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As filed with the Securities and Exchange Commission on October 5, 1998
Registration No. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CARDIODYNAMICS INTERNATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-3533362
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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6175 Nancy Ridge Drive, Suite 300, San Diego, California 92121
(619) 535-0202
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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Michael K. Perry
Chief Executive Officer
CARDIODYNAMICS INTERNATIONAL CORPORATION
6175 Nancy Ridge Drive, Suite 300, San Diego, California 92121
(619) 535-0202
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copy to:
Hayden J. Trubitt, Esq.
BROBECK, PHLEGER & HARRISON LLP
550 West C Street, Suite 1300
San Diego, California 92101
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE(3) AGGREGATE OFFERING PRICE(3) REGISTRATION FEE
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Common Stock, no par value per share 3,147,978 shares(1) $1.09 $3,431,296 $1,012.23
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Common Stock, no par value per share 123,000 shares(2) $2.55 $313,650 $ 92.53
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Total 3,270,978 shares(1)(2) $3,744,946 $1,104.76
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(l) Includes (i) up to 3,147,978 shares of Common Stock to be issued upon
conversion of the Company's Series A Convertible Preferred Stock and
(ii) an indeterminate number of additional shares of Common Stock as
may from time to time become issuable upon conversion thereof resulting
from the fluctuating conversion rate of such Series A Convertible
Preferred Stock (determined based upon the market value of the
Company's publicly-traded Common Stock as of the applicable conversion
thereof) and by reason of anti-dilution provisions of the Series A
Convertible Preferred Stock, stock splits, stock dividends (including
without limitation 6,690 shares of Common Stock already so issued by
way of stock dividend) and similar transactions, all of which shares
are registered hereby pursuant to Rules 416 and 457(i) under the
Securities Act. The number of shares of Common Stock included in the
Registration Statement represents the Company's good faith estimate of
the number of shares of Common Stock issuable upon conversion of the
Series A Convertible Preferred Stock calculated on the basis of 200% of
the number of shares issuable at the initial-issuance floating
conversion price of $1.906 per share, which conversion price is
variable as provided in the Series A Convertible Preferred Stock's
governing document.
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(2) Includes (i) up to 123,000 shares of Common Stock to be issued upon
exercise of Common Stock Purchase Warrants (the "Warrants") and (ii) an
indeterminate number of additional shares of Common Stock as may from
time to time become issuable upon exercise of the Warrants by reason of
the anti-dilution provisions of the Warrants, stock splits, stock
dividends, and similar transactions, all of which shares are registered
hereby pursuant to Rules 416 and 457(i) under the Securities Act.
(3) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act. The prices per share
and aggregate offering prices are based on (i) with respect to
3,147,978 shares of Common Stock issuable upon conversion of Series A
Convertible Preferred Stock, the average of the high and low prices of
the Registrant's Common Stock on October 1, 1998 as reported on the
Nasdaq Smallcap Market and (ii) with respect to 123,000 shares of
Common Stock issuable upon exercise of Warrants, the exercise price of
the Warrants.
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The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
PROSPECTUS
(Subject to completion, dated October 5, 1998)
3,270,978 SHARES
CARDIODYNAMICS INTERNATIONAL CORPORATION
COMMON STOCK
This Prospectus relates to the public resale of 3,270,978 shares of
Common Stock, no par value per share (the "Shares"), of CardioDynamics
International Corporation ("CardioDynamics" or the "Company"), by certain
shareholders of the Company (the "Selling Shareholders"). All of these Shares
are issuable upon conversion of 3,000 shares of Series A Convertible Preferred
Stock and/or exercise of 123,000 Warrants held by the Selling Shareholders, or
are issued or issuable upon the payment by the Company of dividends on the
Selling Shareholders' Series A Convertible Preferred Stock in the form of
Shares. In connection with a private placement of the Series A Convertible
Preferred Stock and Warrants consummated on August 21, 1998 (the "Private
Placement"), the Selling Shareholders received such Series A Convertible
Preferred Stock and Warrants pursuant to the Section 4(2) exemption from the
registration requirement of the Securities Act of 1933, as amended (the
"Securities Act"). The Shares are being registered by the Company pursuant to a
Securities Purchase Agreement and a Registration Rights Agreement with the
Selling Shareholders executed by the Company and the Selling Shareholders in
connection with the Private Placement. See "The Company" and "Selling
Shareholders."
The sale of the Shares may be effected by the Selling Shareholders from
time to time in transactions in the Nasdaq Stock Market, in the over-the-counter
market, in negotiated transactions or a combination of such methods of sale, at
fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at negotiated prices. The
Selling Shareholders may effect such transactions by selling the Shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concession or commission from the Selling Shareholders and/or
the purchasers of the Shares for whom such broker-dealers may act as agents or
to whom they may sell as principals or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). See "Plan
of Distribution."
None of the proceeds from the sale of the Shares by the Selling
Shareholders will be received by the Company. The Company has agreed, among
other things, to bear certain expenses (other than fees and expenses of the
Selling Shareholders' counsel in excess of $5,000, and any underwriting
discounts and commissions and brokerage commissions and fees) in connection with
the registration and sale of the Shares being offered by the Selling
Shareholders. See "Selling Shareholders."
CardioDynamics Common Stock is traded on the Nasdaq SmallCap Market
("Nasdaq SmallCap Market") under the symbol "CDIC." On October 1, 1998, the
closing sale price of CardioDynamics Common Stock as reported on the Nasdaq
SmallCap Market was $1.06 per share.
The Selling Shareholders and any broker-dealers, agents or underwriters
that participate with the Selling Shareholders in the distribution of Shares may
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" ON PAGE 3 FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is October ___, 1998.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY SELLING SHAREHOLDER OR BY ANY OTHER PERSON. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES TO ANY PERSON OR BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE
MADE.
