EXHIBIT 4.2
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CardioDynamics International Corporation
6175 Nancy Ridge Drive, Suite 300
San Diego, CA 92121
September 10, 2001
The Allen E. Paulson Living Trust
c/o Paulson Enterprises
P.O. box 9660
Rancho Santa Fe, California 92067
Attention: J. Michael Paulson and Edward White
Ladies and Gentlemen:
Reference is made to the determination by the Board of Directors of
CardioDynamics International Corporation (the "Company") to register for resale
by the Trust of up to three million (3,000,000) shares of the Company's Common
Stock owned by the Trust (the "Shares") from time to time. It is intended that
any such resale(s) shall be made in one or more privately-negotiated
transactions from and after effectiveness of such registration through December
31, 2001 and thereafter to be made in public or private transactions subject to
the limitations contained in the next-to-last paragraph below.
In consideration of the agreements and covenants contained in this letter
agreement (the "Agreement"), the Company hereby agrees to file with the
Securities and Exchange Commission ("SEC"), within thirty (30) days of the date
hereof, a registration statement with respect to resale of the Shares for resale
under the Securities Act of 1933, as amended (the "Securities Act"). The
Company further agrees to use its best efforts to cause such registration
statement to be declared effective within 90 days following the date of filing
the registration statement and to keep such registration statement effective for
a period of two (2) years or until such Shares have been sold by the Trust or
are otherwise eligible for resale absent registration under the Securities Act.
The Trust hereby agrees to reimburse the Company upon receipt of a written
request therefor (and evidence thereof reasonably satisfactory to the Trust),
for all of the Company's direct, out-of-pocket expenses (up to a maximum of
$25,000 in the aggregate) that the Company incurs in connection with the
registration of the Shares, including without limitation, all filing,
registration and accounting fees and the fees and disbursements of its counsel.
Further, in the event that we introduce any purchasers of Shares to the Trust,
then as compensation for (i) our introduction of such purchasers to the Trust,
(ii) fees and expenses we incurred in connection with such introduction, and
(iii) the otherwise unreimbursed fees and expenses related to the registration
of the Shares as well as the devotion of management time to and opportunity cost
associated with preparation and review of the documents associated with the
registration of the Shares, the Trust hereby agrees to pay to the Company, in
cash at the time of the Settlement Date of any sale effected under the
registration statement, a fee equal to three and one-half percent (3 1/2 %) of
the gross purchase price paid by the Purchasers for the Shares.
Whenever required to effect the registration of the Shares pursuant to this
Agreement the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(b) Furnish to the Trust such number of copies of a prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as the Trust may reasonably request in order to facilitate the disposition of
the Shares owned by it that are included in such registration statement.
(c) Use its best efforts to register and qualify the Shares covered
by such registration statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Trust, provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
(d) Notify the Trust at any time when a prospectus relating to the
registration statement filed under this Agreement is required to be delivered
under the Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
In the event any Shares are included in a registration statement under this
Agreement:
(i) To the extent permitted by law; the Company will indemnify and
hold harmless The Trust, each Trustee of the Trust, each person, if any, who
controls the Trust within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended, (the "1934 Act"), against any losses, claims,
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damages, or Liabilities (joint or several) to which they may become subject
under the Securities Act, the 1934 Act or other federal or state law, solely
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"):
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(x) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto;
(y) the omission or alleged omission to state therein a material
fact Company required to be stated therein, or necessary to make the
statements therein not misleading, or
(z) any other violation or alleged violation by the Company of
the Securities Act, the 1934 Act, any federal or state securities law
or any rule or regulation promulgated under the Securities Act, the
1934 Act or any federal or state securities law in connection with the
offering covered by such registration statement;
and the Company will reimburse the Trust, and each such Trustee of the Trust or
controlling person for any legal or other expenses reasonably incurred by them,
as incurred, in connection with investigating or defending any loss, claim,
damage, liability or action arising out of or based upon a Violation; provided,
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however, that the indemnity agreement contained in this paragraph shall not
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apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the indemnity
agreement contained in this paragraph apply to any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon a
Violation which occurs based upon information concerning the indemnified person
or entity contained in the "Selling Shareholder" or "Plan of Distribution"
portions of a prospectus contained within a registration statement to the extent
such information has been approved by the Trust or its counsel prior to the time
of effectiveness of such registration statement.
