SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
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Check the appropriate box:
/ / Preliminary Proxy Statement
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/ / Definitive Additional Materials
/ / Soliciting material Pursuant to Rule
14a-11(c) or Rule 14a-12
CARDIODYNAMICS INTERNATIONAL CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules
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calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
6155 Cornerstone Court East, Suite 125
San Diego, CA 92121
July 10, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders of CardioDynamics International Corporation which
will be held at the Del Mar Country Club, 6001 Clubhouse Drive,
Rancho Santa Fe, California, on Wednesday, July 30, 1997 at 10:00
a.m.
Additional details relating to the business to be conducted at
the Annual Meeting are given in the attached Notice of Annual
Meeting of Shareholders and Proxy Statement.
In order for us to have an efficient meeting, please promptly sign,
date and return the enclosed proxy in the accompanying reply
envelope. If you are able to attend the Annual Meeting and wish
to change your proxy vote, you may do so simply by voting in
person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
On behalf of the Board of Directors,
Richard E. Otto
DIRECTOR AND CHIEF EXECUTIVE OFFICER
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are requested to
complete, sign and date the enclosed proxy as promptly as possible and return it
in the enclosed envelope. No postage need be affixed if mailed in the United
States.
CARDIODYNAMICS INTERNATIONAL CORPORATION
6155 CORNERSTONE COURT EAST, SUITE 125
SAN DIEGO, CA 92121
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 30, 1997
The Annual Meeting of Shareholders of CardioDynamics International Corporation,
a California corporation (the "Company"), will be held at the Del Mar Country
Club, 6001 Clubhouse Drive, Rancho Santa Fe, California 92067, on Wednesday,
July 30, 1997 at 10:00 a.m., to consider and act upon the following matters:
1. To vote upon the proposed Amendment of the Company's Bylaws to change the
authorized number of Directors from a range of six to nine to a range of
six to eleven, with the exact number of Directors to initially be fixed at
nine.
2. To elect a Board of Directors for the following year: Management has
nominated the following persons for election at the meeting: Stephenson M.
Dechant, Nicholas V. Diaco, Louis P. Ferrero, Cam L. Garner, James C.
Gilstrap, Richard O. Martin, Richard E. Otto, Michael D. Padilla, and Allen E.
Paulson.
3. To consider and act upon a proposal to amend the 1995 Stock Option/Stock
Issuance Plan to increase the number of shares reserved for issuance
thereunder from 1,529,000 shares to 2,529,000, to delete therefrom the
restrictions on discretionary grants to Directors of the Company, and to
allow the Plan to be administered either by the full Board of Directors or
by a Board Committee.
4. To consider and act upon the proposed Amendments to the Company's articles
of incorporation to mandatorily and automatically convert the outstanding
shares of Preferred Stock into the same number of shares of Common Stock
and eliminate from the articles of incorporation all reference to Preferred
Stock.
5. To ratify the selection of KPMG Peat Marwick LLP as the independent
accountants for the fiscal year ending November 30, 1997.
And to transact any other business which may properly come before the
meeting or any postponement(s) or adjournment(s) thereof. Management has
no information of any such other matters.
Shareholders of record at the close of business on June 1, 1997 will be
entitled to vote at the Annual Meeting. A list of shareholders entitled to
vote at the Meeting is available for inspection at the offices of the
Company. Whether or not you plan to attend the meeting in person, please
sign, date and return the enclosed proxy in the reply envelope provided.
If you attend the Meeting and vote by ballot, your proxy will be revoked
automatically and only your vote at the meeting will be counted. The
prompt return of your proxy will assist us in preparing for the Meeting.
By Order of the Board of Directors
Dated: July 10, 1997 Richard E. Otto,
DIRECTOR AND CHIEF EXECUTIVE OFFICER
CARDIODYNAMICS INTERNATIONAL CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 30, 1997
These proxy materials are being mailed in connection with the solicitation
of proxies by the Board of Directors of CardioDynamics International
Corporation, a California corporation (the "Company"), for the Annual
Meeting of Shareholders to be held at the Del Mar Country Club, 6001
Clubhouse Drive, Rancho Santa Fe, California at 10:00 a.m. on July 30, 1997
and at any adjournment or postponement of the Annual Meeting. These proxy
materials were first mailed to shareholders of record beginning on
approximately July 10, 1997.
The address of the principal executive office of the Company is 6155
Cornerstone Court East, Suite 125, San Diego, California 92121.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Shareholders. Each proposal is described in more detail in this Proxy
Statement.
VOTING RIGHTS AND SOLICITATION
Any shareholder executing a proxy has the power to revoke it at any time
before it is voted by delivering written notice of such revocation to the
Secretary of the Company before the Annual Meeting or by properly executing
and delivering a proxy bearing a later date. Proxies may also be revoked
by any shareholder present at the Annual Meeting who elects to vote his
shares in person. The cost of soliciting proxies will be paid by the
Company and may include reimbursement paid to brokerage firms and others
for their expense in forwarding solicitation material. Solicitation will
be made primarily through the use of the mail but regular employees of the
Company may, without additional remuneration, solicit proxies personally by
telephone or telegram.
The record date for determining those shareholders who are entitled to
notice of, and to vote at, the Annual Meeting has been fixed as June 1,
1997. At the close of business on the record date, the Company had
31,872,628 outstanding shares of Common Stock (the "Common Stock") and
183,115 outstanding shares of Preferred Stock (the "Preferred Stock").
Each share of Common Stock and Preferred Stock is entitled to one vote on
matters brought before the Annual Meeting. In voting for Directors, each
shareholder has the right to cumulate his votes and give one nominee a
number of votes equal to the number of Directors to be elected multiplied
by the number of shares he holds, or to distribute his votes on the same
principle among the nominees to be elected in such manner as he may see
fit. A shareholder may cumulate his votes, however, only if his candidate
or candidates have been placed in nomination prior to the voting and if any
shareholder gives notice at the Annual Meeting prior to the voting of that
shareholder's intention to cumulate his votes. The persons named in the
enclosed proxy card may or may not elect to give such notice and vote the
shares they represent in such a manner. The shares represented by the
proxy will be voted at the Annual Meeting and will be voted by the proxy
holder as specified by the person solicited.
California statutes and case law do not give specific instructions
regarding the treatment of abstentions and broker non-votes for
corporations such as the Company on matters which require the affirmative
vote of a majority of the shares represented and voting at the Annual
Meeting; however, the Company believes that California law provides that if
shares are represented and vote on any issue at a shareholder meeting their
failure to vote yes on any other issue (through either abstention or a
broker non-vote) has the same effect as a negative vote on that other
issue. On matters which require the affirmative vote of a majority of the
outstanding shares, abstentions and broker non-votes certainly have the
same effect as a negative vote.
PROPOSAL 1
AMENDMENT OF BYLAWS
The Company's Bylaws currently provide for a Board of Directors of a
variable size ranging from a total of six Directors to a total of nine
Directors with the exact number to be set from time to time by the Board of
Directors. The number of Directors is currently set at nine. The Company
believes that it is in its best interest to amend the Bylaws to provide for
a variable Board ranging from six to eleven Directors, with the exact
number to be set from time to time by the Board of Directors. Under
California law, such an amendment can only be adopted by shareholders. The
number of Directors would initially be set at nine. The amendment would
provide the Board with the flexibility to add additional qualified
individuals to the Board of Directors. These additional Directors may be
either "outside" Directors or employees of the Company. However, it is the
Company's intent to have a majority of its Directors continue to be
non-employees of the Company.
The affirmative vote of a majority of the outstanding shares entitled to
vote will be required under California law to approve the amendment to the
Company's Bylaws.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT OF THE BYLAWS.
PROPOSAL 2
ELECTION OF DIRECTORS
The nine individuals listed below have been nominated for election to the Board.
Unless individual shareholders specify otherwise, each returned proxy will be
voted for the election of the nominees of the Board of Directors who are
listed herein, such votes to be distributed among such nominees in the manner
as the persons named in the enclosed proxy card see fit.
If, however, any of those named are unable to serve, or for good cause
decline to serve at the time of the Annual Meeting, the persons named in the
enclosed proxy will exercise discretionary authority to vote for substitutes.