AVAILABLE INFORMATION
CardioDynamics is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable
to small business issuers such as CardioDynamics, and in accordance therewith
files annual and quarterly reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected at the Commission's Public
Reference Section, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as
well as at the Commission's regional offices at 7 World Trade Center, 13th
Floor, New York, New York 10048; and at Northwest Atrium Center, 500 West
Madison Street, Room 1400, Chicago, Illinois 60661-2511. Copies of such material
can also be obtained at prescribed rates at the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a World Wide Web site on the Internet at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The Common
Stock of the Company is traded on the Nasdaq SmallCap Market and such reports,
proxy and information statements and other information concerning the Company
may be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
This Prospectus constitutes a part of a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the shares of Common Stock offered
hereby, reference is hereby made to the Registration Statement. The Registration
Statement may be inspected at the public reference facilities maintained by the
Commission at the addresses set forth in the preceding paragraph. Statements
contained herein concerning any document filed as an exhibit are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement. Each such statement is
qualified in its entirety by such reference.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission
(Commission File No. 0-11868) are hereby incorporated by reference in this
Prospectus:
(1) The Annual Report of the Company on Form 10-KSB for the fiscal
year ended November 30, 1997;
(2) The Quarterly Report of the Company on Form 10-QSB for the
fiscal quarters ended February 28, 1998 and May 31, 1998;
(3) The Current Report of the Company on Form 8-K for an event of
August 21, 1998 (filed September 3, 1998); and
(4) The Company's Registration Statement on Form 8-A filed with
the Commission on April 19, 1984 pursuant to Section 12 of the
Exchange Act, in which there is described the terms, rights
and provisions applicable to the Company's Common Stock.
All reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus and prior to the termination of this Offering shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such reports and documents. Any statement incorporated herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is
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or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated herein by reference (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such document). Requests for such documents
should be submitted in writing to the Secretary, at CardioDynamics International
Corporation, 6175 Nancy Ridge Drive, Suite 300, San Diego, California 92121 or
by telephone at (619) 535-0202.
THE COMPANY
CardioDynamics International Corporation ("CardioDynamics" or the
"Company") develops, manufactures and markets noninvasive digital heart
monitoring devices which provide continuous data on a wide range of hemodynamic
parameters. The Company's primary products, the BioZ(TM) System, the BioZ(TM)
Portable, and the BioZ.com(TM), USE Thoracic Electrical Bioimpedance ("TEB")
technology to obtain data which is typically available only through a time
consuming, costly, potentially dangerous invasive procedure known as right heart
catheterization or as pulmonary artery catheterization ("PAC").
The Company's principal executive offices are located at 6175 Nancy
Ridge Drive, Suite 300, San Diego, California 92121, and its telephone number is
(619) 535-0202.
FORWARD-LOOKING STATEMENTS
This Prospectus and the documents incorporated herein by reference
contain forward-looking statements that are based on current expectations,
estimates and projections about the Company's industry, management's beliefs,
and assumptions made by management. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," and variations of such
words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict; therefore, actual results may differ materially from those expressed or
forecasted in any such forward-looking statements. Such risks and uncertainties
include those noted in "Risk Factors" below and in the documents incorporated
herein by reference. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
RISK FACTORS
DEPENDENCE ON PRIMARY PRODUCT; UNCERTAINTY OF MARKET ACCEPTANCE
The Company's future is substantially dependent upon the success of the
BioZ product line and follow-on products. The market for TEB products is in a
relatively early stage of development, and there can be no assurance that this
market will develop. The long-term commercial success of the BioZ product line
and any follow-on TEB products requires widespread acceptance, by a significant
portion of the medical community, of the Company's TEB products as safe,
efficacious and cost-effective alternatives to invasive procedures. Widespread
acceptance would represent a significant change in practice patterns.
Historically, some medical professionals have indicated hesitancy in using TEB
products such as analog-based TEB monitors previously manufactured by the
Company. Invasive procedures, such as right heart catheterization, are generally
accepted in the medical community and have a long history of use.
The Company currently has limited clinical data with which to
demonstrate the clinical benefits of its products but has sponsored and plans to
continue to sponsor and/or conduct clinical trials which it hopes will
demonstrate consistent clinical benefits resulting from the use of its products
(including reduced procedure time, reduced patient trauma and lower costs).
There can be no assurance as to when such clinical trials will be completed,
that such clinical trials will have a positive outcome or that a positive
outcome in such trial would be
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sufficient to enable acceptance of the BioZ product line by the medical
community. The Company is unable to predict how quickly, if at all, its products
may be accepted by members of the medical community.
Technological limitations of TEB make it subject to inaccuracies where
a patient has certain identified clinical circumstances such as:
Severe septic shock,
Significant pulmonary hypertension,
Aortic valve regurgitation,
Severe hypertension (MAP>130mmHg),
Tachycardia rates>180BPM,
Patient height measuring <47"(120cm),*
Patient weight measuring<66 lbs(30kg) or >342 lbs. (155kg),*
Extreme patient movement*
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*Until algorithm development for pediatric and exercise
applications is completed.
Failure of the BioZ product line or other of the Company's TEB products
to gain widespread acceptance in the medical community, and to maintain such
acceptance, would have a material adverse effect on the Company's business,
financial condition and results of operations.
HISTORY OF LOSSES
Since its emergence from bankruptcy proceedings in 1993, the Company
has incurred substantial losses in the course of researching, developing and
enhancing its technology and products and establishing administrative and sales
organizations. The Company anticipates that its operating expenses will increase
substantially in the foreseeable future as it increases its sales and marketing
activities, expands its operations and management and continues the development
of its technology. Accordingly, the Company expects to incur additional losses
for fiscal 1998, and there can be no assurance that the Company will achieve or
sustain revenue growth or profitability.
FUTURE ADDITIONAL CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE
AVAILABLE
Commercialization by the Company of the BioZ product line and the
development and commercialization of any additional products will require
substantial expenditures. The Company's capital requirements will depend on
numerous factors, including the rate of sales growth; the progress of the
Company's marketing-related clinical evaluations and product development
programs; the receipt of, and the time required to obtain, regulatory clearances
and approvals; the resources the Company devotes to the development, manufacture
and marketing of its products; the resources required to hire and develop
medical sales representatives and independent distributors and to develop
internal manufacturing capacity; facilities requirements; market acceptance and
demand for its products; the ability of the Company and its distributors to
avoid increased working capital requirements arising from hospitals' lengthy
capital equipment purchase processes by offering leasing programs; and other
factors. The timing and amount of such capital requirements cannot be accurately
predicted. The Company may be required to raise additional funds through public
or private financings, bank loans, collaborative relationships or other
arrangements earlier than expected. There can be no assurance that such
additional funding will be available on terms attractive to the Company, or at
all.
