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As filed with the Securities and Exchange Commission on November 24, 1998 Registration No. 333-65331
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2
TO
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 AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES REGISTERED OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE
TO BE REGISTERED SHARE(3) PRICE(3)
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Common Stock 3,147,978 shares(1) $1.09 $3,431,296 $1,012.23
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Common Stock 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 CDIc'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; such number is
indeterminate because of anti-dilution provisions of the Series A
Convertible Preferred Stock, as well as provisions governing stock
splits and 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 CDIc's
good faith estimate of the number of shares of Common Stock that may be
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.
(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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PROSPECTUS
3,270,978 SHARES
CARDIODYNAMICS INTERNATIONAL CORPORATION
COMMON STOCK
Our Common Stock is traded on the Nasdaq SmallCap Market under the
symbol "CDIC." On November 18, 1998, the closing sale price of CardioDynamics
Common Stock as reported on the Nasdaq SmallCap Market was $2.50 per share.
These shares of Common Stock are being sold by seven entities, each of
which is a selling shareholder. The seven entities are: AGR Halifax Fund, Ltd.;
Leonardo, L.P.; GAM Arbitsage Investments, Inc.: AG Super Fund International
Partners, L.P.; Raphael, L.P.; Ramius Fund, Ltd.; and AFO Capital, LLC. We will
not receive any part of the proceeds from the sale.
SEE "RISK FACTORS" ON PAGE 3.
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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 November 24, 1998.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, and Chicago.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public at the SEC's
web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them which means that we can disclose important information to you by
referring you to those documents instead of having to repeat the information in
this prospectus. The information incorporated by reference is considered to be
part of this prospectus, and later information that we file with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until
the selling shareholders sell all the shares.
-- Annual Report on Form 10-KSB for the year ended November 30,
1997;
-- Quarterly Reports on Form 10-Q for the quarters ended February
28, 1998, May 31, 1998 and August 31, 1998;
-- Current Report on Form 8-K dated August 21, 1998 for an event on
August 21, 1998 (filed September 3, 1998); and
-- Registration Statement on Form 8-A filed with the SEC on April
19, 1984. This filing describes the terms, rights and provisions
applicable to our Common Stock.
You may request a copy of these filings, at no cost, by writing or telephoning
us at the following address:
Shareholder Services
6175 Nancy Ridge Drive, Suite 300
San Diego, CA 92121
(619) 535-0202
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. The selling shareholder will not
make an offer of these shares in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any supplement is
accurate as of any date other than the date on the front of those documents.
This prospectus is part of a registration statement we filed with the
SEC (Registration No. 333-65433).
ABOUT CARDIODYNAMICS INTERNATIONAL CORPORATION
At CardioDynamics International Corporation, we develop, manufacture and
market heart monitoring devices which provide doctors with continuous data on a
wide range of parameters relating to blood flow and heart function. Unlike other
monitoring technologies, our monitors do not require invasive surgery to use.
Our primary products, the BioZ(TM) System, the BioZ(TM) Portable, and the
BioZ.com(TM), use a technology called thoracic electrical bioimpedance to obtain
data which is typically available only through a time consuming, costly and
potentially dangerous invasive procedure known as right-heart catheterization or
as pulmonary artery catheterization. This data is then processed with digital
technology to provide real-time information to the doctors.
Our principal executive offices are located at 6175 Nancy Ridge Drive,
Suite 300, San Diego, California 92121, and our telephone number is (619)
535-0202.
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RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the risks described below and the other information contained in this
prospectus before deciding to invest in shares of our Common Stock.
DEPENDENCE ON BIOZ PRODUCT LINE WHOSE MARKET ACCEPTANCE IS UNCLEAR
Our future is dependent upon the success of the BioZ(TM) product line
and similar products which are based on the same technology. The market for
thoracic electrical bioimpedance products is in a relatively early stage of
development, and it is possible that this market will never fully develop. The
long-term commercial success of the BioZ product line and any follow-on products
requires widespread acceptance of our thoracic electrical bioimpedance products
as safe, efficacious and cost-effective alternatives to invasive procedures.
Widespread acceptance would represent a significant change in medical practice
patterns. Historically, some medical professionals have indicated hesitancy in
using thoracic electrical bioimpedance products such as analog-based monitors
previously manufactured by us. Invasive procedures, such as right-heart
catheterization, are generally accepted in the medical community and have a long
history of use.
We have limited clinical data with which to demonstrate the clinical
benefits of our products. However, we have sponsored and plan to continue to
sponsor and/or conduct clinical trials which we hope will demonstrate consistent
clinical benefits resulting from the use of our products. We do not know when
such clinical trials will be completed or if such clinical trials will have a
positive outcome or if a positive outcome in such trials would be sufficient to
enable acceptance of the BioZ product line by the medical community. We are
unable to predict how quickly, if at all, our products may be accepted by
members of the medical community.
Technological limitations of thoracic electrical bioimpedance make it
subject to inaccuracies in the case of:
o Severe septic shock
o Significant pulmonary hypertension
o Aortic valve regurgitation
o Severe hypertension (Maximum Arterial Pressure greater than 130mmHg)
o Tachycardia rates greater than 180 beats per minute
o Patient is shorter than 47" (120cm)*
o Patient weighs less than 66 lbs. (30 Kg) or more than 342 lbs.
(103Kg)*
o Extreme patient movement*
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* We are currently working on algorithms which, if we succeed in
developing them, may allow the technology to function on patients with
these conditions.
Failure of the BioZ product line to gain widespread acceptance in the
medical community, and to maintain such acceptance, would be very dangerous for
us.
