the date of the Warrant; the Shares; or common stock Issued as
incentive or in a nonfinancing transaction to employees, officers, directors, or
consultants to the Company.
(e) The shares of common stock ultimately Issuable upon
exercise of an Option (including the shares of common stock ultimately Issuable
upon conversion or exercise of a Convertible Security Issuable pursuant to an
Option) are deemed to be Issued when the Option is Issued. The shares of common
stock ultimately Issuable upon conversion or exercise of a Convertible Security
(other than a Convertible Security Issued pursuant to an Option) shall be deemed
Issued upon Issuance of the Convertible Security.
17
<PAGE>
2. Deemed Issuance of Additional Common Shares. The shares of common
-------------------------------------------
stock ultimately Issuable upon exercise of an Option (including the shares of
common stock ultimately Issuable upon conversion or exercise of a Convertible
Security Issuable pursuant to an Option) are deemed to be Issued when the Option
is Issued. The shares of common stock ultimately Issuable upon conversion or
exercise of a Convertible Security (other than a Convertible Security Issued
pursuant to an Option) shall be deemed Issued upon Issuance of the Convertible
Security. The maximum amount of common stock Issuable is determined without
regard to any future adjustments permitted under the instrument creating the
Options or Convertible Securities.
3. Adjustment of Warrant Price for Diluting Issuances.
--------------------------------------------------
3.1 Weighted Average Adjustment. If the Company issues Additional
---------------------------
Common Shares after the date of the Warrant and the consideration per Additional
Common Share (determined pursuant to Section 9) is less than 80% of the Fair
Market Value and less than the Warrant Price in effect immediately before such
Issue, the Warrant Price shall be reduced, concurrently with such Issue, to the
lesser of 125% of Fair Market Value (as defined in Paragraph 1.4 of the Warrant
Agreement), or a price (calculated to the nearest hundredth of a cent)
determined by multiplying the Warrant Price by a fraction:
(a) the numerator of which is the amount of such common stock
outstanding immediately before such Issue plus the amount of common stock that
the aggregate consideration received by the Company for the Additional Common
Shares would purchase at the Warrant Price in effect immediately before such
Issue, and
(b) the denominator of which is the amount of common stock
outstanding immediately before such Issue plus the number of such Additional
Common Shares.
(c) If the amount of any adjustment calculated according to this
section (3.1) is less than $.01 per share, no adjustment shall be made, not
withstanding anything to the contrary in said section.
3.2 Adjustment of Number of Shares. Upon each adjustment of the
------------------------------
Warrant Price, the number of Shares issuable upon exercise of the Warrant shall
be increased to equal the quotient obtained by dividing (a) the product
resulting from multiplying (i) the number of Shares issuable upon exercise of
the Warrant and (ii) the Warrant Price, in each case as in effect immediately
before such adjustment, by (b) the adjusted Warrant Price.
3.3 Securities Deemed Outstanding. For the purpose of this Section
-----------------------------
3, all securities issuable upon exercise of any outstanding Convertible
Securities or Options, warrants, or other rights to acquire securities of the
Company shall be deemed to be outstanding.
4. No Adjustment for Issuances Following Deemed Issuances. No
------------------------------------------------------
adjustment to the Warrant Price shall be made upon the exercise of Options or
conversion of Convertible Securities.
5. Adjustment Following Changes in Terms of Options or Convertible
---------------------------------------------------------------
Securities. If the consideration payable to, or the amount of common stock
- ----------
Issuable by, the Company increases or decreases, respectively, pursuant to the
terms of any outstanding Options or Convertible Securities, the Warrant Price
shall be recomputed to reflect such increase or decrease. The recomputation
shall be made as of the time of the Issuance of the Options or Convertible
Securities. Any changes in the Warrant Price that occurred after such Issuance
because other Additional Common Shares were Issued or deemed Issued shall also
be recomputed.
18
<PAGE>
6. Recomputation Upon Registration of Options or Convertible Securities.
--------------------------------------------------------------------
The Warrant Price computed upon the original Issue of any Options or Convertible
Securities, and any subsequent adjustments based thereon, shall be recomputed
when any Options or rights of conversion under Convertible Securities expire
without having been exercised. In the case of Convertible Securities or
Options for common stock, the Warrant Price shall be recomputed as if the only
Additional Common Shares Issued were the shares of common stock actually Issued
upon the exercise of such securities, if any, and as if the only consideration
received therefor was the consideration actually received upon the Issue,
exercise or conversion of the Options or Convertible Securities. In the case of
Options for Convertible Securities, the Warrant Price shall be recomputed as if
the only Convertible Securities Issued were the Convertible Securities actually
Issued upon the exercise thereof, if any, and as if the only consideration
received therefor was the consideration actually received by the Company
(determined pursuant to Section 9), if any, upon the Issue of the Options for
the Convertible Securities.