COMPETITION AND TECHNOLOGICAL CHANGE
The Company competes with other entities developing and marketing
non-invasive hemodynamic monitors. The Company also is subject to severe
competition from invasive-technology companies, including Baxter Healthcare
Corporation, which have more established and larger marketing and sales
organizations, significantly greater financial and technical resources and a
larger installed base of customers than the Company. Such competitors may be
able to devote greater resources to the development, promotion and sales of
their products than the Company. The current widespread acceptance of PAC, and
lack of widespread acceptance of TEB, is an important competitive disadvantage
which the Company must overcome. In addition, current and potential
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competitors of the Company may establish cooperative relationships with large
medical equipment companies to gain access to greater research and development
or marketing resources. Competition may result in price reductions, reduced
gross margins and loss of market share, any of which could have a material
adverse effect on the Company's business, results of operations and financial
condition. There can be no assurance that the Company will be able to compete
successfully.
In addition, the introduction by others of products embodying new
technologies and the emergence of new hemodynamic monitoring equipment industry
standards could render the Company's products obsolete and unmarketable. Other
companies may develop and introduce products and processes competitive with or
superior to those of the Company. In addition, other technologies or products
may be developed that have an entirely different approach or means of
accomplishing the intended purposes of the Company's products. Accordingly, the
life cycles of the Company's products are difficult to estimate. To compete
successfully, the Company must develop and introduce new products that keep pace
with technological developments, respond to evolving consumer requirements and
achieve market acceptance.
There can be no assurance that the Company can satisfactorily and
timely develop and introduce additional products. Even if the Company succeeds
in developing and marketing products that achieve market acceptance, there can
be no assurance that competitors will not in the future develop and market
products that will replace those of the Company.
EMERGING-TECHNOLOGY COMPANY
Although not in fact a new company, currently CardioDynamics faces many
of the challenges characteristic of new companies just emerging from the
development phase. The BioZ product line has required, and any future products
will require, substantial development efforts and compliance with all
governmental clearance/approval requirements. The Company may encounter
unforeseen technological or scientific problems, which may force abandonment or
substantial change in the development of a specific product or process, or
technological change or product developments by others, any of which may have a
material adverse effect on the Company. Further, even after successful technical
development and receipt of governmental approval, a product may not achieve
commercial success.
ABILITY TO MANAGE GROWTH
The Company, if successful, will experience a period of growth that
would place a significant strain upon its managerial, financial and operational
resources. There can be no assurance that the Company's infrastructure,
procedures or controls will be adequate to support the Company's operations or
that the Company's management will be able to achieve the rapid execution
necessary to fully exploit any future market opportunity for the Company's
products. The Company's future operating results will also depend on its ability
to complete its geographic network of direct sales agents and distributors,
expand its sales and marketing organizations, and fill out its support staff
organization. If the Company is unable to manage expansion effectively, the
Company's business, results of operations and financial condition will be
materially and adversely affected. There can be no assurance, however, that such
expansion or growth will occur.
CONTROL BY OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS
Allen E. Paulson and James C. Gilstrap, the co-chairmen of the Company,
beneficially own, directly or through CardioDynamics Holdings, LLC, which they
control, approximately 67% of the outstanding shares of the Company's Common
Stock (including shares owned by others which CardioDynamics Holdings, LLC has
the right to vote). In addition, Mr. Paulson's sons beneficially own another 9%
of the outstanding shares of Common Stock. Accordingly, these persons,
individually and as a group, are able to control the Company and direct its
affairs and business, including any future issuances of Common Stock or other
securities by the Company, merger and acquisition decisions, declaration of
dividends and the election of directors.
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GOVERNMENT REGULATION
The Company's products and activities are subject to extensive
regulation by the FDA and other governmental authorities. Delays in receipt of,
or failure to obtain, regulatory clearances and approvals, or any failure to
comply with regulatory requirements could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's TEB products are subject to extensive and rigorous
regulation by the FDA and, to varying degrees, by state and foreign regulatory
agencies. Under the federal Food, Drug, and Cosmetic Act (the "FDC Act"), the
FDA regulates the clinical testing, manufacture, labeling, packaging, marketing,
distribution and record keeping for medical devices, in order to ensure that
medical devices distributed in the United States are safe and effective for
their intended use.
Before a new device can be introduced into the market, the manufacturer
generally must obtain FDA 510(k) clearance or approval of a premarket approval
("PMA") application. Following submission of a 510(k) or PMA application, the
manufacturer may not market the new device until an order is issued by the FDA
granting clearance or approval, which can entail an expensive, lengthy and
uncertain process.
The Company is also subject to routine inspection by the FDA and state
agencies, such as the California Department of Health Services, for compliance
with Good Manufacturing Practice requirements, Medical Device Reporting
requirements and other applicable regulations. Noncompliance with applicable
requirements can result in warning letters, import detentions, fines, civil
penalties, injunctions, suspensions or losses of regulatory approvals, recall or
seizure of products, operating restrictions, refusal of the government to
approve product export applications or allow the Company to enter into supply
contracts and criminal prosecution. Delays in receipt of, or failure to obtain,
regulatory clearances and approvals, if obtained, or any failure to comply with
regulatory requirements could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company has
received a marketing clearance for its BioZ System, the BioZ Portable and the
BioZ.com.
The FDC Act requires that medical devices be manufactured in accordance
with the current Good Manufacturing Practice requirements. Good Manufacturing
Practice requirements require, among other things that (i) the manufacturing
process be regulated and controlled by the use of written procedures, (ii) the
ability to produce devices which meet the manufacturer's specifications be
validated by extensive and detailed testing of every aspect of the process and
(iii) any deficiencies in the manufacturing process or in the products produced
be investigated and detailed records kept. Manufacturing facilities are subject
to FDA inspection on a periodic basis to monitor compliance with current Good
Manufacturing Practice requirements. Labeling and promotional activities are
subject to scrutiny by the FDA and, in certain circumstances, by the Federal
Trade Commission. Current FDA enforcement policy prohibits the marketing of
approved medical devices for unapproved uses. For any medical device cleared
through the 510(k) process, modifications or enhancements that could
significantly affect the safety or effectiveness of the device or that
constitute a major change to the intended use of the device require a new 510(k)
submission. If the FDA requires the Company to submit a new 510(k) notice for
any product modification, the Company may be prohibited from marketing the
modified product until the 510(k) notice is cleared by the FDA.