HISTORY OF LOSSES AND EXPECTED CONTINUED LOSSES
Since its emergence from bankruptcy proceedings in 1993, we have had
large annual losses in the course of researching, developing and enhancing our
technology and products and establishing administrative and sales organizations.
We anticipate that our operating expenses will increase substantially in the
foreseeable future as we increase our sales and marketing activities, expand our
operations and management and continue the development of our technology.
Accordingly, we expect to incur additional losses for fiscal 1998 and in the
future, and it is possible that we will never achieve or sustain revenue growth
or profitability.
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FUTURE ADDITIONAL CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE
AVAILABLE
Our commercialization of the BioZ product line and the development and
commercialization of any additional products will require substantial
expenditures. Our capital requirements will depend on numerous factors,
including:
o our rate of sales growth--fast growth could actually increase
our need for additional capital to hire additional staff,
purchase additional component supplies; and supply additional
support services;
o our progress in marketing-related clinical evaluations and
product development programs--these programs represent potential
avenues for growth, but will require additional capital;
o our receipt of, and the time required to obtain, regulatory
clearances and approvals--the longer regulatory approval takes,
the more working capital we need to support our regulatory and
development efforts in advance of sales;
o resources we devote to the development, manufacture and
marketing of our products--any decision we make to improve,
expand or simply change our process, products or technology will
require increased funds;
o resources required to hire and develop medical sales
representatives and independent distributors and to develop
internal manufacturing capacity--each of these strategic options
is a route currently being considered by us and each of them
would require substantial working capital to initiate;
o facilities requirements--as we grow we may need additional
manufacturing, warehousing and administration facilities and the
costs of the facilities would be borne long before any increased
revenue from growth would occur;
o market acceptance and demand for our products--although growth
could increase our capital needs, the lack of growth and
continued losses would also increase our need for capital; and
o our ability to speed up hospitals' otherwise lengthy purchasing
processes by offering leasing programs as an alternative to
outright purchasing--faster decisions by purchasers will reduce
our need for working capital.
The timing and amount of such capital requirements cannot be accurately
predicted. We may be required to raise additional funds through public or
private financings, bank loans, collaborative relationships or other
arrangements earlier than expected. It is possible that banks, venture
capitalists and other investors may perceive our current debt load, our history
of losses or our technology's lack of acceptance as too great a risk to bear
and, as a result, such additional funding may not be available on attractive
terms, or at all. If we cannot obtain additional capital when needed we might be
forced to agree to unattractive finance terms, or to finance internally by
discontinuing certain operations, such as research and development, which we
view as not essential to day-to-day operations. Such decisions could impair our
ability to go forward with our current plans, or at all.
COMPETITION FROM OTHER PRODUCERS; AND TECHNOLOGICAL CHANGE WHICH MAY BENEFIT OUR
COMPETITORS
We compete with other companies which are developing and marketing
non-invasive hemodynamic monitors. We are also 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 we do. Such competitors may be able to devote greater
resources to the development, promotion and sales of their products. The current
widespread acceptance of PAC, and lack of widespread acceptance of thoracic
electrical bioimpedance, is an important competitive disadvantage which we must
overcome. In addition, our current and potential competitors 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
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loss of market share. Any of these could hurt our business, results of
operations and financial condition. It is possible that we will not be able to
compete successfully.
In addition, the introduction by others of products embodying new
technologies and the emergence of new industry standards could render our
products obsolete and unmarketable. Other companies may develop and introduce
products and processes competitive with or superior to ours. In addition, other
technologies or products may be developed that have an entirely different
approach or means of accomplishing the intended purposes of our products.
Accordingly, our products' life cycles are difficult to estimate. To compete
successfully, we must develop and introduce new products that keep pace with
technological developments, respond to evolving consumer requirements and
achieve market acceptance.
We may not succeed in satisfactorily and timely developing and
introducing additional products. Even if we succeed in developing and marketing
products that achieve market acceptance, our competitors may develop and market
products that will replace ours.
TECHNOLOGICAL CHANGE IS DIFFICULT TO PREDICT AND TO MANAGE
Although not in fact a new company, we currently face many of the
challenges which are typically faced by 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. We have to build up sales and
marketing. We may encounter unforeseen technological or scientific problems
which may force abandonment or substantial change in the development of a
specific product or process. Technological change or product developments by
others may also have a significant negative effect on us.
ABILITY TO MANAGE GROWTH
If successful, we will experience a period of growth that would place a
significant strain upon our managerial, financial and operational resources. Our
infrastructure, procedures and controls may not be adequate to support our
operations and our management may not be able to achieve the rapid execution
necessary to fully exploit any future market opportunity for our products. Our
future operating results will also depend on our ability to complete our
geographic network of direct sales agents and distributors, expand our sales and
marketing organizations, and fill out our support staff organization. If we are
unable to manage expansion effectively, our business, results of operations and
financial condition will suffer. However, we are not promising you that such
expansion or growth will occur.
CONTROL BY OUR CO-CHAIRMEN
Allen E. Paulson and James C. Gilstrap, the co-chairmen of
CardioDynamics, beneficially own, directly or through CardioDynamics Holdings,
LLC, which they control, approximately 67% of the outstanding shares of our
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 CDIc and direct our
affairs and business, including any future issuances of Common Stock or other
securities, merger and acquisition decisions, declaration of dividends and the
election of directors. Further, in their position as holders of our stock, they
owe us no duty. Our stock price and our ability to raise capital could be
injured if they were to sell even a fraction of their holdings.
WE MAY NOT CONTINUE TO RECEIVE NECESSARY APPROVALS FROM THE FOOD AND DRUG
ADMINISTRATION
Our 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 very negative effect on the our business.