The Board of Directors is not aware of any circumstances that would render
any nominee unavailable for election. Discretionary authority to cumulate
votes is being solicited by the Board of Directors, and it is intended that
the proxies received by the proxy holders pursuant to the solicitation will
be voted in a manner designed to cause the election of the maximum number of
the Board of Directors' nominees. The following schedule sets forth certain
information concerning the nominees for election as Directors.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED
HEREIN.
First Year
Elected
Name Director Age
- --------------------------- -------- ---
Stephenson M. Dechant 1995 41
Nicholas V. Diaco, M.D. 1995 58
Louis P. Ferrero (1) 53
Cam L. Garner (1) 49
James C. Gilstrap 1995 61
Richard O. Martin (1) 57
Richard E. Otto 1996 47
Michael D. Padilla 1995 48
Allen E. Paulson 1995 75
- --------------------------------------------------------------------------------
(1) Initial Nomination
STEPHENSON M. DECHANT. Mr. Dechant has been the Secretary and a Director of
the Company since February 1995 and served as Chief Financial Officer of the
Company from February 1995 to March 1997. Mr. Dechant has been Chief
Financial Officer for many of Allen Paulson's companies since 1992. His
previous experience involves over 15 years in financial management and
reporting for high net worth individuals and companies primarily involved in
the food industry, including Dole Fresh Fruit and Chart House Enterprises.
Mr. Dechant graduated from the University of Southern California with a
Bachelor of Science in Business Administration and from the University of San
Diego with a Masters in Business Administration.
NICHOLAS V. DIACO, M.D. Dr. Diaco has served as a Director of the Company
since February 1995 and also serves as Chairman of the Company's Medical
Advisory Board. Currently, he is the Director of the Coronary Care Unit and
the Heart Catheterization Laboratory at St. John's Hospital and Health Center
in Santa Monica, California. Dr. Diaco has practiced cardiology for over 25
years. He is a Fellow of the American College of Cardiology and is board
certified in Cardiovascular Disease. He serves as a Clinical Assistant
Professor of Medicine at the University of California, Los Angeles. Dr.
Diaco was a chief of internal medicine in the U.S. Air Force and has
published numerous articles on the effects of exercise on the heart. He
received his M.D. with honors from Hahnemann Medical College and Hospital in
Pennsylvania.
LOUIS P. FERRERO. Mr. Ferrero has been Chairman and Chief Executive Officer
since 1988 of Conseco Global Investments, an investment company which
identifies for Conseco, a major insurance holding company, the emerging
investment opportunities for Conseco around the world, with a special
emphasis on the Far East. Mr. Ferrero is the former Chairman and Chief
Executive Officer of Anacomp, Inc., a full-service provider of computer and
micrographics equipment, service and supplies. Prior to that, Mr. Ferrero
was a Partner and President of General Micrographics in Atlanta, Georgia.
Mr. Ferrero serves as a member of the Boards of Directors of Latigue Media
Systems and the Buckhead Coalition. Mr. Ferrero graduated from the
University of Florida with a degree in Economics and Marketing.
CAM L. GARNER. Mr. Garner has been Chairman, President and Chief Executive
Officer of Dura Pharmaceuticals, Inc. a respiratory products company, since
1990. Mr. Garner is a Director of three other public companies; Trega
Biosciences, Inc., Safeskin Corporation and Spiros Development Corporation.
Before joining Dura Pharmaceuticals, Mr. Garner was Senior Vice President of
Sales and Marketing with Hybritech, a division of Eli Lilly & Co., which
develops monoclonal antibodies for use in diagnostic and pharmaceutical
products. Prior to that, Garner was President of Syntro Corp., a company
applying biotechnology to the development of human healthcare products and
animal vaccines. Mr. Garner also held several management positions of
increasing responsibility at Corning Glass Works and its subsidiary Gilford,
Inc., a manufacturer of biomedical research products and clinical
diagnostics. Mr. Garner earned his Master's Degree in Business
Administration from Baldwin-Wallace College in Berea, Ohio, and his Bachelor
of Arts degree in biology from Virginia Wesleyn.
JAMES C. GILSTRAP. Mr. Gilstrap served as Chairman of the Board of the
Company from February 1995 to June 1996, and has been Co-Chairman of the
Board since June 1996. Mr. Gilstrap is retired from Jefferies & Company,
where he served as Senior Executive Vice President, Partner, and Member of the
Executive Committee. Mr. Gilstrap is past President of the Dallas Securities
Dealers as well as a past member of the Board of Governors of the National
Association of Securities Dealers, Inc.
RICHARD O. MARTIN Ph.D., Dr. Martin has been Chairman and Chief Executive
Officer of Physio-Control Corporation since March, 1997 where he has held the
positions of President and Chief Executive Officer since 1991. Physio-Control
is a medical device company which designs, manufactures and sells a complete
line of external defibrillators, heart monitors and pacing systems. Dr.
Martin serves on the Boards of three other public companies: Maxim Medical
Inc., SeaMed Inc., and Encore Medical. Before joining Physio-Control, Dr.
Martin was Vice President of Cardiovascular Business Development with
Sulzermedica. Prior to that, Dr. Martin was a Director, President and Chief
Operating Officer of Positron Corporation. Dr. Martin also held several
management positions of increasing responsibility at Intermedics, Inc. and
before that he worked with Medtronic, Inc. Dr. Martin earned his Ph.D. in
Electrical/Biomedical Engineering at Duke University, his Master's Degree in
Electrical Engineering from Notre Dame University, and his Bachelor of
Science Degree in Electrical Engineering from Christian Brothers College in
Memphis, Tennessee. Dr. Martin serves as Chairman of the Board of Directors
for the Medical Device Manufacturers Association.
RICHARD E. OTTO. Mr. Otto joined the Company in June 1995 as President and
Chief Executive Officer and has been a Director since June 1996. In June
1997 the title of President was given to Rhonda F. Pederson. Mr. Otto has
more than 26 years of healthcare experience including as an entrepreneurial
executive in the identification, development and distribution of high
technology devices for the cardiology and cardiovascular markets. From
September 1987 to May 1994, Mr. Otto was with Sensor Technology, Inc., a
privately held medical distributor company, of which he was a founder. In
1994, the company was sold to a division of Eli Lilly and Company. Prior to
that time, Mr. Otto held positions with Medtronic, Inc., Cardiac Pacemakers,
Inc., Intermedics, Inc. and Eli Lilly & Co. Mr. Otto holds a Bachelor of
Science degree from the University of Georgia and serves on the Boards of
Directors of the Georgia Chapter of the Leukemia Society, the College
Football Hall of Fame Foundation, and the University of Georgia Student
Educational Fund.
MICHAEL D. PADILLA. Mr. Padilla has served as a Director of the Company
since 1995. Mr. Padilla is a partner with the law firm Thorsnes, Bartolotta,
McGuire & Padilla. He has practiced law in San Diego since 1972,
specializing in personal injury, product liability and medical malpractice
litigation. He is a member of the Consumer Attorney associations in both
California and the local branch in San Diego. Mr. Padilla received his JD
from University of San Diego School of Law.
ALLEN E. PAULSON. Mr. Paulson has been Co-Chairman of the Board since June
1996 and Director since February 1995. Mr. Paulson owns numerous companies
having substantial investments in diverse industries, including aircraft;
energy exploration; horse breeding, training, and racing; automobile
dealerships; gaming and entertainment; and real estate and resorts. Mr.
Paulson is the founder and Chairman Emeritus of Gulfstream Aerospace
Corporation, the world's leading designer, manufacturer and marketer of large
corporate jets. He has earned numerous awards including the Horatio Alger
Award for Distinguished Americans, the American Academy of Achievement's
Golden Plate Award, as well as five honorary doctorates.
The terms of office of incumbent Directors William P. Cordeiro, Roger S.
Kolasinski and Barry M. Zwick are scheduled to end at the Annual Meeting.
BOARD MEETINGS AND COMMITTEES
The Company's Board of Directors held seven meetings during the fiscal
year ended November 30, 1996. Each incumbent Director attended at
least 75% of the aggregate of the total meetings of the Board and of
all his Board committees held during the period in which he served as
a director. Each director who is not an employee of the Company
automatically receives each month a 1,000-share stock option for his
services as a director, pursuant to the 1995 Stock Option/Stock
Issuance Plan.
The Board of Directors has established a standing Compensation
Committee composed of Messrs. Zwick, Dechant and Gilstrap. The
Compensation Committee reviews and acts on matters relating to
compensation levels and benefit plans for executive officers and key
employees of the Company. The Committee held 5 meetings during the
fiscal year ended November 30, 1996.