The FDA regulates computer software that performs the function of a
regulated device or that is intimately associated with a given device, such as
control software for diagnostic devices. The FDA is in the process of
reevaluating its regulation of such software, and if the FDA undertakes
increased or more rigorous regulation of such software, the BioZ product line
and related products may become subject to further regulatory processes and
clearance requirements.
Laws and regulations regarding the manufacture, sale and use of medical
devices are subject to change and depend heavily on administrative
interpretations. There can be no assurance that future changes in the
regulations or interpretations made by the FDA or other regulatory bodies, with
possible retroactive effect, will not adversely affect the Company.
Sales of medical devices outside of the United States are subject to
foreign regulatory requirements that vary from country to country. The Company
currently relies on its international distributors and sub-distributors for the
receipt of premarket approvals and compliance with clinical trial requirements
in those countries that require
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them, and it expects to continue to rely on distributors in those countries
where the Company continues to use distributors. In the event that the Company's
international distributors fail to obtain or maintain required premarket
approvals or fail to comply with foreign regulations, foreign regulatory
authorities may require the Company to cause the applicable distributor to file
revised governmental notifications, cease commercial sales of its products in
the applicable countries or otherwise act so as to stop any ongoing
noncompliance in such countries. Such enforcement action by regulatory
authorities could have a material adverse effect on the Company's business,
financial condition and results of operations.
In order to sell its products within the European Economic Area
following June 14, 1998, the Company will be required to achieve compliance with
the European Commission's Medical Device Directive and to affix CE marking on
its products to attest such compliance. Until the Company can comply with CE
marking requirements, the Company will be unable to sell its products in the
European Economic Area; this could have a material adverse effect upon the
Company's business, financial condition and results of operations.
THIRD-PARTY REIMBURSEMENT; PRICING PRESSURES
The Company's commercial success will depend in part on the
availability of adequate reimbursement from third-party health care payers, such
as government and private health insurers and managed care organizations.
Third-party payers are increasingly challenging the pricing of medical products
and services. Even with an FDA approved device, there can be no assurance that
third-party payers including Medicare will cover the device and related
services, or they may place certain restrictions on the circumstances in which
coverage will be available. There can be no assurance that the Company will be
able to obtain a specific code for TEB reimbursement in a reasonable time frame,
or at all, in order to enable the Company to achieve market acceptance of its
products or to maintain price levels sufficient to realize an appropriate return
on the Company's investment. Further, there can be no assurance that downward
pricing pressure in the industry generally will not negatively impact the
Company's operations.
The Company's business plan contemplates an income stream from sales of
higher-margin sensors toward an installed base of Company monitors. The Company
may be subject, however, to price competition from other sensor manufacturers.
DEPENDENCE ON MANAGEMENT AND OTHER KEY PERSONNEL
The Company is dependent upon a limited number of key management and
technical personnel. The loss of the services of one or more of such key
employees could have a material adverse effect on the Company's business,
financial condition, and results of operations. In addition, the Company's
success depends upon its ability to attract and retain additional highly
qualified sales, management, manufacturing and research and development
personnel. The Company faces intense competition in its recruiting activities
and there can be no assurance that the Company will be able to attract and/or
retain qualified personnel.
DEPENDENCE ON THIRD PARTIES
The Company's strategy for development and commercialization of certain
of its products is dependent upon entering into various arrangements with third
parties and upon the subsequent success of these parties in performing their
obligations. There can be no assurance that the Company will be able to
negotiate acceptable arrangements in the future or that such arrangements or its
existing arrangements will be successful. The Company relies heavily on
contracted development services, particularly from Rivertek Medical Systems,
Inc. Also, the Company has limited experience manufacturing products for
commercial purposes and currently does not have the capability to manufacture
the BioZ products and therefore is dependent on contract manufacturers for the
production of such products for development and commercial purposes. The
manufacture of the Company's products is subject to GMP regulations prescribed
by the FDA.
RELIANCE ON PATENTS AND PROPRIETARY TECHNOLOGY
The Company's patents and proprietary technology may not be able to
prevent effective competition by others. Although the Company believes that it
has effective patent protection, no assurance can be given that the
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Company's products will not be found to infringe the rights of others.
Intellectual property litigation, whether defensive or offensive, would have no
certain outcome other than to drain the Company's resources.
The validity and breadth of claims in medical technology patents
involve complex legal and factual questions. No assurance can be given that any
future patent applications will be issued, that the scope of any patent
protection will exclude competitors or provide competitive advantages to the
Company, that any of the Company's patents will be held valid if subsequently
challenged or that others will not claim rights in or ownership of the patents
and other proprietary rights held or licensed by the Company or that the
Company's existing patents will cover the Company's future products. Moreover,
when the Company's key patents expire, the inventions will be in the public
domain. Since patent applications in the United States are maintained in secrecy
until patents issue, the Company cannot be certain that it will not infringe any
patents that may be issued to others. In the event the Company's products are
found to infringe patents held by competitors, there can be no assurance that
the Company will be able to modify successfully its product to avoid
infringement, or that any modified products will be commercially successful.
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock is likely to be highly
volatile and could be subject to wide fluctuations in response to various
factors beyond the control of the Company, including (i) quarterly variations in
operating results, (ii) announcements of technological innovations, new products
or pricing by the Company's competitors, (iii) changes in, or failure of the
Company to meet, financial estimates of securities analysts, (iv) the rate of
adoption by physicians of TEB technology in markets targeted by the Company, (v)
timing of patent and regulatory approvals, (vi) timing and extent of
technological advancements, (vii) results of clinical studies, (viii) short
sales by the Selling Shareholders or other persons, and (ix) general market
conditions. In addition, the stock market has experienced significant price and
volume fluctuations that have affected the market prices of equity securities of
many medical device companies and that often have been unrelated to the
operating performance of such companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. The Company's
somewhat small market float may not be entirely adequate to provide market
liquidity and mitigate stock price volatility.
POTENTIAL DILUTION
The Series A Convertible Preferred Stock is convertible into Company
Common Stock at either a fixed conversion price or a floating conversion price,
whichever is more favorable to the holder. The floating conversion price is tied
to the Company Common Stock market price. If the Common Stock price declines,
the Series A Convertible Preferred Stock will be convertible into a
substantially increased number of shares of Common Stock, resulting in a
meaningful dilution to other holders of Common Stock and a potential material
adverse effect on the Common Stock prices thereafter.