Our thoracic electrical bioimpedance 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
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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 either FDA 510(k) clearance or approval of a premarket
approval 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. We have received a marketing clearance for the BioZ System,
the BioZ Portable and the BioZ.com. However, such clearances are subject to
continued FDA audits and can be rescinded. Further, we plan to submit additional
new products for FDA approval in the future. It is possible that our future
products might not gain FDA approval in a timely fashion, or at all. It is also
possible that our current products may someday lose their FDA approval.
We are 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. Although we work hard at attempting to comply with
all governmental regulations, it is possible that an inspector could someday
find a violation. Such a violation could result in government action ranging
from warning letters to fines to criminal prosecution. Should we ever incur a
significant penalty it is possible it would be detrimental to us. 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:
o the manufacturing process be regulated and controlled by the use
of written procedures;
o 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
o 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 GMP requirements. Labeling and
promotional activities are regulated 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 us to submit a new 510(k) notice for any product
modification, we 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 like our products. The FDA is
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. Future changes in the regulations or interpretations made by
the FDA or other regulatory bodies, with possible retroactive effect, may
adversely affect us.
WE MAY NOT RECEIVE APPROVALS BY FOREIGN REGULATION WHICH ARE NECESSARY FOR
FOREIGN SALES
Sales of medical devices outside of the United States are subject to
foreign regulatory requirements that vary from country to country. We currently
rely on our international distributors and sub-distributors for the receipt of
premarket approvals and compliance with clinical trial requirements in those
countries that require them, and we expect to continue to rely on them in those
countries where we continue to use distributors. If our international
distributors fail to obtain or maintain required premarket approvals or fail to
comply with foreign regulations, foreign regulatory authorities may require us
to cause the applicable distributor to file revised governmental
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notifications, cease commercial sales of our products in the applicable
countries, or otherwise cure the problem. Such enforcement action by regulatory
authorities could be costly.
In order to sell our products within the European Economic Area, we have
to achieve compliance with the European Commission's Medical Device Directive
and to affix a "CE" marking on our products to attest such compliance. We have
fulfilled all the requirements for a CE mark and expect to receive it very soon.
Until we can comply with CE marking requirements, we will be unable to sell our
products in the European Economic Area; this limits our potential.
THIRD-PARTY REIMBURSEMENT; PRICING PRESSURES
Our commercial success will depend in part on the availability of
adequate reimbursement from third-party healthcare 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, third-party payers may not cover the device and
related services, and they may place significant restrictions on the
circumstances in which coverage will be available. Medicare reimbursement for
use of the BioZ product line is now available under the heading of
plethysmography, but private third-party payers are not required to follow
Medicare's lead. We may not be able to obtain a specific code for reimbursement
of thoracic electrical bioimpedance tests in a reasonable time frame, or at all,
from either Medicare or private third-party payers. In addition, reimbursement
may not be at or stay at price levels sufficient to allow medical professionals
to realize an appropriate return on an investment in our products.
Downward pricing pressure in the industry could hurt our operations.
Our business plan contemplates an income stream from sales of disposable
sensors (which are more profitable than some of our other products) and which
are compatible with an installed base of our monitors. We may be subject,
however, to price competition from other sensor manufacturers.
DEPENDENCE ON MANAGEMENT AND OTHER KEY PERSONNEL
We are dependent upon a limited number of key management and technical
personnel and we do not have insurance on these people. The loss of the services
of one or more of such key employees could hurt our business. In addition, our
success depends upon our ability to attract and retain additional highly
qualified sales, management, manufacturing and research and development
personnel. We face intense competition in our recruiting activities and we may
not be able to attract and/or retain qualified personnel.
DEPENDENCE ON RIVERTEK MEDICAL SYSTEMS FOR DEVELOPMENT SERVICES AND OTHER THIRD
PARTIES FOR DEVELOPMENT AND MANUFACTURING SERVICES
Our strategy for development and commercialization of certain of our
products depends upon entering into various arrangements with third parties and
upon the subsequent success of these parties in performing their obligations. It
is possible that we will not be able to negotiate acceptable arrangements in the
future or that our existing arrangements will not be successful. We rely heavily
on contracted development services, particularly from Rivertek Medical Systems,
Inc. Also, we have limited experience manufacturing products for commercial
purposes and currently do not manufacture the BioZ System and the BioZ Portable
ourselves. Therefore we are dependent on contract manufacturers.
RELIANCE ON PATENTS AND PROPRIETARY TECHNOLOGY
Our patents and proprietary technology may not be able to prevent
effective competition by others. Although we believe that we have effective
patent protection, our products could possibly be found to infringe the rights
of others. Intellectual property litigation, whether defensive or offensive,
would have no certain outcome other than to drain our resources.
The validity and breadth of claims in medical technology patents involve
complex legal and factual questions. Future patent applications may not be
issued, the scope of any patent protection may not exclude
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competitors and it may not provide competitive advantages to us. Further, our
patents may be found to be invalid, and other companies may claim rights in or
ownership of the patents and other proprietary rights held or licensed by us.
Also, our existing patents might not cover products we want to bring out in the
future. Moreover, when our key patents expire, the inventions will enter the
public domain.
Since patent applications in the United States are maintained in secrecy
until patents issue, our patent applications may infringe patents that may be
issued to others. In the event our products are found to infringe patents held
by competitors, we may have to modify our product to avoid infringement, and it
is possible that our modified products would not be commercially successful.