On February 10, 1997, the Board of Directors established a standing
Audit Committee composed of Messrs. Gilstrap, Dechant and Cordeiro.
The Audit Committee reviews all matters relating to oversight of the
Company's internal control structure, selection of the independent
auditors and oversight of the Company's financial reporting. Prior to
the formation of the Audit Committee, all matters relating to internal
controls and financial audits were considered at meetings of the full
Board of Directors.
PROPOSAL 3
AMENDMENTS TO 1995 STOCK OPTION/STOCK ISSUANCE PLAN
PURPOSE
The Company's 1995 Stock Option/Stock Issuance Plan (the "Plan")
provides for the issuance of incentive stock options (i.e., options
under Section 422 of the Internal Revenue Code) and non-qualified
stock options to officers, Directors, key employees, independent
contractors and consultants of the Company.
On June 10, 1997, the Board of Directors approved, subject to approval by
the shareholders, an increase in the number of shares reserved for issuance
under the Plan from 1,529,000 to 2,529,000. The purpose of increasing the
number of shares reserved for issuance under the Plan is to permit the
Company to continue to attract and retain officers, Directors, key
employees, independent contractors and consultants of ability and
experience by providing them with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Company
as an incentive for them to remain in the service of the Company. As of
June 15, 1997, options for 1,210,000 shares were outstanding under the
Plan.
As originally adopted, the Plan provided that stock options to purchase
shares to Common Stock may be granted under the Discretionary Option Grant
Program, and stock issuances may be made under the Stock Issuance Program,
to officers, employees, consultants and independent contractors, but not to
Directors unless the Plan was then administered by a committee consisting
entirely of non-employee Directors who had received no discretionary stock
options or stock issuances during or within one year before their service
on the committee. This restriction was linked to a SEC regulation which
has since been revised. The Plan also originally provided that it must be
administered by a Board committee, which limitation has become undesirable
since the change in the SEC regulation.
To improve flexibility and in order to attract and retain experienced and
competent Directors without paying cash compensation for services rendered
to the Company, on June 10, 1997 the Board of Directors also approved,
subject to approval by the shareholders, amendments to the Plan to (i)
allow discretionary grants to Directors without the previous special
limitation, and (ii) allow the Plan to be administered either by the full
Board of Directors or by a Board committee.
Approval of the amendments by the shareholders is necessary under the terms
of the Plan and under certain applicable regulations. A summary of the
Plan as in effect before such amendments is set forth below:
STRUCTURE OF THE PLAN
The Plan is divided into three separate equity programs: (1) the
Discretionary Option Grant Program under which officers, employees,
consultants and independent contractors may, at the discretion of the Plan
Administrator, be granted non-qualified or incentive stock options to
purchase shares of Common Stock of the Company; (2) the Stock Issuance
Program under which officers, employees, consultants and independent
contractors may, at the discretion of the Plan Administrator, be issued
shares of Common Stock of the Company directly, either through the
immediate purchase of such shares or as a bonus for services rendered; and
(3) the Automatic Option Grant Program under which non-employee Directors
automatically receive monthly grants of options to purchase Common Stock of
the Company.
ADMINISTRATION OF THE PLAN
The Plan is administered by a compensation committee consisting of two or
more Board members who assume full responsibility for the administration of
the Plan (the "Plan Administrator"). Members of such compensation committee
serve for such period of time as the Board may determine and are subject to
removal by the Board at any time.
The Plan Administrator has the sole and exclusive authority, subject to the
provisions of the Plan, to determine the eligible individuals who are to
receive options under the Discretionary Option Grant Program or the Stock
Issuance Program, the number of shares to be covered by each granted option
or issuance, the date or dates on which the option is to become exercisable
and the maximum term for which the option is to remain outstanding. The
Plan Administrator also has the authority to determine whether the granted
option is to be an incentive stock option under the Federal tax laws and to
establish rules and regulations for proper plan administration. Options
grants under the Automatic Option Grant Program are made in strict
compliance with theexpress provisions of that program, and the Plan
Administrator does not have any discretionary authority with respect to
those option grants.
ISSUABLE SHARES
As originally adopted, the Plan provided for the issuance of 1,529,000
shares of Common Stock over the ten-year term of the Plan. The share
reserve available for issuance under the Plan is subject to periodic
adjustment for changes in the Company's Common Stock occasioned by stock
splits, stock dividends, recapitalization, conversions or other changes
affecting the outstanding Common Stock as a class without the Company's
receipt of consideration.
Should an option expire or terminate for any reason prior to exercise in
full (including options canceled in accordance with the
cancellation-regrant provisions described below), the shares subject to the
portion of the option not so exercised will be available for subsequent
option grants or share issuances under the Plan. Shares subject to any
option surrendered or canceled in accordance with the stock appreciation
right provisions of the Plan and all shares issued under the Plan, whether
or not such shares are subsequently reacquired by the Company pursuant to
its repurchase rights under the Plan, will reduce on a share-for-share
basis the number of shares of Company Common Stock available for subsequent
grants. No more than 800,000 shares may be issued to any one
optionee/grantee over the lifetime of the Plan.
IDENTITY OF BENEFICIARIES
It is not known how many options under the Plan will be received by named
executive officers, current executive officers, non-officer Directors,
employees, their associates, or any other group. The maximum number of
options to be granted to Directors each year under the Automatic Option
Grant Program (assuming a Board of 10) is 120,000. The fair market value of
a share of Company Common Stock on June 10, 1997 was $3.25.
The Company currently has 32 employees, an unknown number of consultants
and independent contractors who might be selected to receive stock options
or direct issuances, and eight non-employee Directors.
TERMS OF DISCRETIONARY OPTION GRANT PROGRAM
OPTION PRICE AND TERM. The option price per share for incentive stock
options will not be less than 100% of the fair market value of each share
of Company Common Stock issuable under the option on the grant date of such
option. The option price per share for non-statutory stock options may not
be less than 85% of the fair market value per share of each share of
Company Common Stock issuable under the option on the grant date of such
option. No option will have a term in excess of ten (10) years measured
from the grant date.
VESTING OF OPTIONS. The vesting schedule for each granted option will be
determined by the Plan Administrator and will be set forth in the
instrument evidencing such grant. The granted option may be (i) immediately
exercisable for vested shares, (ii) immediately exercisable for unvested
shares subject to the Company's repurchase rights or (iii) exercisable in
installments for vested shares over the optionee's period of service.
PAYMENT. Upon exercise of the option, the option price for the purchased
shares will become immediately payable in cash or in shares of Common Stock
valued at fair market value on the date of exercise. The option may also be
exercised through a cashless exercise procedure pursuant to which the
optionee provides irrevocable written instructions to a designated
brokerage firm to effect the immediate sale of the purchased shares and
remit to the Company, out of the sales proceeds, an amount equal to the
aggregate option price payable for the purchased shares plus all applicable
withholding taxes.
FINANCIAL ASSISTANCE. The Plan Administrator may assist any optionee
(including an officer) in the exercise of one or more outstanding options
under the Plan by authorizing a loan from the Company. The terms and
conditions of any such loan will be established by the Plan Administrator
in its sole discretion, but in no event will the maximum credit extended to
the optionee exceed the aggregate option price for the purchased shares
plus any Federal or State tax liability incurred in connection with the
option exercise.
TERMINATION OF SERVICE. Should the optionee cease to remain in the
Company's service while holding one or more options under the Plan, then
those options will not remain exercisable beyond the limited post-service
period designated by the Plan Administrator at the time of the option grant
(subject to certain minimum post-service periods). Under no circumstances,
however, may any option be exercised after the specified expiration date of
the option term. Each such option will, during the period it remains
exercisable, be exercisable for the number of shares for which the option
was exercisable on the date of the optionee's cessation of service.
Should the optionee die while holding one or more outstanding options, then
the personal representative of the optionee's estate or the person or
persons to whom each such option is transferred pursuant to the optionee's
will or in accordance with the laws of inheritance will have the right to
exercise such option for any or all of the shares for which the option is
exercisable on the date of the optionee's cessation of service, less any
option shares subsequently purchased by the optionee prior to death. Such
right will lapse, and the option will terminate, upon the earlier of (i)
the end of the limited post-service period designated by the Plan
Administrator at the time of the option grant or (ii) the specified
expiration date of the option term.