RISKS ASSOCIATED WITH INTERNATIONAL ACTIVITIES
The Company believes it is possible that international sales will
represent a meaningful portion of revenue in the future. This would require
significant management attention and financial resources and subject the Company
to the risks of selling internationally. These risks include unexpected changes
in regulatory requirements, tariffs and other barriers and restrictions, and an
adverse effect from reduced protection for intellectual property rights and the
burdens of complying with variety of foreign laws. In addition, fluctuations in
the rates of exchange could increase the price in local currencies of the
Company's products in foreign markets and make the Company's products relatively
more expensive than competitors' products that are denominated in local
currencies.
PRODUCT LIABILITY RISK AND PRODUCT RECALL; LIMITED INSURANCE COVERAGE
The nature of the Company's business exposes it to risks of product
liability or product recalls that are inherent in the design, development,
manufacture and marketing of medical devices, in the event that use of the
Company's products is alleged to have caused adverse effects on a patient or
such products are believed to be defective. Medical devices as complex as those
offered by the Company frequently contain errors or failures, especially when
first introduced or when new versions are released. The Company's products are
designed to be
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used in certain procedures where there is a high risk of serious injury or
death. Such risks will exist even with respect to those products that have
received, or may in the future receive, regulatory clearance for commercial
sale.
The Company did not carry product liability insurance during certain
periods prior to May 15, 1995. Therefore, it has no coverage for analog TEB
monitors manufactured and sold during certain times. Since then, the Company has
maintained product liability insurance at levels which it believes to be
sufficient and consistent with industry standards for companies with its current
sales levels. The Company intends to increase its product liability insurance
policy limit as sales grow. There can be no assurance that the Company's product
liability insurance is adequate or that such insurance coverage will continue to
be available on commercially reasonable terms or at all. In addition, product
liability claims or recalls could result in loss of revenue or delay in market
acceptance, diversion of development resources, damage to the Company's
reputation or increased service and warranty costs.
UNCERTAINTY AND POTENTIAL NEGATIVE EFFECTS OF HEALTH CARE REFORM
The health care industry is undergoing fundamental changes resulting
from political, economic and regulatory influences. In the United States,
comprehensive programs have been proposed that seek to (i) increase access to
health care for the uninsured, (ii) control the escalation of health care
expenditures within the economy, and (iii) use health care reimbursement
policies to help control the federal deficit. The Company anticipates that
Congress and state legislatures will continue to review and assess such
proposals, and public debate of these issues will likely continue. The Company
cannot predict which, if any, of such reform proposals will be adopted and when
they might be adopted. Other countries also are considering health care reform.
Significant changes in health care systems are likely to have a substantial
impact over time on the manner in which the Company conducts its business and
could have a material adverse effect on the Company's business, financial
condition and results of operations, and ability to market its products as
currently contemplated.
NO DIVIDENDS
The Company does not intend to pay any cash dividends on the Common
Stock in the foreseeable future. Payment of such cash dividends would, in any
event, be prohibited or limited under the terms of the Company's bank loans
and/or the Series A Convertible Preferred Stock.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares. All proceeds from the sale of the Shares will be for the account of the
Selling Shareholders, as described below. See "Selling Shareholders" and "Plan
of Distribution" described below.
SELLING SHAREHOLDERS
The Selling Shareholders have not had a material relationship with the
Company within the past three years other than as a result of their ownership of
the Series A Convertible Preferred Stock and Warrants and other
securities-related agreements entered into on August 21, 1998. The following
summary of such matters is not necessarily comprehensive, and is qualified in
its entirety by the complete terms of the Securities Purchase Agreement, the
Certificate of Determination of Preferences of Series A Convertible Preferred
Stock, the Warrants, and the Registration Rights Agreement. All these documents
are incorporated by reference into this Prospectus.
The Selling Shareholders purchased 3,000 shares of Series A Convertible
Preferred Stock, and the 123,000 Warrants, for $3,000,000 pursuant to the
Securities Purchase Agreement. The Selling Shareholders also obtained the right
to purchase $3,000,000 of a similar Series B Convertible Preferred Stock if
certain conditions are met, and in the alternative (and on a mutually exclusive
basis) the Company has the right to require the Selling Shareholders to purchase
$3,000,000 of a similar Series C Convertible Preferred Stock if certain
different conditions are met. There can be no assurance that the Series B or
Series C Convertible Preferred Stock transactions will ever occur.
The Series A Convertible Preferred Stock and any accumulated dividends
are convertible into Common Stock at the Fixed Conversion Price or the Floating
Conversion Price, whichever is more favorable to the investor. The Fixed
Conversion Price is $2.70 (subject to certain adjustments); the Floating
Conversion Price is 95% of the
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then-current Common Stock market value (calculated using a formula involving
closing bid prices) until August 21, 1999 and 92% of the then-current Common
Stock market value (calculated using the formula) thereafter.
The Series A Convertible Preferred Stock cannot be converted at all
before January 19, 1999 unless certain events occur, and in certain
circumstances the number of shares which could be converted after January 19,
1999 and before April 19, 1999 is limited on a per-month basis.
All Series A Convertible Preferred Stock still outstanding on the
Mandatory Conversion Date will automatically be converted then. The Mandatory
Conversion Date is August 21, 2002, subject to the possibility of extension if
certain events occur.
The holders of the Series A Convertible Preferred Stock can require
redemption for cash (at 130% of stated value) instead of conversion for Shares
in the event of acquisition of the Company or certain defaults by the Company.
Also, if the Company cannot or will not convert, redemption will occur instead.
Also, the Company may choose to redeem the Series A Convertible Preferred Stock
for cash (at 125% of stated value) after August 21, 2000.
No Selling Shareholder may elect to convert for Shares which would give
it more than 4.99% of the Company's outstanding Common Stock, unless the Selling
Shareholder has given the Company 61 days' advance notice of its intent to do
so. Also, the Company shall not be obligated to issue, upon conversion of the
Series A Convertible Preferred Stock as a whole, more shares than are allowed by
Rule 4460(i) of the Nasdaq Stock Market, unless such above-the-threshold
conversion is approved by the Company's shareholders; the excess above the
threshold would, absent such shareholder approval, be handled by redemption
rather than by conversion. The Rule 4460(i) threshold is 6,422,748 Shares
(19.99% of the Company's outstanding Common Stock at August 21, 1998).