SMALL MARKET FLOAT CAN PRODUCE BOTH STOCK PRICE VOLATILITY AND A POTENTIAL LACK
OF LIQUIDITY
Market float is the aggregate value of all of a company's publicly
traded stock. Our market float is smaller than that of most other publicly
traded companies. Because our market float is smaller, changes in the opinion of
one investor or one analyst can have a significant effect on our stock price. As
a result, the market price of our Common Stock is likely to be highly volatile
and could be subject to wide fluctuations in response to various factors beyond
our control, including:
(i) quarterly variations in operating results;
(ii) announcements of technological innovations, new products or
pricing by our competitors;
(iii) changes in, or failure to meet, financial estimates of
securities analysts;
(iv) the rate of adoption by physicians of thoracic electrical
bioimpedance technology in targeted markets;
(v) timing of patent and regulatory approvals;
(vi) timing and extent of technological advancements;
(vii) results of clinical studies;
(viii) the sales, by the Selling Shareholders or other persons, of
derivative securities relating to CardioDynamics stock such as
entering into short sales contracts which obligate the party to
sell their shares for less than current market value in the
future ; and
(ix) general market conditions.
In addition, the stock market has experienced significant price and volume
fluctuations that have affected the market prices of the stock of many medical
device companies and that often have been unrelated to the operating performance
of such companies. These broad market fluctuations may directly influence the
market price of our Common Stock. Our somewhat small market float may not be
entirely adequate to provide market liquidity and mitigate stock price
volatility.
POTENTIAL DROP IN STOCK PRICE DUE TO CONVERSION FEATURE OF PREFERRED STOCK
The Series A Convertible Preferred Stock is convertible into CDIc 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 our 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 adverse effect on the Common
Stock price thereafter. In addition, if the Selling Shareholders convert part of
their Series A Convertible Preferred Stock and sell the Common Stock in the
market, this could result in an unbalance of supply and demand for our Common
Stock and reduce its price. Because there is no lower limit on the floating
conversion price, all this could lead to a vicious
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cycle, driving the stock price ever further down. The further our stock price
declines, the further the floating conversion price will fall and the greater
number of shares we will have to issue upon conversion. For example:
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Date Aug. 21, Nov. 9, 1998 sample sample
1998
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Public Market Value $2.01 $1.39 $1.10 $0.90
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Number of Shares of Common Stock into 1,175,263 1,699,349 2,143,541 2,364,444
which the remaining Series A Stock Would
Convert
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Estimate of TOTAL number of shares of 1,730,859 2,254,945 2,699,137 2,920,040
Common Stock into which Series A Stock is
convertible (including 555,596 shares
Common Stock which have already been
issued upon conversion)
- -------------------------------------------------------------------------------------------------
Percentage of Total Shares Outstanding 5.1% 6.6% 7.8% 8.4%
that Such Converted Shares Will Represent
- -------------------------------------------------------------------------------------------------
Further, it is likely that we will pay dividends on the Series A
Convertible Preferred Stock in the form of Common Stock. Such an issue would
further dilute current holders and could also lead to a drop in our stock price.
WE COULD BE REQUIRED TO ISSUE DILUTIVE SERIES B PREFERRED STOCK
Under certain conditions the original purchasers of our Series A
Preferred Stock can require us to sell them up to 3,000 shares of Series B
Preferred Stock at a purchase price of $1,000 per share. They can only require
this between approximately February 17, 1999 and November 19, 1999 and they can
only require it if and when our Common Stock price exceeds $2.70 per share for
ten consecutive days. The Series B Preferred Stock would be substantially
similar to the Series A Preferred Stock, but it would have fixed conversion
price of at least $3.10 per share which is higher than the $2.70 fixed
conversion price of the Series A Preferred Stock. There are other technical
requirements, but each of those can be waived by the original purchasers.
If we were required to issue the Series B Preferred Stock on these
terms, the convertibility of the Series B Preferred Stock would be potentially
dilutive and could cause our Common Stock Price to drop.
This could impair our ability to raise capital in the future.
WE COULD BE REQUIRED TO REDEEM THE SERIES A CONVERTIBLE PREFERRED STOCK
The holders of the Series A Convertible Preferred Stock can require us
to redeem for cash (at 130% of stated value) instead of conversion for Shares in
the event that we are acquired by another company or in the event that we
default in any of the following five ways:
1. If either our stock is suspended from trading on NASDAQ
for more than five consecutive days or more than thirty
days in any year-long period, or
2. If this Registration statement, as amended, has its
effectiveness or its use suspended for more than 30 days
in any year-long period, or
3. If our common stock is not listed on either NASDAQ
National Market, NASDAQ SmallCap Market, the American
Stock Exchange, or the New York Stock Exchange, for a
period of fifteen consecutive days or thirty days in any
year-long period, or
4. If we fail to deliver shares of our Common Stock as
required upon conversion, or
5. If this Registration Statement is not declared effective
by the SEC before November 26, 1998.
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If the event that we are required to redeem the Series A Convertible Preferred
Stock under any of these mandatory situations, it is likely that we would not
have sufficient cash available to effect the redemption. In such case we would
be forced to attempt to find other sources of financing. If we could find such
financing at all, it is likely that that such financing would be on unfavorable
terms. The inability to find financing or the terms of such unfavorable
financing and our resulting lack of liquidity could force us to close portions
of, or all of, our operations.
LOW STOCK PRICE COULD RESULT IN OUR BEING DE-LISTED FROM NASDAQ AND SUBJECT US
TO CERTAIN CUMBERSOME REGULATIONS WHICH COULD REDUCE OUR ABILITY TO RAISE FUNDS
If our stock price were to drop below $1.00 per share and remain below
$1.00 per share for an extended period of time, certain NASDAQ regulations would
require the de-listing of our shares and then our shares could no longer be
traded on NASDAQ. In such an event, our shares could only be traded on
over-the-counter bulletin board systems. This method of trading would
significantly impair or completely remove our ability to raise new capital.