The Plan Administrator will have complete discretion to extend the period
following the optionee's termination of service during which his or her
outstanding options may be exercised and/or to accelerate the
exercisability of such options in whole or in part. Such discretion may be
exercised at any time while the options remain outstanding, whether before
or after the optionee's actual cessation of service.
CORPORATE TRANSACTION. Except to the extend otherwise provided in the
option documents, each option share will become fully vested in the event
of certain Corporate Transactions unless the option is assumed or is
replaced with a cash incentive program which preserves the material
benefits of the options. Upon consummation of the Corporate Transaction,
all options which are not assumed will be canceled and cease to exist. The
options or cash incentive programs which replace any options which do not
accelerate will provide for full vesting in the event of involuntary
termination of employment within 18 months following the Corporate
Transaction.
For purposes of the above, a Corporate Transaction includes (i) a merger or
consolidation in which the Company is not the surviving entity (except for
a transaction the principal purpose of which is to change the State of
incorporation), (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company, or (iii) any reverse merger
in which the Company is the surviving entity but in which securities
possessing more than 50% of the total combined voting power of the Company
are transferred to holders different from those who held the Company's
securities immediately prior to such merger.
SHAREHOLDER RIGHTS AND OPTION ASSIGNABILITY. No optionee is to have any
shareholder rights with respect to the option shares until such optionee
has exercised the option, paid the option price for the purchased shares
and been issued a stock certificate for such shares. Options are not
assignable or transferable other than by will or by the laws of inheritance
following the optionee's death, and the option may, during the optionee's
lifetime, be exercised only by the optionee.
STOCK APPRECIATION RIGHTS. At the discretion of the Plan Administrator,
options may be granted in tandem with stock appreciation rights. The stock
appreciation rights which are authorized for issuance under the Plan are
tandem rights which require the option holder to elect between the exercise
of the underlying option for shares of Common Stock and the surrender of
such option for an appreciation distribution.
These tandem stock appreciation rights provide the holders with the right
to receive an appreciation distribution from the Company equal in amount to
the excess of (i) the fair market value (on the date of exercise) of the
shares of Common Stock for which the underlying option is at the time
exercisable over (ii) the aggregate exercise price payable for such shares.
Such appreciation distribution may, at the discretion of the Plan
Administrator, be made in cash or in Common Stock.
CANCELLATION/REGRANT. The Plan Administrator has the authority to effect,
on one or more separate occasions, the cancellation of outstanding options
under the Discretionary Option Grant Program which have exercise prices in
excess of the then current market price of the Common Stock and to issue
replacement options with an exercise price based on the lower market price
of the Common Stock at the time of grant.
TERMS OF STOCK ISSUANCE PROGRAM
ISSUE PRICE. The purchase price per share will not be less than 85% of the
fair market value of any share of Company Common Stock being issued on the
date the Plan Administrator authorizes the issuance.
VESTING OF SHARES. The vesting schedule for each share issued will be
determined by the Plan Administrator and set forth in the issuance
agreement. The shares may be fully and immediately vested upon issuance or
may vest in one or more installments, subject to the Company's repurchase
right, over the participant's period of service.
SHAREHOLDER RIGHTS. The recipient of the share issuance will have full
shareholder rights, including voting and dividend rights, with respect to
the issued shares, whether or not the shares are vested. However, the
recipient may not sell, transfer or assign any unvested shares issued under
the Plan, except for certain limited family transfers.
REPURCHASE RIGHTS. Should the recipient of unvested shares cease to remain
in the Company's service before vesting in such shares, then those unvested
shares are to be immediately surrendered to the Company for cancellation,
and the recipient will have no further shareholder rights with respect to
those shares. To the extent the surrendered shares were previously issued
to the recipient for consideration paid in cash or promissory note, the
Company will refund the cash consideration paid for the surrendered shares
and cancel the principal balance of the note to the extent attributable to
such surrendered shares.
PAYMENT. Upon issuance of the shares, the issue price for the purchased
shares will become immediately payable in cash, in shares of Company Common
Stock valued at fair market value on the date of issuance, or by promissory
note payable to the Company's order. The promissory note may, at the
discretion of the Plan Administrator, be subject to cancellation over the
participant's period of service. Shares may also be issued for past or
future services, without any cash or other payment required of the
participant.
CORPORATE TRANSACTION. Except to the extent otherwise provided in the stock
issuance documents, all repurchase rights will terminate and each share
will become fully vested in the event of a Corporate Transaction (as
defined above) unless the repurchase rights are assigned to the successor
Company. Following consummation of the Corporation Transaction, all
repurchase rights which are assigned to the successor will terminate and
cease to exist in the event of involuntary termination of employment with
18 months following the Corporate Transaction.
AUTOMATIC OPTION GRANT PROGRAM
Option grants are made automatically to each non-employee Board member who
has not been employed by the Company during the preceding two years. Each
such person is automatically granted a non-statutory option to purchase
1,000 shares with respect to each calendar month (beginning August 1995)
during all of which he or she serves as a director, on the last day of each
such respective calendar month.
The exercise price per share of each automatic option grant made under this
Program is equal to one hundred percent (100%) of the fair market value per
share of Common Stock on the grant date. The exercise price is payable in
one of these alternative forms: (1) full payment in cash or check drawn to
the Company's order; (2) full payment in shares of Common Stock held for at
least six months and valued at fair market value on the Exercise Date; (3)
full payment in a combination of shares of Common Stock held for at least
six months and valued at fair market value on the Exercise Date and cash or
check; or (4) full payment through a broker-dealer sale.
During the lifetime of the optionee, each automatic option grant, together
with the limited stock appreciation right pertaining to such option, if
any, is exercisable only by the optionee and is not assignable or
transferable by the optionee other than a transfer of the option effected
by will or by the laws of descent and distribution following optionee's
death.
Should the optionee cease to serve as a Board member for any reason (other
than death) while holding one or more automatic option grants, then such
optionee shall have a 24 month period following the date of such cessation
of Board membership in which to exercise each such option. In no event
shall any automatic option grant remain exercisable after the specified
expiration date of the ten-year option term. Upon the expiration of the
applicable exercise period as mentioned above or upon the expiration of the
ten-year option term, the automatic grant shall terminate and cease to be
outstanding for any unexercised shares.
The provisions of the Automatic Option Grant Program, together with the
option grants outstanding thereunder, may not be amended at intervals more
frequently than once every six months, other than to the extent necessary
to comply with applicable Federal income tax laws and regulations. Each
automatic grant under this Program has a maximum term of 10 years measured
from the automatic grant date and is exercisable in full immediately
TAX WITHHOLDING
The Company's obligation to deliver shares of Common Stock upon the exercise
of options or stock appreciation rights or upon the issuance or vesting of
such shares under the Plan is subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.
The Plan Administrator may provide one or more participants in the Plan
with the election to have the Company withhold, from the shares of Company
Common Stock otherwise issuable upon the exercise of non-qualified options
or the vesting of unvested shares, a portion of those shares in satisfaction
of the tax liability incurred in connection with their acquisition or
vesting. Any election so made will be subject to the approval of the Plan
Administrator, and no shares will be accepted in satisfaction of such tax
liability except to the extent the Plan Administrator approves the election.
Alternatively, one or more participants may be granted the right, subject to
Plan Administrator approval, to deliver existing shares of Company Common
Stock in satisfaction of such tax liability. The withheld or delivered
shares will be valued at their then current fair market value.
AMENDMENT AND TERMINATION
The Board of Directors may amend or modify the Plan in any or all respects
whatsoever, subject, however, to the limitation on plan amendments to the
Automatic Option Grant Program. However, no such amendment may adversely
affect the rights of existing optionees without their consent and unless
otherwise necessary to comply with applicable tax laws and regulations. In
addition, the Board may not (i) materially increase the maximum number of
shares issuable under the Plan or the number of shares for which automatic
grants may be made to non-employee Board members, except in the event of
certain changes to the Company's capital structure as indicated above, (ii)
materially modify the eligibility requirements for option grants or (iii)
otherwise materially increase the benefits accruing to participants under
the Plan without the approval of the Company's shareholders.
The Board may terminate the Plan at any time, and the Plan will in all
events terminate on the EARLIEST of (i) June 14, 2005, (ii) the date on
which all shares available for issuance under the Plan shall have been
issued pursuant to the exercise of the options or the issuance of shares
(whether vested or unvested) under the Plan, or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Each
stock option outstanding at the time of such termination will remain in
force in accordance with the provisions of the instruments evidencing such
grant.