The Series A Convertible Preferred Stock is entitled to a cumulative
dividend of 3% per annum, payable quarterly in arrears. The Company has the
choice to pay the dividend either in Common Stock or in cash. The Company's
current intention is to pay the dividends in Common Stock, not in cash. The
Company paid to the Selling Shareholders on September 30, 1998 a dividend, in
the form of a total of 6,690 shares of Common Stock, on the Selling
Shareholders' Series A Convertible Preferred Stock for the partial quarter than
ended.
The Series A Convertible Preferred Stock has no voting rights, except
as provided by law.
The Warrants are exercisable for Shares at $2.55 per share, subject to
antidilution adjustments. The Warrants expire on August 21, 2003.
In connection with the purchase of such Series A Convertible Preferred
Stock and Warrants, the Selling Shareholders entered into the Securities
Purchase Agreement pursuant to which the Selling Shareholders represented that
they were acquiring the overlying securities, and would acquire the Shares, for
investment and with no present intention of distributing the Shares. The Company
agreed, in such Securities Purchase Agreement and in a related Registration
Rights Agreement, to prepare and file a registration statement as soon as
practicable and to bear all expenses other than fees and expenses of counsel for
a Selling Shareholder (to the extent over $5,000) and underwriting discounts and
commissions and brokerage commissions and fees. Accordingly, and in recognition
of the fact that the Selling Shareholders, even though purchasing the Series A
Convertible Preferred Stock and Warrants (and the underlying Shares) without a
view to distribution, may wish to be legally permitted to sell the Shares when
each deems appropriate, the Company filed with the Commission a Registration
Statement on Form S-3, of which this Prospectus forms a part, with respect to
the resale of the Shares from time to time and has agreed to prepare and file
such amendments and supplements to the Registration Statement as may be
necessary to keep the Registration Statement effective until all Shares offered
hereby have been sold or until such Shares are no longer, by reason of Rule 144
under the Securities Act or any other rule of similar effect, required to be
registered in order to be resold by the Selling Shareholders.
The following table sets forth the name of each Selling Shareholder,
the number of shares of CardioDynamics Common Stock owned beneficially by each
Selling Shareholder as of October 1, 1998 (based on the special conventions
described below), and the number of Shares which may be offered pursuant to this
Prospectus. CardioDynamics will not receive any of the proceeds from the sale of
Shares by the Selling Shareholders.
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The table treats all shares of Common Stock issuable upon conversion of
the Selling Shareholders' Series A Convertible Preferred Stock (at the effective
Floating Conversion Price, calculated as of initial issuance, of $1.906) and
exercise of their Warrants as being outstanding, notwithstanding that the
Securities and Exchange Commission's rules would not necessarily deem such
conversion shares to be outstanding as of such date and disregarding the facts
that (a) dividend accruals could result in the Series A Convertible Preferred
Stock, which has an aggregate "stated value" of $3,000,000, being convertible
for relatively more shares of Common Stock as time passes, (b) Common Stock
price changes or other events may, under the terms of the Series A Convertible
Preferred Stock, result in it being ultimately convertible at a different rate
more favorable to the Selling Shareholders (and in no event at a rate less
favorable than the current Fixed Conversion Price of $2.70 per share), and (c)
anti-dilution adjustments may result in the Warrants becoming exercisable for
more than the 123,000 shares of Common Stock for which they were initially
exercisable.
The final column's numbers are higher than the first column's because
the final column includes 200%, rather than 100%, of the Shares beneficially
owned as underlying the Series A Convertible Preferred Stock. The extra 100%
reflects additional shares which may become issuable in the future due to
conversion price adjustments and/or dividends paid on the Series A Convertible
Preferred Stock in the form of Common Stock. The first column assumes that the
Series A Convertible Preferred Stock is converted at a conversion price of
$1.906 per share (the applicable conversion price on the initial-issuance date)
and no limits or adjustments are applicable. If the Series A Convertible
Preferred Stock had actually been convertible and converted on October 1, 1998,
the conversion price would have been $1.063 per share and therefore
substantially more shares of Common Stock would have been issued.
The numbers set forth in the final column below constitute all of the
Shares that the Selling Shareholders may distribute in this offering; however,
not all of the Shares will necessarily be offered for resale at any particular
time, or at all. There are currently no agreements, arrangements or
understandings with respect to the sale of any of the Shares. The Shares are
being registered to permit public secondary trading of the Shares, and the
Selling Shareholders may offer the Shares for resale from time to time after the
Shares are issued upon conversion/exercise/dividend payment. See "Plan of
Distribution."
SHARES BENEFICIALLY PERCENTAGE NUMBER OF
OWNED PRIOR TO OF SHARES BEING
SELLING SHAREHOLDER OFFERING CLASS OFFERED
- ----------------------------------------------- ------------------- ---------------- --------------
AGR Halifax Fund, Ltd. (1) 839,540 2.5% 1,623,190
Leonardo, L.P. (2) 475,740 1.4% 919,807
GAM Arbitrage Investments, Inc. (2) 55,969 * 108,212
AG Super Fund International Partners, L.P. (2) 55,969 * 108,212
Raphael, L.P. (2) 83,954 * 162,319
Ramius Fund, Ltd. (1) 167,908 * 324,638
AFO Capital, LLC 24,600 * 24,600
--------- --- ---------
Total 1,703,679 5.0% 3,270,978
- ----------
(1) Controlled by AG Ramius Partners, L.L.C.
(2) Controlled by Angelo, Gordon & Co., L.P.
* Less than 1%.
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Shareholders. As used herein, "Selling Shareholders" includes donees and
pledgees selling shares received from a named Selling Shareholder after the date
of this Prospectus. All costs, expenses and fees in connection with the
registration of the Shares offered hereby (other than certain fees and expenses
of a Selling Shareholder's counsel) will be borne by the Company. Brokerage
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commissions and similar selling expenses, if any, attributable to the sale of
Shares will be borne by the Selling Shareholders. Sales of Shares may be
effected by Selling Shareholders from time to time in one or more types of
transactions (which may include block transactions) on the Nasdaq SmallCap
Market, in the over-the-counter market, in negotiated transactions, through put
or call transactions relating to the Shares, through short sales of Shares, or a
combination of such methods of sale, at market prices prevailing at the time of
sale, or at negotiated prices. Such transactions may or may not involve brokers
or dealers. The Selling Shareholders have advised the Company that they have not
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities, nor is
there an underwriter or coordinating broker acting in connection with the
proposed sale of Shares by the Selling Shareholders.