Further, in the event that we were de-listed from NASDAQ due to low
stock price, we might be subject to certain rules, called penny stock rules,
that impose additional sales practice requirements on broker-dealers who sell
such securities. For any transaction involving a penny stock the rules require,
among other things, the delivery, prior to the transaction, of a disclosure
schedule required by the SEC relating to the market for penny stocks. The
broker-dealer also must disclose the commissions payable both to the
broker-dealer and the registered representative, and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information for the penny stocks held in the customer's account.
Although we believe that our Common Stock is not penny stock due to its
continued listing an NASDAQ SmallCap Market, in the event our Common Stock
subsequently becomes characterized as a penny stock, our market liquidity could
be severely affected. In such event, the regulations relating to penny stocks
could limit the ability of broker-dealers to sell our Common Stock and thus, the
ability of purchasers in this offering to sell their Common Stock in the
secondary market.
RISKS ASSOCIATED WITH INTERNATIONAL ACTIVITIES
We believe it is possible that international sales will represent a
meaningful portion of revenue in the future (in the first 11 months of fiscal
1998 international sales accounted for 15% of our REVENUE.) This would require
significant management attention and financial resources and subject us 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. We
would have to comply with a variety of foreign laws. In addition, fluctuations
in the rates of exchange could increase the price in local currencies of our
products in foreign markets and make our 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 our business exposes it to risks of product liability or
product recalls that are typical in the medical devices industry. Medical
devices as complex as ours frequently contain errors or failures, especially
when first introduced or when new versions are released. Our products are
designed to be 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.
We did not carry product liability insurance during certain periods
before May 15, 1995. So far, this has not hurt us. Since then, we have
maintained product liability insurance at levels which we believe are sufficient
and consistent with industry standards for companies with our current sales
levels. We intend to increase our product liability insurance policy limits as
sales grow. Currently, our product liability insurance policy limits are
$5,000,000 per occurrence and $5,000,000 in the aggregate. Our product liability
insurance may not be adequate and it is possible that such insurance coverage
may not continue to be available on commercially reasonable terms or at all.
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In addition, product liability claims or recalls could hurt us in various ways
even if we have adequate insurance coverage.
UNCERTAINTY AND POTENTIAL NEGATIVE EFFECTS OF HEALTHCARE REFORM
The healthcare 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 healthcare expenditures within the
economy; and
(iii) use health care reimbursement policies to help balance the
federal budget.
We anticipate that Congress and state legislatures will continue to review and
assess such proposals, and public debate of these issues will likely continue.
We cannot predict which, if any, of such reform proposals will be adopted and
when they might be adopted. Other countries also are considering healthcare
reform. Significant changes in healthcare systems are likely to have a
substantial impact on the manner in which we conduct our business and could
disrupt our strategies.
NO DIVIDENDS
We do not intend to pay any cash dividends on the Common Stock any time
soon. Payment of such cash dividends would, in any event, be prohibited or
limited under the terms of our bank loans and/or the Series A Convertible
Preferred Stock.
YEAR 2000 RISKS
Many computer systems experience problems handling dates beyond the year
1999. Virtually any business that relies on computers will be impacted by this
issue. In addition to our own potential problems, there are governmental
agencies, financial institutions, utilities and other basic service providers
that may encounter problems that are outside of our control. In order to correct
this issue, some computer hardware and software will need to be modified prior
to the year 2000 in order for it to remain functional. We have taken steps to
assess the internal readiness of our computer systems and the compatibility of
our products for handling the year 2000 issue. We have created a Year 2000 task
force and we plan to address these issues. The project has been broken down into
the following phases.
(a) Awareness: To create awareness of the potential business
implications of the Year 2000 challenge within
CardioDynamics. Our employees, when appropriate, will be
kept informed of the news and issues related to the Year
2000 issue. We will focus on both our technology systems
as well as our products.
(b) Inventory and Assessment: We will inventory all of our
computer software and hardware as well as facilities,
telecommunications, and external interfaces. Significant
third party vendors will be contacted to determine their
Year 2000 readiness.
(c) Renovation: As problems are discovered, strategies will
be developed to either correct the problem or determine
if new equipment or software is necessary.
(d) Testing: Testing of the renovated systems will occur to
determine whether they are performing reliably under
Year 2000 conditions.
(e) Implementation: Upon successful completion of the
testing process the assets will be reintroduced into
production in order to allow adequate time to prevent
any unforeseen circumstances.
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(f) Contingency: In addition, the we will develop a
contingency plan in the event that our internal systems,
products or suppliers are not Year 2000 compliant.
Currently, we are in the inventory and assessment stage and we
anticipate completing any necessary renovation, testing and implementation
within the next twelve months. It has already been determined that the internal
network, and manufacturing-requirements-planning software is certified as Year
2000 compliant. Additionally, the our newest products have been specifically
tested for Year 2000 performance and no Year 2000 problems were identified. We
are still in the early stages of contacting key third party vendors. Renovation
and testing, if required, will begin if problems are identified. We plan to have
all stages of the Year 2000 project completed no later than the fall of 1999. We
have not had to spend significant amounts of money through this stage of the
process. We currently believe that the cost of addressing this issue will not
have a significant effect on us. However, it is possible that because of year
2000 problems, the vendors of our most important goods and services, or the
suppliers of our necessary energy, telecommunications and transportation needs,
could fail to provide us with the materials and services which are necessary to
produce and sell our products.
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference into this
prospectus contain forward-looking statements that are based on current
expectations, estimates and projections about our 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 forward-looking statements. Such risks and
uncertainties include those noted in "Risk Factors" above and in the documents
incorporated by reference. We undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Shareholders.