7. Limit on Readjustment. No readjustment of the Warrant Price pursuant
---------------------
to Sections 5 or 6 shall increase the Warrant Price more than the amount of any
decrease made in respect of the Issue of any Options or Convertible Securities.
8. 30 Day Options. In the case of any Options that expire by their terms
--------------
not more than 30 days after the date of Issue thereof, no adjustment of the
Warrant Price shall be made until the expiration or exercise of all such
Options.
9. Computation of Consideration. The consideration received by the
----------------------------
Company for the Issue of any Additional Common Shares shall be computed as
follows:
(a) Cash. Shall be valued at the amount of cash received by the
----
Corporation, excluding amounts paid or payable for accrued interest or accrued
dividends.
(b) Property. Property other than cash shall be computed at the
--------
fair market value thereof at the time of the Issue as determined in good faith
by the Board of Directors of the Company.
(c) Mixed Consideration. The consideration for Additional Common
-------------------
Shares Issued together with other property of the Company for consideration that
covers both shall be determined in good faith by the Board of Directors.
(d) Options and Convertible Securities. The consideration per
----------------------------------
Additional Common Share for Options and Convertible Securities shall be
determined by dividing:
(i) the total amount, if any, received or receivable by the
Company for the Issue of the Options or Convertible Securities, plus the minimum
amount of additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such consideration) payable to the Company upon exercise of the
Options or conversion of the Convertible Securities, by
(ii) the maximum amount of common stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number) ultimately Issuable upon the
exercise of such Options or the conversion of such Convertible Securities.
10. General.
-------
19
<PAGE>
10.1 Governing Law. This Antidilution Agreement shall be governed in
-------------
all respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
10.2 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
10.3 Entire Agreement. Except as set forth below, this Antidilution
----------------
Agreement and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
10.4 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Purchaser at Purchaser's address as set forth below, or at
such other address as Purchaser shall have furnished to the Company in writing,
or (b) if to the Company, at the Company's address set forth below, or at such
other address as the Company shall have furnished to the Purchaser in writing.
10.5 Severability. In case any provision of this Antidilution
------------
Agreement shall be invalid, illegal, or unenforceable, the validity, legality
and enforceability of the remaining provisions of this Antidilution Agreement
shall not in any way be affected or impaired thereby.
10.6 Titles and Subtitles. The titles of the sections and
--------------------
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Antidilution Agreement.
10.7 Counterparts. This Antidilution Agreement may be executed in
------------
any number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
PURCHASER COMPANY
CITY NATIONAL BANK CARDIODYNAMICS
INTERNATIONAL CORPORATION
By: /s/ Raymond Forgette By: /s/ Michael K. Perry
-------------------------- --------------------------
Name: Raymond Forgette Name: Michael K. Perry
Title: Vice President Title: Chief Executive Officer
Address: 400 North Roxbury Drive Address: 6175 Nancy Ridge Drive #300
San Diego, CA 92121
20
<PAGE>
EXHIBIT 10.3
COMMON STOCK SUBSCRIPTION AGREEMENT
THIS COMMON STOCK SUBSCRIPTION AGREEMENT (this "Agreement") is entered into
as of the date set forth on the last page of this Agreement (the "Signature
Page) by and between the purchaser identified on the Signature Page (the
"Purchaser") and CARDIODYNAMICS INTERNATIONAL CORPORATION, a California
corporation (the "Company"), with reference to the following facts:
A. The Purchaser has agreed to purchase at a price of $1.00 per share the
number of shares of Common Stock of the Company set forth on the Signature Page
(the "Shares") for an aggregate purchase price also set forth on the Signature
Page (the "Aggregate Purchase Price").
B. The parties are entering into this Agreement to reflect the terms and
conditions of the Purchaser's investment in the Company represented by the
Shares.
