-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gkqahsqhf8qCJMEIPZWdgtp7Vx4Z46urQklk01x+PkopYG9cUvk81P0QpaOiW2ce h7nk4nFFtO/prTPxNCJSVg== 0000936392-97-000747.txt : 19970523 0000936392-97-000747.hdr.sgml : 19970523 ACCESSION NUMBER: 0000936392-97-000747 CONFORMED SUBMISSION TYPE: SC 13D/A CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19970522 SROS: NONE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CARDIODYNAMICS INTERNATIONAL CORP CENTRAL INDEX KEY: 0000719722 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 953533362 STATE OF INCORPORATION: CA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-37334 FILM NUMBER: 00000000 BUSINESS ADDRESS: STREET 1: 6155 CORNERSTONE CT EAST STE 125 CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6195350202 MAIL ADDRESS: STREET 1: 6155 CORNERSTONE COURT EAST STREET 2: STE 125 CITY: SAN DIEGO STATE: CA ZIP: 92121 FORMER COMPANY: FORMER CONFORMED NAME: BOMED MEDICAL MANUFACTURING LTD DATE OF NAME CHANGE: 19920703 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CARDIODYNAMICS HOLDINGS LLC CENTRAL INDEX KEY: 0000936269 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 880331755 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: PO BOX 9660 CITY: RANCHO SANTA FE STATE: CA ZIP: 92067 BUSINESS PHONE: 6197595990 MAIL ADDRESS: STREET 1: PO BOX 9660 CITY: RANCHO SANTA FE STATE: CA ZIP: 92067 SC 13D/A 1 AM.#4 TO SCHEDULE 13D 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Schedule 13D Under the Securities Exchange Act of 1934 (Amendment No. 4) CARDIODYNAMICS INTERNATIONAL CORPORATION - ------------------------------------------------------------------------------- (Name of Issuer) Common Stock - -------------------------------------------------------------------------------- (Title of Class of Securities) 141597104 - -------------------------------------------------------------------------------- (CUSIP Number) CardioDynamics Holdings, LLC c/o Steve Dechant Del Mar Country Club P.O. Box 9660 Rancho Santa Fe, CA 92067 (619) 759-5990 - ------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) February 26, 1997 - ------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ]. Check the following box if a fee is being paid with the statement [ ]. (A fee is not required only if the reporting person: (1) has a previous statement on file reporting beneficial ownership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of five percent or less of such class.) (See Rule 13d-7.) (Continued on following pages) Page 1 of 13 Pages 2 CUSIP No. 141597104 SCHEDULE 13D Page 2 of 13 Pages --------------------- -------- -------- (1) Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person CARDIODYNAMICS HOLDINGS, LLC --------------------------------------------------------------------- (2) Check the Appropriate Box if a Member of a Group* (a) [ X ] (b) [ ] --------------------------------------------------------------------- (3) SEC Use Only --------------------------------------------------------------------- (4) SOURCE OF FUNDS* AF --------------------------------------------------------------------- (5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] --------------------------------------------------------------------- (6) Citizenship or Place of Organization California --------------------------------------------------------------------- (7) Sole Voting Power Number of 20,340,490 Shares -------------------------------------------------------- Beneficially (8) Shared Voting Power Owned by 0 Each -------------------------------------------------------- Reporting (9) Sole Dispositive Power Person With 15,782,243 -------------------------------------------------------- (10) Shared Dispositive Power 0 -------------------------------------------------------- (11) Aggregate Amount Beneficially Owned by Each Reporting Person 20,304,490 --------------------------------------------------------------------- (12) Check Box if Aggregate Amount in Row (11) Excludes Certain Shares* [ ] --------------------------------------------------------------------- (13) Percent of Class Represented by Amount in Row (11) 63.5% --------------------------------------------------------------------- (14) Type of Reporting Person* OO --------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! Page 2 of 13 Pages 3 CUSIP No. 141597104 SCHEDULE 13D Page 3 of 13 Pages --------------------- -------- -------- (1) Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person ALLEN PAULSON --------------------------------------------------------------------- (2) Check the Appropriate Box if a Member of a Group* (a) [ X ] (b) [ ] --------------------------------------------------------------------- (3) SEC Use Only --------------------------------------------------------------------- (4) SOURCE OF FUNDS* PF --------------------------------------------------------------------- (5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] --------------------------------------------------------------------- (6) Citizenship or Place of Organization USA --------------------------------------------------------------------- (7) Sole Voting Power Number of 4,646,000 Shares -------------------------------------------------------- Beneficially (8) Shared Voting Power Owned by 20,304,490 Each -------------------------------------------------------- Reporting (9) Sole Dispositive Power Person With 20,428,243 -------------------------------------------------------- (10) Shared Dispositive Power 0 -------------------------------------------------------- (11) Aggregate Amount Beneficially Owned by Each Reporting Person 24,950,490 --------------------------------------------------------------------- (12) Check Box if