SELLING SHAREHOLDERS
Under an August 21, 1998 Securities Purchase Agreement, the Selling
Shareholders paid $3,000,000 for 3,000 shares of Series A Convertible Preferred
Stock and Warrants to purchase 123,000 Shares. The Securities Purchase Agreement
is incorporated by reference to the Form 8-K report we filed with the SEC on
September 3, 1998. 760 shares of the Series A Convertible Preferred Stock were
converted into 555,596 shares of Common Stock on November 20, 1998.
In the Securities Purchase Agreement, the Selling Shareholders also
obtained the right to purchase $3,000,000 of similar Series B Convertible
Preferred Stock if our stock price exceeds $2.70 per share on ten consecutive
days during the 180-day period which begins, approximately, on February 22, 1999
and ends approximately on August 18, 1999. In the alternative (and on a mutually
exclusive basis) we have the right to require the Selling Shareholders to
purchase $3,000,000 of similar Series C Convertible Preferred Stock if all of
the conditions described in the preceding sentence are true and if, in addition,
the daily trading volume of our common stock has exceeded $150,000 for each of
the thirty days preceding the sale of Series C stock and if we have not violated
certain material terms of the Securities Purchase Agreement with respect to
Series A Convertible Preferred Stock. The Series B and Series C Convertible
Preferred Stock transactions may never occur.
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We have not had any other material relationships with any of the Selling
Shareholders within the last three years.
MATERIAL CONVERSION TERMS OF THE SELLING SHAREHOLDERS' SERIES A CONVERTIBLE
PREFERRED STOCK
Many factors may affect how many shares each Selling Shareholder could
receive upon conversion. (Certain Selling Shareholders have already converted
760 shares of Series A Convertible Preferred Stock into 555,596 shares of Common
Stock on November 20, 1998.) The Series A Convertible Preferred Stock and any
dividends which may accumulate on it are convertible into Common Stock at per
share price equal to the lower of $2.70 or a Floating Conversion Price which is
95% of the then-current Common Stock market value (calculated using a formula
involving closing bid prices). After August 21, 1999 the Floating Conversion
Price will fall to 92% of the then-current Common Stock market value (calculated
using the formula).
The Series A Convertible Preferred Stock cannot be converted at all
before January 19, 1999 except for those specific days on which our Common Stock
trades above $2.70 per share. On those days, the Selling Shareholders may
convert any or all of their shares of Series A Convertible Preferred Stock into
Common Stock. 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.
Also, if we cannot or will not convert, redemption (at 130% of stated
value) will occur instead. Also, we may choose to redeem the Series A
Convertible Preferred Stock for cash (at 125% of stated value) after August 21,
2000.
All Series A Convertible Preferred Stock still outstanding on August 21,
2002 will automatically be converted then. This date shall be extended if either
our stock is suspended from trading on NASDAQ for more than five consecutive
days or more than thirty days in any year-long period, or if this Registration
statement, as amended, has its effectiveness or its use suspended for more than
30 days in any year-long period.
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 that we are acquired or that we default in any of the following
five ways:
6. If either our stock is suspended from trading on NASDAQ
for more than five consecutive days or more than thirty
days in any year-long period, or
7. If this Registration statement, as amended, has its
effectiveness or its use suspended for more than 30 days
in any year-long period, or
8. If our common stock is not listed on either NASDAQ
National Market, NASDAQ SmallCap Market, the American
Stock Exchange, or the New York Stock Exchange, for a
period of fifteen consecutive days or thirty days in any
year-long period, or
9. If we fail to deliver shares of our Common Stock as
required upon conversion, or
10. If this Registration Statement is not declared effective
by the SEC before November 26, 1998.
If the event that we are required to redeem the Series A Convertible Preferred
Stock under any of these mandatory situations, it is likely that we would not
have sufficient cash available to effect the redemption. In such case we would
be forced to attempt to find other sources of financing. If we could find such
financing at all, it is likely that that such financing would be on unfavorable
terms. The inability to find financing or the terms of such unfavorable
financing and our resulting lack of liquidity could force us to close portions
of, or all of, our operations.
Pursuant to the charter documents governing our preferred stock, no
Selling Shareholder may elect to convert for Shares which would give it more
than 4.99% of our outstanding Common Stock, unless the Selling Shareholder has
given us 61 days advance notice of its intent to do so. Also, we are not
obligated to issue, upon
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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 our 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 our 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. We have the choice to
pay the dividend either in Common Stock or in cash. Our current intention is to
pay the dividends in Common Stock, not in cash. On September 30, 1998, we paid
to the Selling Shareholders 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 then ended.
The Series A Convertible Preferred Stock has no voting rights, except as
provided by law, and has a liquidation preference equal to its stated value
($3,000,000) plus any accumulated dividends.
MATERIAL TERMS OF THE SELLING SHAREHOLDERS' WARRANTS
The Warrants are exercisable for up to 123,000 Shares at $2.55 per
share, subject to antidilution adjustments. The Warrants expire on August 21,
2003.
EXPENSES OF REGISTRATION
We agreed, in the 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.
We also agreed to prepare and file at our expense such amendments and
supplements to the registration statement as may be necessary to keep the
registration statement effective until all Shares offered under this prospectus
have been sold or until, because of Rule 144 under the Securities Act, the
Shares are no longer required to be registered in order to be resold by the
Selling Shareholders.
NUMBER OF SHARES WHICH CAN BE SOLD
The following table sets forth the name of each Selling Shareholder, the
number of shares of Common Stock owned beneficially by each Selling Shareholder
as of November 9, 1998 (based on the special conventions described below), and a
good faith estimate of the number of Shares which may be offered pursuant to
this prospectus.
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 the dates indicated) and exercise of
their Warrants as being outstanding, notwithstanding that the SEC's rules would
not necessarily deem such conversion shares to be outstanding as of such dates
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.