NOW, THEREFORE, in respect of the foregoing premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. SUBSCRIPTION
------------
a. The Purchaser hereby agrees to subscribe for and to purchase the
Shares (the "Subscription") in exchange for the Purchase Price (which shall be
paid in United States dollars) on or before Friday, May 28, 1999.
b. Upon the Company's acceptance of this Subscription in its sole
discretion and receipt of immediately available funds representing the Purchase
Price, the Company shall issue to the Purchaser an appropriate share certificate
representing the Shares.
2. REPRESENTATIONS AND WARRANTIES
------------------------------
The Purchaser hereby represents and warrants to the Company as follows:
a. The Purchaser has full capacity, power and authority to execute and
deliver this Agreement.
b. Without limiting the terms of the investment representations set forth
below, the Purchaser represents that the Purchaser has:
(i) had an opportunity to ask questions and receive answers from the
Company and its officers and directors regarding matters relevant to
the Company and an investment therein (e.g., as represented by the
Subscription); and
<PAGE>
(ii) further, had the opportunity to obtain any and all publicly available
information which the Purchaser deems necessary to evaluate the
Company and the investment represented by the Subscription as well as
to verify the accuracy of information otherwise provided to the
Purchaser.
c. The Purchaser is experienced in making investments in unregistered and
restricted securities. The Purchaser has such knowledge and experience in
financial and business matters that the Purchaser is capable of evaluating the
merits and risks of the investment in the Company represented by the
Subscription and, by reason of the Purchaser's financial and business
experience, the Purchaser has the capacity to protect the Purchaser's interest
in connection with the Subscription.
d. The Purchaser has either (i) a preexisting personal or business
relationship with the Company or one or more of its officers, directors or
control persons or (ii) by reason of the Purchaser's business or financial
experience, the Purchaser is capable of evaluating the risks and merits of the
investment represented by the Subscription and of protecting the Purchaser's own
interests in connection with such investment.
e. The Purchaser is an "accredited investor" as that term is defined in
Rule 501 promulgated under the Securities Act of 1933, as amended (the "Act").
f. The Shares are being acquired by the Purchaser (i) solely for
investment purposes, (ii) for the Purchaser's own account only and (iii) not for
sale, transfer or with a view to any distribution of all or any part of such
Shares. No other person will have any direct or indirect beneficial interest in
the Shares.
3. UNDERSTANDINGS AND ACKNOWLEDGEMENTS
-----------------------------------
a. The Purchaser acknowledges that the Shares have not been registered
under the Act or qualified under the California Corporate Securities Law of
1968, as amended, or any other applicable blue sky laws in reliance, in part, on
the representations and warranties herein.
b. The Purchaser understands that (i) the Shares are restricted
securities under the federal securities laws (e.g., the Act) insofar as the
Shares will be acquired from the Company in a transaction not involving a public
offering, (ii) under such laws and applicable regulations, the Shares may be
resold without registration under the Act only in certain limited circumstances
and (iii) in the absence of registration under the Act, the Shares must be held
indefinitely. The Purchaser understands the resale limitations imposed by the
Act and is familiar with Rule 144 under the Act, as presently in effect, and the
conditions which must be met in order for Rule 144 to be available with respect
to the resale of restricted securities.
2
<PAGE>
c. The Purchaser understands that any certificates evidencing the Shares
may bear one or all of the following legends:
(i) THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF
COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SUCH ACT.
(ii) Any legend required by applicable state securities laws.
4. COVENANTS
---------
a. Without in any way limiting the representations set forth above, the
Purchaser further agrees not to make any disposition of all or any portion of
the Shares purchased hereunder unless and until:
(i) There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in
accordance with such registration statement and any applicable
requirements of state securities laws; or
(ii) The Purchaser shall have (1) notified the Company of the proposed
disposition, (2) furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition and (3)
furnished the Company with a written opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require
registration of any securities under the Act or the consent of (or a
permit from) any authority under any applicable state securities laws.
The Purchaser understands that the Company will not require opinions of counsel
for transactions made pursuant to Rule 144 under the Act provided that the
Company receives all certificates and other information it may reasonably
request to permit it to determine that the subject disposition is, in fact,
exempt from the registration requirements of the Act pursuant to Rule 144.
b. In the case of any disposition of any Shares pursuant to Rule 144
under the Act, then in addition to the matters set forth in paragraph 4(a)(ii)
above, the Purchaser shall promptly forward to the Company a copy of any Form
144 filed with the Securities and Exchange Commission (the "SEC") with respect
to such disposition and a letter from the executing broker satisfactory to the
Company evidencing compliance with Rule 144. If Rule 144 is amended or if the
SEC's interpretations thereof in effect at the time of any such disposition by
the Purchaser have changed from the SEC's present interpretations thereof, the
Purchaser shall provide the Company with such additional documents as the
Company may reasonably require.