The Selling Shareholders may effect such transactions by selling Shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Shareholders and/or the
purchasers of Shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The Selling Shareholders and any broker-dealers that act in connection
with the sale of Shares might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act, and any commissions received by such
broker-dealers and any profit on the resale of the Shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act. The Company has agreed to indemnify each Selling
Shareholder against certain liabilities, including liabilities arising under the
Securities Act. The Selling Shareholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of the
Shares against certain liabilities, including liabilities arising under the
Securities Act.
The registration of the Shares under the Securities Act shall not be
deemed an admission by the Selling Shareholders or the Company that the Selling
Shareholders are "underwriters", for purposes of the Securities Act, of any
Shares offered under this Prospectus. However, because the Selling Shareholders
may be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, the Selling Shareholders will be required to comply with the
prospectus delivery requirements of the Securities Act. The Company has informed
the Selling Shareholders that the anti-manipulative provisions of Regulation M
promulgated under the Exchange Act may apply to their sales in the market.
The Selling Shareholders also may resell all or a portion of the Shares
in open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of such Rule.
Upon the Company being notified by a Selling Shareholder that any
material arrangement has been entered into with a broker-dealer for the sale of
Shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
Prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such Selling Shareholder and of
the participating broker-dealer(s), (ii) the number of Shares involved, (iii)
the price at which such Shares were sold, (iv) the commissions paid or discounts
or concessions allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this Prospectus and (vi) other facts
material to the transaction. In addition, upon the Company being notified by a
Selling Shareholder that a donee or pledgee intends to sell more than 500
shares, a supplement to this Prospectus will be filed.
In order to comply with the securities laws of certain states, if
applicable, the Shares may be sold in such jurisdictions only through registered
or licensed brokers or dealers. In addition, in certain states the Shares may
not be sold unless they have been registered or qualified for sale or an
exemption from registration or qualification requirements is available and is
complied with.
The Selling Shareholders are not restricted as to the price or prices
at which they may sell their Shares. Sales of such Shares may have an adverse
effect on the market price of the Common Stock. Moreover, the Selling
Shareholders are not restricted as to the number of Shares that may be sold at
any time, and it is possible that a
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significant number of Shares could be sold at the same time which may also have
an adverse effect on the market price of the Company's Common Stock.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, San Diego, California.
EXPERTS
The financial statements as of and for the year ended November 30,
1997, have been incorporated by reference herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
INDEMNIFICATION
Section 317 of the California General Corporation Law provides for the
indemnification of officers and directors of the Company against expenses,
judgments, fines and amounts paid in settlement under certain conditions and
subject to certain limitations.
Article Three of the Bylaws of the Company provides that the Company
shall indemnify any person who is or was a director, officer, employee or agent
of the Company (or predecessor corporation of the Company), or any person who is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, subject to certain limitations. In addition,
expenses incurred by a director, officer, employee or agent in defending a civil
or criminal action, suit or proceeding by reason of the fact that he or she is
or was a director, officer, employee or agent of the Company may be paid by the
Company in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the Company.
The Company's Articles of Incorporation, as amended, provide that no
director of the Company shall be liable for monetary damages in an action by or
in the right of the Company for breach of a director's duties to the Company and
its shareholders, as set forth in Section 309 of the California Corporations
Code, provided however that: (a) such provision does not eliminate or limit the
liability of a director of the Company: (i) for acts or omissions that involve
intentional misconduct or knowing or culpable violation of law, (ii) for acts or
omissions that a director of the Company believes to be contrary to the best
interests of the Company or its shareholder or that involves the absence of good
faith on the part of a director of the Company, (iii) or any transaction from
which a director of the Company derives an improper personal benefit, (iv) for
acts or omissions that show a reckless disregard of the director's duty to the
Company or its shareholders in circumstances in which the director was aware, or
should have been aware in the ordinary course of performing the director's
duties, of a risk of serious injury to the Company or its shareholders, (v) for
acts or omissions that constitute an unexecuted pattern of inattention that
amounts to an abdication of the director's duty to the Company or its
shareholders, (vi) under Section 310 of the California Corporations Code, or
(vii) under Section 316 of the California Corporations Code; such provision
eliminating liability shall not eliminate or limit the ability of an officer for
any act or omission as an officer notwithstanding that the officer is also a
director or that his or her actions, if negligent or improper, have been
ratified by the directors.
The Company is authorized to provide indemnification of its agents (as
defined in Section 317 of the California Corporations Code) for breach of duty
to the Company and its shareholders through bylaw provisions or through
agreements with the agents, or both, in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject to the
limits on such excess indemnification set forth in Section 204 of the California
Corporations Code. The Company has entered into such indemnification agreements
with each of its directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the
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Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
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CARDIODYNAMICS INTERNATIONAL CORPORATION
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION.........................................................2
INFORMATION INCORPORATED BY REFERENCE.........................................2
THE COMPANY...................................................................3
FORWARD-LOOKING STATEMENTS....................................................3
RISK FACTORS..................................................................3
USE OF PROCEEDS...............................................................9
SELLING SHAREHOLDERS..........................................................9
PLAN OF DISTRIBUTION.........................................................11
LEGAL MATTERS................................................................13
EXPERTS......................................................................13
INDEMNIFICATION..............................................................13
18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various costs and expenses to be
paid by the Company with respect to the sale and distribution of the securities
being registered. All of the amounts shown are estimates except the Securities
and Exchange Commission registration fee and the Nasdaq SmallCap Market listing
fee.
SEC Registration Fee.......................................... $1,104.76
Printing Expenses *........................................... $ 1,000
Blue Sky Fees and Expenses *.................................. $ 10,000
Legal Fees and Expenses*...................................... $ 15,000
Nasdaq SmallCap Market Listing Fee............................ $ 7,500
Accounting Fees and Expenses*................................. $ 1,000
Miscellaneous*................................................ $ 895.24
---------
Total.................................................... $ 36,500
=========
----------
*Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Section 317 of the California General Corporation Law provides for
the indemnification of officers and directors of the Company against expenses,
judgments, fines and amounts paid in settlement under certain conditions and
subject to certain limitations.