(ii) To the extent permitted by law, the Trust will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Securities Act, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person may become subject under the Securities Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs based upon information concerning the Trust contained in the
"Selling Shareholder" or "Plan of Distribution" portions of a prospectus
contained within a registration statement to the extent such information has
been approved by the Trust or its counsel prior to the time of effectiveness of
such registration statement; and the Trust will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer, or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
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agreement contained in this paragraph shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Trust, which consent shall not
be unreasonably withheld; and provided, further, that the total amounts payable
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in indemnity by a the Trust under this paragraph in respect of any Violation
shall not exceed the net proceeds received by the Trust in the registered
offering out of which such Violation arises.
(iii) Promptly after receipt by an indemnified party under this
paragraph of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this paragraph, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
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have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall relieve such indemnifying party of
liability to the indemnified party under this paragraph to the extent the
indemnifying party is prejudiced as a result thereof, but the omission so to
deliver written notice to the indemnified party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
paragraph.
(iv) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (A) the
Trust, any Trustee of the Trust or controlling person of the Trust exercising
rights under this Agreement, makes a claim for indemnification pursuant to this
paragraph but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this paragraph provides for
indemnification in such case, or (B) contribution under the Securities Act may
be required on the part of the Trust or any such controlling person in
circumstances for which indemnification is provided under this paragraph; then,
and in each such case, the Company and the Trust will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion as is just and equitable in
recognition of the relative benefit to and fault of the contributing parties;
provided, however, that, in any such case: (I) the Trust will not be required to
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contribute any amount in excess of the sale price of all such Shares offered and
sold by the Trust pursuant to such registration statement; and (II) no person or
entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
(v) The obligations of the Company and the Trust under this paragraph
shall survive until the fifth anniversary of the completion of any offering of
Shares in a registration statement, regardless of the expiration of any statutes
of limitation or extensions of such statutes.
The Trust shall not make public resales of the Shares or any other shares of the
Company's Common Stock from the date hereof through and including December 31,
2001. Thereafter, any and all public resales by the Trust of the Shares or any
other shares of Company's Common Stock shall be limited to a maximum aggregate
of five hundred thousand (500,000) such shares per calendar month. For purposes
of the foregoing limitation, a sale shall be deemed to have occurred at the
point in time when the Trust becomes legally bound to sell shares of the
Company's Common Stock at a fixed or determinable price, regardless of the
settlement date for such sale. The registration statement shall provide for a
Plan of Distribution of the Shares reasonably satisfactory to the Trust and its
counsel including public as well as private resale of the Shares. From and
after December 31, 2001, the indemnification and contribution obligations of the
parties hereto as set forth in this Agreement shall extend to any preliminary
prospectus included in such registration statement used in effecting any public
resale of the Shares or any portion thereof.
Please execute and return this Agreement (which may be executed in counterparts)
to the undersigned to concur that (i) this sets forth the Trust's complete and
entire understanding with regard to the subjects described within, and (ii) that
this Agreement may not be amended or modified except in a writing executed on
behalf of both the Company and the Trust. By execution hereof, we both further
agree that this Agreement is to be governed by and construed in accordance with
the laws of the State of California, as applied to contracts among California
residents, made and to be performed entirely within the State of California.
CardioDynamics International Corporation
a California corporation
By: /s/ Michael K. Perry
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Name: Michael K. Perry
Title: Chief Executive Officer
Accepted and agreed as of September 10, 2001:
The Allen E. Paulson Living Trust
By: /s/ J. Michael Paulson
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Name: J. Michael Paulson, Co-Trustee
By: /s/ Edward White
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Name: Edward White, Co-Trustee