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The final column's numbers are higher than the first column's because
the final column reflects our estimate of 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 $1.32 per share (the applicable conversion price on
November 9, 1998).
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 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."
GOOD FAITH
ESTIMATE OF
MAXIMUM
SHARES NUMBER OF
BENEFICIALLY PERCENTAGE SHARES TO
OWNED AS OF OF BE
SELLING SHAREHOLDER NOVEMBER 9, 1998 CLASS OFFERED(3)
---------------- ---------- ----------
AGR Halifax Fund, Ltd. (1) 1,190,484 3.5% 1,623,190
Leonardo, L.P. (2) 674,608 2.0% 919,807
GAM Arbitrage Investments, Inc. (2) 79,366 * 108,212
AG Super Fund International Partners, 79,366 * 108,212
L.P. (2)
Raphael, L.P. (2) 119,049 * 162,319
Ramius Fund, Ltd. (1) 238,097 * 324,638
AFO Capital, LLC 24,600 * 24,600
---------- ---------- ----------
Total 2,405,569 7.0% 3,270,978
- -----------------
(1) This Selling Shareholder is controlled by AG Ramius Partners, L.L.C.
(2) This Selling Shareholder is controlled by Angelo, Gordon & Co., L.P.;
Angelo, Gordon & Co., L.P. has a sole general partner, AG Partners L.P.
(3) The figures used in this column assume that the number of shares
convertible under the Series A Convertible Preferred Stock is double the
number of shares into which it was convertible on August 21, 1998. On
that day, the public market value used in calculating the conversion
price was $2.01. The doubled number of shares corresponds to a
theoretical Common Stock market price of approximately $1.00. The actual
number of shares which are issued or may be issued upon conversion of
the Series A Convertible Preferred Stock will vary significantly from
time to time. These variations will be due to Common Stock market price
changes and decisions by the Series A Convertible Preferred Stock
holders about when they want to convert. * Less than 1%.
PLAN OF DISTRIBUTION
We are registering the Shares on behalf of the Selling Shareholders
(this 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 paid by
us. Brokerage commissions and similar selling expenses, if any, attributable to
the sale of Shares will be paid by the Selling Shareholders. The Selling
Shareholders may sell Shares from time to time in one or more types of
transactions (which may include block transactions). Such sales might be made 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. Such sales
might be made at market prices prevailing at the time of sale, or at negotiated
prices. Such sales may or may not involve brokers or dealers. The Selling
Shareholders have advised us that they have not entered into any
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agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities, nor are they using any
underwriter or coordinating broker.
The Selling Shareholders may sell 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. This 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. 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. We have 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 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 by us that the Selling
Shareholders are "underwriters", for purposes of the Securities Act, of any
Shares. 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. We have 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.
If a Selling Shareholder tells us it has agreed 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, then
if necessary a supplement to this Prospectus will be filed 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, if a Selling Shareholder tells us 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 under the
state's securities laws or an exemption from registration or qualification
requirements is available and is complied with.
We cannot control the prices at which the Selling Shareholders sell
their Shares. Their sales might lower the market price of the Common Stock.
Moreover, the Selling Shareholders can sell any number of Shares at any
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time, and it is possible that a significant number of Shares could be sold at
the same time. This could have a particularly sharp negative effect on the
market price of the Common Stock.
LEGAL MATTERS
Our outside law firm, Brobeck, Phleger & Harrison LLP, San Diego,
California will issue an opinion about the legality of the shares.
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.
Peterson & Co., independent certified public accountants, audited our
fiscal 1996 annual financial statements and schedules. These documents are
incorporated by reference on reliance upon the authority of Peterson & Co. as
experts in accounting and auditing in giving the audit report.
INDEMNIFICATION
Section 317 of the California General Corporation Law allows companies
to indemnify their officers and directors against expenses, judgments, fines and
amounts paid in settlement under certain conditions and subject to certain
limitations.
Article Three of our Bylaws provides that we shall indemnify any person
who is or was a director, officer, employee or agent of ours, or any person who
is or was serving at our request 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 lawsuit by
reason of that person's relationship with us, may be paid by us in advance of
the final disposition of such lawsuit after we receive an undertaking by or on
behalf of such person to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by us.
Our Articles of Incorporation, as amended, provide that none of our
directors shall be liable for monetary damages in an action by or in
CardioDynamics' right for breach of a director's duties to us and our
shareholders, as set forth in Section 309 of the California Corporations Code.
However, such provision does not eliminate or limit the liability of a director:
(i) for acts or omissions that involve intentional misconduct or
knowing or culpable violation of law;
(ii) for acts or omissions that a director believes to be contrary to
our best interests or those of our shareholders or that involve
the absence of good faith on the part of a director;
(iii) for any transaction from which a director derives an improper
personal benefit;
(iv) for acts or omissions that show a reckless disregard of the
director's duty 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
us or to our shareholders;
(v) for acts or omissions that constitute an unexecuted pattern of
inattention that amounts to an abdication of the director's duty
to us;
(vi) under Section 310 of the California Corporations Code; or
(vii) under Section 316 of the California Corporations Code.
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Such provision eliminating liability does not eliminate or limit the liability
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.