REGULATORY APPROVAL
The implementation of the Plan, the granting of any option or stock
appreciation right under the Plan and the issuance of any shares of Common
Stock (i) upon the exercise of any option or stock appreciation right or
(ii) under the Stock Issuance Program are subject to the Company's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options and stock appreciation
rights granted under it and the shares of Common Stock issued pursuant to
it.
NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the optionee or the participant any
right to continue in service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Company
(or any parent or subsidiary employing or retaining such person) to
terminate such person's service at any time for any reason, with or without
cause.
FEDERAL TAX CONSEQUENCES
Options granted under the Plan may be either incentive stock options which
satisfy the requirements of Section 422 of the Internal Revenue Code or
non- qualified options which are not intended to meet such requirements.
The Federal income tax treatment for the two types of options differs as
described below:
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize
income for alternative maximum tax purposes in the year the option is
exercised and regular taxable income in the year in which the purchased
shares are sold or otherwise made the subject of disposition.
For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of
such shares is made after the optionee has held the shares for more than
two years after the grant date of the option and more than one year after
the exercise date. If the optionee fails to satisfy either of these two
holding period prior to the sale or other disposition of the purchased
shares, then a disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over
(ii) the exercise price paid for such shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of
those shares on the date the option was exercised over (ii) the exercise
price paid for the shares will be taxable as ordinary income. Any
additional gain recognized upon the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the excess of (i)
the fair market value of such shares on the date the option was exercised
over (ii) the exercise price paid for the shares. In no other instance will
the Company be allowed a deduction with respect to the optionee's
disposition of the purchased shares.
NON-QUALIFIED OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-qualified option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the date of
exercise over the exercise price paid for the shares, and the optionee will
be required to satisfy the tax withholding requirements applicable to such
income.
Special provisions of the Internal Revenue Code apply to the acquisition of
Company Common Stock under a non-qualified option, if the purchased shares
are subject to repurchase by the Company. These special provisions may be
summarized as follows:
A. If the shares acquired upon exercise of the non-qualified option are
subject to repurchase by the Company at the original exercise price in the
event of the optionee's termination service prior to vesting in such
shares, the optionee will not recognize any taxable income at the time of
exercise but will have to report as ordinary income, as and when the
Company's repurchase right lapses, an amount equal to the excess of (i) the
fair market value of the shares on the date the Company's repurchase right
lapses with respect to such shares over (ii) the exercise price paid for
the shares.
B. The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the
non-qualified option an amount equal to the excess of (i) the fair market
value of the purchased shares on the date of exercise (determined as if the
shares were not subject to the Company's repurchase right) over (ii) the
exercise price paid for such shares. If the Section 83(b) election is made,
the optionee will not recognize any additional income as and when the
repurchase right lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-qualified option. The deduction will in general be allowed
for the taxable year of the Company in which such ordinary income is
recognized by the optionee.
STOCK APPRECIATION RIGHTS. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the
amount of the appreciation distribution. The Company will be entitled to a
business expense deduction equal to the appreciation distribution for the
taxable year of the Company in which the ordinary income is recognized by
the optionee.
DIRECT STOCK ISSUANCE. The tax consequences of individuals who receive
direct stock issuances under the Plan will be substantially the same as the
treatment described above the exercise of non-qualified stock options.
ACCOUNTING TREATMENT
Option grants with exercise prices less than the fair market value of the
option shares on the grant date and direct stock issuances at purchase
prices less than the fair market value of the issued shares will result in
a compensation expense to the Company's earnings equal to the difference
between such exercise or purchase prices and the fair market value on the
issue date. Such expense will be accrued by the Company over the period the
optionee or share recipient vests in the option shares or directly-issued
shares. Option grants and direct stock issuances at 100% of fair market
value will not result in any charge to the Company's earnings. Whether or
not granted at a discount, the number of outstanding options may be a
factor in determining the Company's earnings per share.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to be
charged against the Company's earnings. Accordingly, at the end of each
fiscal quarter, the amount (if any) by which the fair market value of the
shares of Common Stock subject to such outstanding stock appreciation
rights has increased from the prior quarter-end will be accrued as
compensation expense, to the extent such amount is in excess of the
aggregate exercise price in effect for such rights.
APPROVALS REQUIRED
The affirmative vote of the holders of not less than a majority of the
outstanding shares of Common Stock entitled to vote is required to approve
the proposed amendments to the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENTS TO THE 1995
STOCK OPTION/STOCK ISSUANCE PLAN.
PROPOSAL 4
AMENDMENT OF ARTICLES OF INCORPORATION
(PREFERRED STOCK)
As part of its 1993 bankruptcy plan of reorganization, the Company
authorized 500,000 shares of Preferred Stock and issued 246,793 shares of
such Preferred Stock. The Preferred Stock has a noncumulative annual
dividend preference of $0.15 per share; it has no other dividend rights.
As to liquidation and voting rights, the Preferred stock has no
preferential rights, but instead has only the same rights as the same
number of shares of Common Stock.
During a certain window period, the Company had the option to redeem the
Preferred Stock for $6.25 per share. That window period ended in October
1995 without the Company exercising its option. During another certain
window period, each holder of Preferred Stock had an option to convert his
shares of Preferred Stock into an equal number of shares of Common Stock
plus cash equal to the net proceeds of selling a pro rata portion of the
Company's portfolio holdings of three other companies. That window period
ended in April 1996 with the holders of 63,678 shares of Preferred Stock
exercising their options.
The holders of Preferred Stock no longer have any rights to convert, redeem
or exchange their Preferred Stock. There is no public market for the
Preferred Stock and it is expected that none will ever develop. The
Company does not anticipate paying any dividends on the Preferred Stock in
the foreseeable future.
The Company's Board of Directors has approved, and the shareholders are now
asked to approve, amendments of the Company's articles of incorporation (1)
to mandatorily and automatically convert, effective August 5, 1997, the
183,115 shares of outstanding Preferred Stock into the same number of
shares of Common Stock (but without any additional cash) and (2) after such
conversion, to eliminate from the articles of incorporation all reference
to the Preferred Stock. After such second amendment, the Company's
authorized capital stock would consist solely of 50,000,000 shares of
Common Stock.
The Common Stock issued upon such conversion of the Preferred Stock would
be freely tradable (unless held by an affiliate of the Company, in which
case it would be subject to Rule 144 control securities resale volume
limitations). The Company wishes to eliminate the administrative
inconvenience of maintaining a small second class of stock in addition to
the Common Stock. In addition, under California law the approval of the
Preferred Stock would be required for certain kinds of articles
amendments and merger/acquisition transactions. The Company believes it
would be unfair if the will of the Board of Directors and a majority of
the shareholders of Common Stock were, in such a matter, thwarted by
inability to obtain a quorum of the Preferred Stock or obtain approval of
the required Preferred Stock majority. Also, the Company believes its
Preferred Stockholders, who have borne the risk of investment in the
Company, would benefit economically from holding liquid Common Stock
instead of illiquid Preferred Stock which has hardly any meaningful
preference over the Common Stock.
The Board of Directors recommends a vote for the proposed amendments. The
proposed amendments require the approval of a majority of the stock present
at the meeting, and a majority of the Common Stock present at the meeting,
and also a majority of the Preferred Stock present at the meeting (with a
separate requirement that the Preferred Stock present at the meeting
constitute a quorum of the Preferred Stock).
Outgoing director Roger S. Kolasinski indirectly beneficially owns, through
Kol Bio Medical Instruments, Inc., 126,259 shares of Preferred Stock. Kol
Bio Medical Instruments, Inc. has indicated its intention to vote in favor
of the proposed amendments.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENTS TO THE
COMPANY'S ARTICLES OF INCORPORATION TO MANDATORILY AND AUTOMATICALLY
CONVERT THE OUTSTANDING SHARES OF PREFERRED STOCK INTO THE SAME NUMBER OF
SHARES OF COMMON STOCK AND TO ELIMINATE FROM THE ARTICLES OF INCORPORATION
ALL REFERENCE TO PREFERRED STOCK.