(b) Article Three of the Bylaws of the Company provides that the
Company shall indemnify any person who is or was a director, officer, employee
or agent of the Company (or predecessor corporation of the Company), or any
person who is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, subject to certain
limitations. In addition, expenses incurred by a director, officer, employee or
agent in defending a civil or criminal action, suit or proceeding by reason of
the fact that he or she is or was a director, officer, employee or agent of the
Company may be paid by the Company in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the Company.
(c) The Company's Articles of Incorporation, as amended, provided that
no director of the Company shall be liable for monetary damages in an action by
or in the right of the Company for breach of a director's duties to the Company
and its shareholders, as set forth in Section 309 of the California Corporations
Code, provided however that: (a) such provision does not eliminate or limit the
liability of a director of the Company: (i) for acts or omissions that involve
intentional misconduct or knowing or culpable violation of law, (ii) for acts or
omissions that a director of the Company believes to be contrary to the best
interests of the Company or its shareholder or that involves the absence of good
faith on the part of a director of the Company, (iii) or any transaction from
which a director of the Company derives an improper personal benefit, (iv) for
acts or omissions that show a reckless disregard of the director's duty to the
Company or its shareholders in circumstances in which the director was aware, or
should have been aware in the ordinary course of performing the director's
duties, of a risk of serious injury to the Company or its shareholders, (v) for
acts or omissions that constitute an unexecuted pattern of inattention that
amounts to an abdication of the director's duty to the Company or its
shareholders, (vi) under Section 310 of the California Corporations Code, or
(vii) under Section 316 of the California Corporations Code; such provision
eliminating liability shall not eliminate or limit the ability of an officer for
any act or omission as an officer
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notwithstanding that the officer is also a director or that his or her actions,
if negligent or improper, have been ratified by the directors.
The Company is authorized to provide indemnification of its agents (as
defined in Section 317 of the California Corporations Code) for breach of duty
to the Company and its shareholders through bylaw provisions or through
agreements with the agents, or both, in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject to the
limits on such excess indemnification set forth in Section 204 of the California
Corporations Code. The Company has entered into such indemnification agreements
with each of its directors and officers.
ITEM 16. EXHIBITS
EXHIBIT NUMBER
--------------
4.1 Securities Purchase Agreement dated August 21, 1998 between
the Company and certain Selling Shareholders. (Incorporated by
reference to Form 8-K for event of August 21, 1998, filed
September 3, 1998.)
4.2 Certificate of Determination of Preferences of Series A
Convertible Preferred Stock. (Incorporated by reference to
Form 8-K for event of August 21, 1998, filed September 3,
1998.)
4.3 Form of Warrant issued on August 21, 1998 to certain Selling
Shareholders. (Incorporated by reference to Form 8-K for event
of August 21, 1998, filed September 3, 1998.)
4.4 Registration Rights Agreement dated August 21, 1998 between
the Company and certain Selling Shareholders. (Incorporated by
reference to Form 8-K for event of August 21, 1998, filed
September 3, 1998.)
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit
5.1).
24.1 Power of Attorney (see pages II-3 and II-4).
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to include any
additional or changed material information on the plan of distribution;
(2) That, for determining liability under the Securities Act, each such
post-effective amendment shall be treated as a new registration statement of the
securities offered, and the offering of the securities at that time shall be
treated as the initial bona fide offering; and
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding)
II-2
20
is asserted by such director, officer, or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the question has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on the 5th day of
October, 1998.
CARDIODYNAMICS INTERNATIONAL CORPORATION
By /s/ Michael K. Perry
-----------------------------------------
Michael K. Perry, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Michael K. Perry, as attorney-in-fact, with the power of substitution, for him
in any and all capacities, to sign any amendment to this Registration Statement
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting to said
attorney-in-fact full power and authority to do and perform each and every act
and thing requisite and necessary to be done in connection therewith, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
--------- ----- ----
/s/ Michael K. Perry Director and Chief Executive Officer October 5, 1998
- --------------------------------------------- (Principal Executive Officer)
Michael K. Perry
/s/ Stephen P. Loomis Vice President, Finance and Chief Financial October 5, 1998
- --------------------------------------------- Officer (Principal Financial Officer and
Stephen P. Loomis Principal Accounting Officer)
/s/ Stephenson M. Dechant Director October 5, 1998
- ---------------------------------------------
Stephenson M. Dechant
/s/ Nicholas V. Diaco, M.D. Director October 5, 1998
- ---------------------------------------------
Nicholas V. Diaco, M.D.
/s/ Louis P. Ferrero Director October 5, 1998
- ---------------------------------------------
Louis P. Ferrero
/s/ Cam L. Garner Director October 5, 1998
- ---------------------------------------------
Cam L. Garner
II-3
21
/s/ James C. Gilstrap Director October 5, 1998
- ---------------------------------------------
James C. Gilstrap
/s/ Richard O. Martin Director October 5, 1998
- ---------------------------------------------
Richard O. Martin
/s/ Richard E. Otto Director October 5, 1998
- ---------------------------------------------
Richard E. Otto
/s/ Michael D. Padilla Director October 5, 1998
- ---------------------------------------------
Michael D. Padilla
/s/ Allen E. Paulson Director October 5, 1998
- ---------------------------------------------
Allen E. Paulson
II-4
22
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------ -------
4.1 Securities Purchase Agreement dated August 21, 1998 between
the Company and certain Selling Shareholders. (Incorporated by
reference to Form 8-K for event of August 21, 1998, filed
September 3, 1998.)
4.2 Certificate of Determination of Preferences of Series A
Convertible Preferred Stock. (Incorporated by reference to
Form 8-K for event of August 21, 1998, filed September 3,
1998.)
4.3 Form of Warrant issued on August 21, 1998 to certain Selling
Shareholders. (Incorporated by reference to Form 8-K for event
of August 21, 1998, filed September 3, 1998.)
4.4 Registration Rights Agreement dated August 21, 1998 between
the Company and certain Selling Shareholders. (Incorporated by
reference to Form 8-K for event of August 21, 1998, filed
September 3, 1998.)
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1 Power of Attorney (see pages II-3 and II-4).