We are authorized to provide indemnification of our agents (as defined
in Section 317 of the California Corporations Code) for breach of duty to us and
our 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. We
have entered into such indemnification agreements with each of our 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
CardioDynamics pursuant to these provisions, or otherwise, we have been advised
that, in the opinion of the SEC, 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
----
WHERE YOU CAN FIND MORE INFORMATION........................................... 2
THE COMPANY................................................................... 2
RISK FACTORS.................................................................. 3
FORWARD-LOOKING STATEMENTS................................................... 12
USE OF PROCEEDS.............................................................. 12
SELLING SHAREHOLDERS......................................................... 12
PLAN OF DISTRIBUTION......................................................... 15
LEGAL MATTERS................................................................ 17
EXPERTS...................................................................... 17
INDEMNIFICATION.............................................................. 17
22
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 we are
paying with respect to the sale and distribution of the securities being
registered. All of the amounts shown are estimates except the SEC registration
fee and the Nasdaq SmallCap Market listing fee.
SEC Registration Fee .................................... $ 1,104.76
Printing Expenses * ..................................... $ 1,000.00
Expenses associated with complying with various states'
registrations* ........................................ $ 10,000.00
Legal Fees and Expenses* ................................ $ 20,000.00
Nasdaq SmallCap Market Listing Fee ...................... $ 7,500.00
Accounting Fees and Expenses* ........................... $ 5,000.00
Miscellaneous* .......................................... $ 895.24
-----------
Total ............................................... $ 45,500.00
===========
- ----------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California General Corporation Law allows companies
to indemnify their officers and directors against expenses, judgments, fines and
amounts paid in settlement under certain conditions and subject to certain
limitations.
Article Three of our Bylaws provides that we shall indemnify any person
who is or was a director, officer, employee or agent of ours, or any person who
is or was serving at our request 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 lawsuit by
reason of that person's relationship with us, may be paid by us in advance of
the final disposition of such lawsuit after we receive an undertaking by or on
behalf of such person to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by us.
Our Articles of Incorporation, as amended, provide that none of our
directors shall be liable for monetary damages in an action by or in
CardioDynamics' right for breach of a director's duties to us and our
shareholders, as set forth in Section 309 of the California Corporations Code.
However, such provision does not eliminate or limit the liability of a director:
(i) for acts or omissions that involve intentional misconduct or
knowing or culpable violation of law;
(ii) for acts or omissions that a director believes to be contrary to
our best interests or those of our shareholders or that involve
the absence of good faith on the part of a director;
(iii) for any transaction from which a director derives an improper
personal benefit;
(iv) for acts or omissions that show a reckless disregard of the
director's duty 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
us or to our shareholders;
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(v) for acts or omissions that constitute an unexecuted pattern of
inattention that amounts to an abdication of the director's duty
to us;
(vi) under Section 310 of the California Corporations Code; or
(vii) under Section 316 of the California Corporations Code;
Such provision eliminating liability does not eliminate or limit the liability
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.
We are authorized to provide indemnification of our agents (as defined
in Section 317 of the California Corporations Code) for breach of duty to us and
our 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. We
have entered into such indemnification agreements with each of our 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
CardioDynamics pursuant to these provisions, or otherwise, we have been advised
that, in the opinion of the SEC, such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.
ITEM 16. EXHIBITS
EXHIBIT NUMBER
4.1 Securities Purchase Agreement dated August 21, 1998 between
CardioDynamics 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
CardioDynamics 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 Peterson & Co.
23.3 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit
5.1).
24.1 Power of Attorney (see pages II-3 and II-4 of initially filed
Form S-3).
ITEM 17. UNDERTAKINGS
We hereby undertake:
(1) To file, during any period in which we offer or sell securities, a
post-effective amendment to this registration statement to include any
additional or changed material information on the plan of distribution;
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(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 our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the SEC 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 us of expenses incurred or paid by our director, officer, or
controlling person in the successful defense of any action, suit, or proceeding)
is asserted by such director, officer, or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel
the question has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us 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, we certify
that we have reasonable grounds to believe that we meet all of the requirements
for filing on Form S-3 and have duly caused this Registration Statement to be
signed on our behalf by the undersigned, thereunto duly authorized, in the City
of San Diego, State of California, on the 19th day of November, 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 SEC, 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 November 24, 1998
- -------------------------------------- (Principal Executive Officer)
Michael K. Perry
/s/ Stephen P. Loomis Vice President, Finance and Chief November 24, 1998
- -------------------------------------- Financial Officer (Principal
Stephen P. Loomis Financial Officer and Principal
Accounting Officer)
/s/ Stephenson M. Dechant* Director November 24, 1998
- --------------------------------------
Stephenson M. Dechant
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Signature Title Date
--------- ----- ----
/s/ Nicholas V. Diaco, M.D.* Director November 24, 1998
- --------------------------------------
Nicholas V. Diaco, M.D.
/s/ Louis P. Ferrero* Director November 24, 1998
- --------------------------------------
Louis P. Ferrero
/s/ Cam L. Garner* Director November 24, 1998
- --------------------------------------
Cam L. Garner
/s/ James C. Gilstrap* Director November 24, 1998
- --------------------------------------
James C. Gilstrap
/s/ Richard O. Martin* Director November 24, 1998
- --------------------------------------
Richard O. Martin
/s/ Richard E. Otto* Director November 24, 1998
- --------------------------------------
Richard E. Otto
/s/ Michael D. Padilla* Director November 24, 1998
- --------------------------------------
Michael D. Padilla
/s/ Allen E. Paulson* Director November 24, 1998
- --------------------------------------
Allen E. Paulson
*By Michael K. Perry, as attorney-in-fact
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM S-3
UNDER
SECURITIES ACT OF 1933
CARDIODYNAMICS INTERNATIONAL CORPORATION
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EXHIBIT INDEX
Exhibit
Number Exhibit
- ------ -------
4.1 Securities Purchase Agreement dated August 21, 1998 between
CardioDynamics 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
CardioDynamics 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 Peterson & Co.
23.3 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit
5.1).
24.1 Power of Attorney (see pages II-3 and II-4 of initially filed
Form S-3).
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