PROPOSAL 5
RATIFICATION OF
SELECTION OF INDEPENDENT ACCOUNTANTS
In June 1997, the Audit Committee of the Board of Directors recommended,
and the Board of Directors approved, the engagement of the independent
certified public accounting firm of KPMG Peat Marwick LLP to audit the
financial statements of the Company for the fiscal year ended November 30,
1997. Accordingly, KPMG Peat Marwick LLP was so engaged on June 26, 1997
and the engagement of Peterson & Co. as the Company's independent auditors
was discontinued on June 26, 1997.
The report of Peterson & Co. on the Company's financial statements for the
fiscal year ended November 30, 1995 did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to audit scope
or accounting principles. The report did contain, however, an explanatory
paragraph regarding the Company's ability to continue as a going concern.
The Company's financial statements for the fiscal year ended November 30,
1996 did not contain an adverse opinion or a disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope or accounting
principles.
There were no disagreements between the Company and Peterson & Co. on any
matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of Peterson & Co., would have caused Peterson & Co. to make
reference to the matter in their reports, and Peterson & Co. never advised
the Company of any event of the kind mentioned in Item 304(d)(1)(iv)(B) of
Regulation S-B.
The Company has not consulted with KPMG Peat Marwick LLP during the last
two years or subsequent interim period prior to June 25, 1997 on either the
application of accounting principles to a specific completed or
contemplated transaction, or the type of opinion KPMG Peat Marwick LLP
might issue on the Company's financial statements. No written or oral
advice was provided to the Company by KPMG Peat Marwick LLP that was an
important factor considered by the Company in reaching a decision as to any
accounting, auditing or financial reporting issues.
The Company requested Peterson & Co. to furnish it with a letter addressed
to the Securities and Exchange Commission stating whether or not Peterson &
Co. agrees with the above statements. The letter, which states that
Peterson & Co. agrees with the above statements, was filed with the
Securities and Exchange Commission on June 30, 1997 as an Exhibit to Form
8-K.
Ratification and approval by the shareholders is sought for the selection
of KPMG Peat Marwick LLP by the Board of Directors as independent
accountants to audit the accounts and records of the Company for the fiscal
year ending November 30, 1997, and to perform such other appropriate
services. In the event that a majority of the shares voted at the Annual
Meeting do not vote for ratification of the selection of KPMG Peat Marwick
LLP, the Board of Directors will reconsider such selection.
A representative of KPMG Peat Marwick is expected to be present at the
Annual Meeting. Such representative will have an opportunity to make a
statement if he desires to do so, and is expected to be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS
FOR FISCAL 1997.
PRINCIPAL SHAREHOLDERS
PRINCIPAL SHAREHOLDERS
The following are the only persons known by the Company to own
beneficially, as of May 30, 1997, five percent or more of the outstanding
shares of its Common Stock.
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS OF -------------------------
BENEFICIAL OWNER NUMBER (1) PERCENTAGE (2)
---------------- ---------- --------------
Allen E. Paulson (3) 21,937,490 67.7%
PO Box 9660
Rancho Santa Fe, CA 92067
James C. Gilstrap (4) 21,352,490 65.9%
5067 Shore Drive
Carlsbad, CA 92008
Nicholas V. Diaco, M.D. (5) 20,582,490 63.3%
1302 - 20th Street, Suite 400
Santa Monica, CA 90404
Joseph F. Diaco, M.D. (6) 20,304,490 62.7%
4700 North Habana Ave., Suite 403
Tampa, FL 33614
CardioDynamics Holdings, LLC (7) 20,304,490 62.7%
PO Box 9660
Rancho Santa Fe, CA 92067
Edge Financial Group, Inc. (8) 2,451,559 7.6%
16225 Park Ten Place, Suite 380
Houston, TX 77084
Joe C. Richardson, Jr. (9) 2,206,929 6.8%
PO Box 8246
Amarillo, TX 79114
--------------------------
(1) Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to
community property laws, where applicable.
(2) Percentage of ownership is calculated pursuant to SEC Rule
13d-3(d)(1).
(3) Includes 20,304,490 shares of Common Stock beneficially owned by CDH,
of which Mr. Allen Paulson is a member with a majority interest. Mr.
Paulson disclaims beneficial ownership of these shares except to the
extent of his individual ownership interest in CDH. See footnote (7).
Also includes 22,000 shares of Common Stock Mr. Paulson beneficially
owns, by virtue of his right to acquire such shares from the Company
under stock options now exercisable or exercisable within 60 days.
Excludes 3,000,000 shares of Common Stock owned by Mr. Paulson's sons;
Mr. Paulson disclaims beneficial ownership of such shares.
(4) Includes 20,304,490 shares of Common Stock beneficially owned by CDH,
of which Mr. Gilstrap is a member with a minority interest. Mr.
Gilstrap disclaims beneficial ownership of these shares except to the
extent of his individual ownership interest in CDH. See footnote (7).
Also includes 22,000 shares of Common Stock Mr. Gilstrap beneficially
owns, by virtue of his right to acquire such shares from the Company
under stock options now exercisable or exercisable within 60 days.
Excludes 60,000 shares of Common Stock owned by Mr. Gilstrap's
daughters; Mr. Gilstrap disclaims beneficial ownership of such shares.
(5) Includes 20,304,490 shares of Common Stock beneficially owned by CDH,
of which Dr. Nicholas Diaco is a member with a minority interest. Dr.
Diaco disclaims beneficial ownership of these shares except to the
extent of his individual ownership interest in CDH. See footnote (7).
Also includes 122,000 shares of Common Stock Dr. Diaco beneficially
owns, by virtue of his right to acquire such shares from the Company
under stock options now exercisable or exercisable within 60 days.
(6) Includes 20,304,490 shares of Common Stock beneficially owned by CDH,
of which Dr. Joseph Diaco is a member with a minority interest. Dr.
Diaco disclaims beneficial ownership of these shares except to the
extent of his individual ownership interest in CDH. See footnote (7).
(7) Includes 15,682,243 shares of Common Stock over which CDH exercises
sole voting and investment power, and 4,522,247 shares of Common Stock
over which CDH exercises sole voting power, but no investment power.
Also includes 100,000 shares of Common Stock issuable upon conversion
of a Note issued by the Company.
(8) Includes 1,446,549 shares of Common Stock beneficially owned by
Medical Assets, LLC, of which Edge Financial Group, Inc. is a member.
Edge Financial Group, Inc. disclaims beneficial ownership of these
shares except to the extent of its ownership interest in Medical
Assets, LLC. Medical Assets, LLC exercises sole investment power, but
no voting power, over all its shares of Common Stock.
(9) Includes 1,446,549 shares of Common Stock beneficially owned by
Medical Assets, LLC, of which Mr. Richardson is a member. Mr.
Richardson disclaims beneficial ownership of these shares except to
the extent of his ownership interest in Medical Assets, LLC. Medical
Assets, LLC exercises sole investment power, but no voting power, over
all its shares of Common Stock.
SECURITY OWNERSHIP OF MANAGEMENT
COMMON STOCK
The following table sets forth the beneficial ownership of Common Stock of
the Company as of May 30, 1997 by each director (including Mr. Otto),
nominee for director, and by all Directors and named executive officers of
the Company as a group. Each such person has a business address c/o the
Company.
SHARES BENEFICIALLY OWNED
-------------------------
NAME NUMBER (1) PERCENT (2)
-------------------- ---------- -----------
William P. Cordeiro, Ph.D. (3) 32,000 *
Stephenson M. Dechant (4) 28,000 *
Nicholas V. Diaco, M.D. (5) 20,582,490 63.3%
Louis P. Ferrero - 0 - *
Cam L. Garner 4,000 *
James C. Gilstrap (6) 21,352,490 65.9%
Roger S. Kolasinski (7) 178,000 *
Richard O. Martin, Ph.D. - 0 - *
Richard E. Otto 50,000 *
Michael D. Padilla (8) 28,000 *
Allen E. Paulson (9) 21,937,490 67.7%
Barry M. Zwick (10) 258,000 *
All Directors and executive
officers as a group - (12 persons)(11) 22,222,199 68.7%
--------------------
* Less than 1%
(1) Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to
community property laws, where applicable. Share ownership in each
case includes shares issuable on exercise of certain outstanding
options as described in the footnotes below.
(2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3d(1).
(3) Includes 10,000 shares held by Bartik, Cordeiro & Associates, Inc. Mr.
Cordeiro is the Chief Executive Officer of Bartik, Cordeiro &
Associates, Inc.
(4) Includes 22,000 shares of Common Stock Mr. Dechant beneficially owns,
by virtue of his right to acquire such shares from the Company under
stock options now exercisable or exercisable within 60 days.