3
<PAGE>
5. PRICE RESET
-----------
a. On November 30, 1999, the Company shall determine the average closing
price for the shares of Common Stock of the Company for the month of November
1999 (the "Average Closing Price"). If the Average Closing Price is less than
$1.00, the Company shall promptly issue to Purchaser hereunder without payment
of additional consideration therefor a number of additional shares of Common
Stock of the Company (the "Reset Shares") equal to the Aggregate Purchase Price
as shown on the Signature Page divided by the Average Closing Price less the
Shares Purchased as shown on the Signature Page. By way of example, if the
Average Closing Price is $0.80 and the Purchaser has purchased 100,000 Shares
for an Aggregate Purchase Price of $100,000, then the Company shall issue to
Purchaser an additional 25,000 Reset Shares calculated as follows: $100,000
divided by $0.80 equals 125,000 less 100,000 equals 25,000 Reset Share.
b. The additional shares of Common Stock of the Company, if any, issued
hereunder shall be subject to the restrictions, limitations and conditions
imposed upon the Shares issued upon the initial subscription under this
Agreement.
6. REGISTRATION RIGHTS
-------------------
a. On or before November 30, 1999, the Company at its expense shall file
with the SEC a Registration Statement on Form S-3 (the "Registration Statement")
under the Act registering for resale by Purchaser, and all other Purchasers
under similar Agreements, the Shares and the Reset Shares, if any. The Company
shall use its reasonable best efforts to cause the Registration Statement to be
declared effective and to remain in effect until May 28, 2001 or until all the
Shares and Reset Shares included within the Registration Statement have been
sold by the Purchaser and all other Purchasers under similar Agreements or may
be sold pursuant to Rule 144, whichever shall first occur.
b. In connection with the filing of the Registration Statement, the
Company shall indemnify the Purchaser against any liability under the Act for
the information concerning the Company contained in the Registration Statement
or incorporated by reference therein and shall at its expense make available to
Purchaser such number of copies of the prospectus constituting a part of the
Registration Statement as is reasonably necessary to allow Purchaser to resell
the Shares and the Reset Shares.
7. MISCELLANEOUS
-------------
a. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of California (without regard to the conflicts of
law principles thereof).
b. This Agreement embodies the entire understanding between the parties
and supersedes any prior understandings, agreements and arrangements between the
parties respecting the subject matter hereof. There are no representations,
warranties, agreements, arrangements or understandings, oral or written, between
the parties hereto relating to the subject matter of this Agreement which are
not fully expressed herein.
4
<PAGE>
c. This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. The execution and delivery of signatures for this Agreement may
occur via telecopy, and such telecopied Signature Pages shall have the force and
effect of original signature pages.
IN WITNESS WHEREOF, the Purchaser has executed this Agreement as of May
___, 1999.
____________________________________
(Signature of Purchaser)
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
(Name, Address and Tax I.D. Number)
Number of Shares Purchased:_________
Aggregate Purchase Price: $_________
The Company hereby accepts the foregoing subscription and has executed this
Agreement as of May ___, 1999.
CARDIODYNAMICS INTERNATIONAL
CORPORATION, a California
corporation
By: ________________________________
Name:_______________________________
Title:______________________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTER
ENDED MAY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 5,393,990
<SECURITIES> 0
<RECEIVABLES> 2,091,948
<ALLOWANCES> 84,927
<INVENTORY> 1,259,182
<CURRENT-ASSETS> 8,758,191
<PP&E> 475,450
<DEPRECIATION> 219,183
<TOTAL-ASSETS> 9,056,223
<CURRENT-LIABILITIES> 2,485,588
<BONDS> 0
0
1,647,226
<COMMON> 21,203,490
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,056,223
<SALES> 1,528,481
<TOTAL-REVENUES> 1,528,481
<CGS> 558,327
<TOTAL-COSTS> 1,675,165
<OTHER-EXPENSES> 413
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,907
<INCOME-PRETAX> (781,331)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (781,331)
<EPS-BASIC> (.02)
<EPS-DILUTED> 0
</TABLE>