(5) Includes 20,304,490 shares of Common Stock beneficially owned by
CardioDynamics Holdings, LLC, of which Dr. Nicholas Diaco is a member
with a minority interest. Dr. Diaco disclaims beneficial ownership of
these shares except to the extent of his individual ownership interest
in CardioDynamics Holdings, LLC. See footnote (9). Also includes
122,000 shares of Common Stock Dr. Diaco beneficially owns, by virtue
of his right to acquire such shares from the Company under stock
options now exercisable or exercisable within 60 days.
(6) Includes 20,304,490 shares of Common Stock beneficially owned by
CardioDynamics Holdings, LLC, of which Mr. Gilstrap is a member with a
minority interest. Mr. Gilstrap disclaims beneficial ownership of
these shares except to the extent of his individual ownership interest
in CardioDynamics Holdings, LLC. See footnote (9). Also includes
22,000 shares of Common Stock Mr. Gilstrap beneficially owns, by
virtue of his right to acquire such shares from the Company under
stock options now exercisable or exercisable within 60 days. Excludes
60,000 shares of Common Stock owned by Mr. Gilstrap's daughters; Mr.
Gilstrap disclaims beneficial ownership of such shares.
(7) Includes 120,000 shares of Common Stock of the Company beneficially
owned by Kol Bio Medical Instruments, of which Mr. Kolasinski is Chief
Executive Officer. Also, includes 22,000 shares of Common Stock Mr.
Kolasinski beneficially owns, by virtue of his right to acquire such
shares from the Company under stock options now exercisable or
exercisable within 60 days. If the proposed amendments to the
Company's articles of incorporation are approved, Mr. Kolasinski will
indirectly own beneficially another 126,259 shares of Common Stock,
upon conversion of Kol Bio Medical Instruments, Inc.'s Preferred
Stock.
(8) Includes 22,000 shares of Common Stock Mr. Padilla beneficially owns,
by virtue of his right to acquire such shares from the Company under
stock options now exercisable or exercisable within 60 days.
(9) Includes 20,304,490 shares of Common Stock beneficially owned by
CardioDynamics Holdings, LLC, of which Mr. Paulson is a member with a
majority interest. These shares consist of 15,682,243 shares of Common
Stock over which CDH exercises sole voting and investment power (and
another 100,000 shares of Common Stock issuable upon conversion of a
Note issued by the Company) and 4,522,247 shares of Common Stock over
which CDH exercises sole voting power but no investment power. Mr.
Paulson disclaims beneficial ownership of these shares except to the
extent of his individual ownership interest in CDH. Also includes
22,000 shares of Common Stock Mr. Paulson beneficially owns, by virtue
of his right to acquire such shares from the Company under stock
options now exercisable or exercisable within 60 days. Excludes
3,000,000 shares of Common Stock owned by Mr. Paulson's sons; Mr.
Paulson disclaims beneficial ownership of such shares.
(10) Includes 200,00 shares of Common Stock of the Company beneficially
owned by a related trust. Also includes 22,000 shares of Common Stock
Mr. Zwick beneficially owns, by virtue of his right to acquire such
shares from the Company under stock options now exercisable or
exercisable within 60 days.
(11) Shares beneficially owned include shares held by entities affiliated
with certain Directors as described above in the footnotes (but do not
include any shares more than once).
PREFERRED STOCK
No Director or executive officer owns any of the Company's Preferred Stock,
except Roger S. Kolasinski who (indirectly through Kol Bio Medical
Instruments, Inc.) owns 126,259 shares, or 69.0% of the class.
EXECUTIVE OFFICERS
The Company's Directors and executive officers and their ages as of June
10, 1997 are as follows:
NAME AGE POSITION
------------------------ --- --------
Richard E. Otto 47 Chief Executive Officer
Rhonda F. Pederson 36 President
Stephen P. Loomis 37 Vice President Finance,
Chief Financial Officer
Markus J. Osypka, Ph.D. 32 Vice President Engineering
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
RICHARD E. OTTO. Mr. Otto joined the Company in June 1995 as President and
Chief Executive Officer and has been a Director since June 1996. In June
1997 the title of President was given to Rhonda F. Pederson. Mr. Otto has
more than 26 years of healthcare experience including as an entrepreneurial
executive in the identification, development and distribution of high
technology devices for the cardiology and cardiovascular markets. From
September 1987 to May 1994, Mr. Otto was with Sensor Technology, Inc., a
privately held medical distributor company, of which he was a founder. In
1994, the company was sold to a division of Eli Lilly and Company. Prior
to that time, Mr. Otto held positions with Medtronic, Inc., Cardiac
Pacemakers, Inc., Intermedics, Inc. and Eli Lilly & Co. Mr. Otto holds a
Bachelor of Science degree from the University of Georgia and serves on the
Boards of Directors of the Georgia Chapter of the Leukemia Society, the
College Football Hall of Fame Foundation, and the University of Georgia
Student Educational Fund.
RHONDA F. PEDERSON. Ms. Pederson joined the Company in June 1995 as Vice
President of Operations and was promoted to Chief Operating Officer in
February 1996 and to President in June 1997. Ms. Pederson has over 13
years of health care experience, including medical product development,
rapid growth transitions and sales and marketing management. From July
1992 until May 1995, Ms. Pederson held positions of President/Chief
Executive Officer, Vice President of Sales and Marketing and Board member
at Culture Technology, Inc., a privately held biotechnology company
specializing in culturing autologous skin for burn patients. Prior to
that, Ms. Pederson held positions at General Electric Medical Systems and
Quinton Instrument Company, both medical device subsidiaries of publicly
held companies. Ms. Pederson holds a Bachelor of Pharmacy from Washington
State University and is completing a Masters in Business Administration
from Pepperdine University in Los Angeles.
STEPHEN P. LOOMIS. Mr. Loomis joined the Company in September 1996 as Vice
President of Finance and was promoted to Chief Financial Officer in March
1997. Mr. Loomis is a Certified Public Accountant with more than 13 years
experience in finance and business development with both publicly traded
and privately held companies. From 1993 until joining the Company, he
served as Director of Financial Reporting at the Kinko's Inc. group of
companies. From 1988 to 1993, Mr. Loomis was the Chief Financial Officer
for Terminal Data Corporation, a publicly traded high speed document
imaging company. Prior to that, Mr. Loomis was at Peat Marwick Main & Co.
He earned his Bachelor of Science Degree in Business Administration from
California State University at Northridge.
MARKUS J. OSYPKA, PH.D. Dr. Osypka joined the Company in January 1996 to
oversee engineering and was promoted to Vice President of Engineering in
March 1996. Dr. Osypka had more than six years experience in the medical
device industry in Germany. From 1993 to 1995, he held the positions of
Director of Product Management and Director of International Sales at Dr.
Ing P. Osypka GmbH, a privately held medical device manufacturer in
Germany. Prior to that, he earned a Ph.D. in Electrical Engineering at the
University of Karlsruhe in Germany, where he did extensive research in
Electrical Impedance Tomography.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides information regarding the annual and long-term
compensation earned by Richard E. Otto, the Company's Chief Executive
Officer, for services rendered in all capacities to the Company for the
three fiscal years ending November 30, 1996. None of the Company's other
executive officers had, in fiscal 1996, total annual salary and bonus
exceeding $100,000.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ------ -------
NAME AND OPTION/ LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SARS (#) PAYOUTS($) COMPENSATION($)
-------------------------------------------------------------------------------------------------------------------
Richard E. Otto 1996 122,870 - 0 - - 0 - - 0 - - 0 -
President and Chief 1995 87,500 - 0 - 500,000 - 0 - - 0 -
Executive Officer 1994 - 0 - - 0 - - 0 - - 0 - - 0 -
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
SHARES VALUE OPTIONS/SARS AT FY-END SARS AT FY-END
ACQUIRED ON REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME EXERCISE (#) ($) (#) ($)
-------------------------------------------------------------------------------------------------------------------
Richard E. Otto - 0 - - 0 - - 0 -/500,000 - 0 - /345,000
EMPLOYMENT AGREEMENT
The Company entered into a Compensation and Employment Agreement,
dated as of June 16, 1995, with its Chief Executive Officer, Richard
E. Otto. Under the terms of the Agreement Mr. Otto was granted 500,000
non-transferable stock options (not under the Plan) at an exercise
price of $0.50 per share. The options vest as the quoted market price
of the Company's Common Stock attains and holds specified levels. At
May 30, 1997, none of the options are vested. The options expire June
15, 2005. The Agreement provided for a salary of $150,000 per year
and standard fringe benefits. In January 1996, Mr. Otto voluntarily
reduced his annual salary to $120,000 per year. Although the Agreement
may be terminated by either party at will, the stock options will survive
termination of the Agreement unless Mr. Otto's employment terminates due to
cause (as defined in the Agreement), voluntary resignation, death or
permanent disability.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In early 1995, CardioDynamics Holding, LLC ("CDH") obtained control of
the Company by purchasing 1,477,910 shares of unregistered Common
Stock from the Company in exchange for $225,739 and purchasing
2,404,333 shares of Common Stock held by Helionetics, Inc. in exchange
for $666,458. CDH also loaned the Company $100,000 and obtained the
right to purchase at the then-applicable conversion price (currently
$0.25 per share) the same number of shares of Common Stock as the
Company may from time to time issue to any other person. In addition,
in consideration of CDH lending money to the Company, as set forth
above, the holders of no fewer than 4,522,247 shares of Common Stock
granted CDH an irrevocable proxy to vote their shares.
CDH and its members Allen E. Paulson, James C. Gilstrap and Nicholas
V. Diaco, M.D. engaged in several subsequent significant transactions with
the Company, substantially all resulting in the issuance of
unregistered Common Stock at $0.25 per share or convertible note
amounts convertible (and later converted) into Common Stock at $0.25
per share. In fiscal 1995, each of James C. Gilstrap and Nicholas V.
Diaco, M.D. received 150,000 shares of Common Stock as a fee for services
in connection with CDH's acquisition of an interest in the Company.
Nicholas V. Diaco, M.D. is also a member of the Company's Medical Advisory
Board. In that capacity, he received 100,000 stock options in June
1995 and consulting fees in fiscal 1995 and 1996 of $37,500 and
$1,500, respectively.
Of the Company's outstanding shares of Common Stock, currently CDH
owns 15,682,243 shares. Members of CDH also now own 2,793,000
outstanding shares of Common Stock of the Company (aside from CDH's
own holdings); of the members' shares, Allen Paulson owns 1,611,000,
James Gilstrap owns 1,026,000 and Nicholas Diaco, M.D. owns 156,000. As
a result of the transactions described above, at May 30, 1997, CDH and
its members together are the beneficial owners of 70.1% of the Common
Stock of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who own more than ten
percent (10%) of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with
the SEC. Officers, Directors and greater than ten percent (10%)
shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required,
except as set forth below, the Company believes that each person who,
at any time during the fiscal year ended November 30, 1996, was a
director, officer, or beneficial owner of more than 10% of a class of
registered equity securities of the Company filed on a timely basis
all reports required by Section 16(a) of the Securities Exchange Act.
Markus Osypka, Ph.D. (Vice President, Engineering) filed his Form 3 late,
and did not include on the Form 3 a stock option which had been granted
him. He later reported the stock option on Form 5. Rhonda F. Pederson
(Chief Operating Officer) filed her Form 3 late. Allen E. Paulson
(Director and Co-Chairman) failed to file two Form 4's covering four
transactions, and did not timely reflect on Form 5 the previous
non-reporting of the four transactions. DaVinci Scientific Corporation
(10% owner) and Kenneth W. Miller (Director) failed to file Form 4's
reflecting the transfers of Common Stock owned by DaVinci to a number of
DaVinci's creditors. Also, Mr. Miller failed to file Form 4's reflecting
acquisitions of Common Stock by Edge Financial Group, Inc. within six
months after Mr. Miller ceased to be a Director of the Company. Barry M.
Zwick (Director) reported insufficient detail on 12 monthly automatic
stock option grants on Form 5.
SHAREHOLDER PROPOSALS FOR 1998 PROXY STATEMENT
Under the present rules of the Securities Exchange Commission (the
"Commission"), the deadline for shareholders to submit proposals to be
considered for inclusion in the Company's Proxy Statement for the next
year's Annual Meeting of Shareholders is March 31, 1998. Such proposals
may be included in the next year's Proxy Statement if they comply with
certain rules and regulations promulgated by the Commission.
FORM 10-KSB
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, TO ANY
SHAREHOLDER OF THE COMPANY A COPY OF THE ANNUAL REPORT ON FORM 10-KSB,
INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND LIST OF EXHIBITS.
REQUESTS SHOULD BE SENT TO LIPPERT/HEILSHORN & ASSOCIATES, INC., 800 THIRD
AVENUE, SUITE 1701, NEW YORK, NY 10022, ATTENTION: EVAN SMITH.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the meeting other than the matters set forth in this Proxy
Statement. Should any other matter requiring a vote of the shareholders
arise, the persons named as proxies on the enclosed proxy card will vote
the shares represented thereby in accordance with their best judgment in
the interest of the Company. Discretionary authority with respect to such
other matters is granted by the execution of the enclosed proxy card.
By Order of the Board of Directors
__________________________________
Dated: July 10, 1997 Richard E. Otto
DIRECTOR AND CHIEF EXECUTIVE OFFICER
CARDIODYNAMICS INTERNATIONAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James C. Gilstrap, Richard E. Otto and
Stephenson M. Dechant, jointly and severally, as proxies, with full power of
substitution, to vote all shares of stock which the undersigned is entitled
to vote at the Annual Meeting of Shareholders of CardioDynamics International
Corporation to be held on Wednesday, July 30, 1997, or at any postponements
or adjournments thereof, as specified below, and to vote in their discretion
on such other business as may properly come before the Meeting and any
postponements or adjournments thereof.
(CONTINUED, AND TO BE DATED AND SIGNED ON OTHER SIDE)
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE USING DARK INK ONLY.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, 4 AND 5. TO
VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS JUST SIGN
BELOW, NO BOXES NEED TO BE CHECKED.
1. Amendment of Bylaws to change the authorized number of Directors from a
range of six to nine to a range of six to 11 with the exact number of Directors
to initially be fixed at nine.
/ / Vote FOR / / Vote AGAINST / / ABSTAIN
2. Election of Directors:
Nominees: Stephenson M. Dechant, Nicholas V. Diaco, Louis P. Ferrero, Cam
L. Garner, James C. Gilstrap, Richard O. Martin, Richard E. Otto, Michael D.
Padilla, and Allen E. Paulson.
/ / Vote FOR all nominees (except as withheld in the space below)
/ / Vote WITHHELD from all nominees
Instruction: To withhold authority to vote for any individual nominee,
check the box "Vote FOR" and write the nominee's name on the line below.
3. Amendment of the 1995 Stock Option/Stock Issuance Plan to increase the
number of shares reserved for issuance from 1,529,000 to 2,529,000, to
delete therefrom the restrictions on discretionary grants to Directors, and
to allow the Plan to be administered either by the full Board of Directors
or by a Board committee.
/ / Vote FOR / / Vote AGAINST / / ABSTAIN
4. Amendments of the Articles of Incorporation to mandatorily and
automatically convert the outstanding shares of Preferred Stock into the
same number of shares of Common Stock and eliminate from the Articles of
Incorporation all reference to Preferred Stock.
/ / Vote FOR / / Vote AGAINST / / ABSTAIN
5. Ratification of the selection of KPMG Peat Marwick LLP as independent
accountants for the fiscal year ending November 30, 1997.
/ / Vote FOR / / Vote AGAINST / / ABSTAIN
CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING / /
UNLESS OTHERWISE SPECIFIED BY THE UNDERSIGNED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2, 3, 4 AND 5 AND WILL BE VOTED BY THE PROXYHOLDERS AT THEIR
DISCRETION AS TO ANY OTHER MATTERS PROPERLY TRANSACTED AT THE MEETING OR ANY
POSTPONEMENTS OR ADJOURNMENTS THEREOF. TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS JUST SIGN BELOW, NO BOXES NEED TO BE CHECKED.
Dated:____________, 1997
- ---------------------------------------
Signature of Shareholder
- ---------------------------------------
Printed Name of Shareholder
- ---------------------------------------
Title (if appropriate)
Please sign exactly as name appears hereon. If signing as attorney, executor,
administrator, trustee or guardian, please give full title as such, and, if
signing for a corporation, give your title. When shares are in the names of
more than one person, each should sign.