Aggregate Amount in Row (11) Excludes Certain Shares* [ ] --------------------------------------------------------------------- (13) Percent of Class Represented by Amount in Row (11) 78.0% --------------------------------------------------------------------- (14) Type of Reporting Person* IN --------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! Page 3 of 13 Pages 4 CUSIP No. 141597104 SCHEDULE 13D Page 4 of 13 Pages --------------------- -------- -------- (1) Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person JAMES GILSTRAP --------------------------------------------------------------------- (2) Check the Appropriate Box if a Member of a Group* (a) [ ] (b) [ ] --------------------------------------------------------------------- (3) SEC Use Only --------------------------------------------------------------------- (4) SOURCE OF FUNDS* PF --------------------------------------------------------------------- (5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] --------------------------------------------------------------------- (6) Citizenship or Place of Organization USA --------------------------------------------------------------------- (7) Sole Voting Power Number of 1,046,000 Shares -------------------------------------------------------- Beneficially (8) Shared Voting Power Owned by 20,304,490 Each -------------------------------------------------------- Reporting (9) Sole Dispositive Power Person With 1,046,000 -------------------------------------------------------- (10) Shared Dispositive Power 0 -------------------------------------------------------- (11) Aggregate Amount Beneficially Owned by Each Reporting Person 21,350,490 --------------------------------------------------------------------- (12) Check Box if Aggregate Amount in Row (11) Excludes Certain Shares* [ ] --------------------------------------------------------------------- (13) Percent of Class Represented by Amount in Row (11) 66.7% --------------------------------------------------------------------- (14) Type of Reporting Person* IN --------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! Page 4 of 13 Pages 5 CUSIP No. 141597104 SCHEDULE 13D Page 5 of 13 Pages --------------------- -------- -------- (1) Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person NICHOLAS DIACO --------------------------------------------------------------------- (2) Check the Appropriate Box if a Member of a Group* (a) [ ] (b) [ ] --------------------------------------------------------------------- (3) SEC Use Only --------------------------------------------------------------------- (4) SOURCE OF FUNDS* PF --------------------------------------------------------------------- (5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] --------------------------------------------------------------------- (6) Citizenship or Place of Organization USA --------------------------------------------------------------------- (7) Sole Voting Power Number of 276,000 Shares -------------------------------------------------------- Beneficially (8) Shared Voting Power Owned by 20,304,490 Each -------------------------------------------------------- Reporting (9) Sole Dispositive Power Person With 276,000 -------------------------------------------------------- (10) Shared Dispositive Power 0 -------------------------------------------------------- (11) Aggregate Amount Beneficially Owned by Each Reporting Person 20,580,490 --------------------------------------------------------------------- (12) Check Box if Aggregate Amount in Row (11) Excludes Certain Shares* [ ] --------------------------------------------------------------------- (13) Percent of Class Represented by Amount in Row (11) 64.1% --------------------------------------------------------------------- (14) Type of Reporting Person* IN --------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! Page 5 of 13 Pages 6 CUSIP No. 141597104 SCHEDULE 13D Page 6 of 13 Pages --------------------- -------- -------- (1) Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person JOSEPH DIACO --------------------------------------------------------------------- (2) Check the Appropriate Box if a Member of a Group* (a) [ ] (b) [ ] --------------------------------------------------------------------- (3) SEC Use Only --------------------------------------------------------------------- (4) SOURCE OF FUNDS* PF --------------------------------------------------------------------- (5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] --------------------------------------------------------------------- (6) Citizenship or Place of Organization USA --------------------------------------------------------------------- (7) Sole Voting Power Number of 0 Shares -------------------------------------------------------- Beneficially (8) Shared Voting Power Owned by 20,304,490 Each -------------------------------------------------------- Reporting (9) Sole Dispositive Power Person With 0 -------------------------------------------------------- (10) Shared Dispositive Power 0 -------------------------------------------------------- (11) Aggregate Amount Beneficially Owned by Each Reporting Person 20,304,490 --------------------------------------------------------------------- (12) Check Box if Aggregate Amount in Row (11) Excludes Certain Shares* [ ] --------------------------------------------------------------------- (13) Percent of Class Represented by Amount in Row (11) 63.5% --------------------------------------------------------------------- (14) Type of Reporting Person* IN --------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! Page 6 of 13 Pages 7 ITEM 1. SECURITY AND ISSUER The class of securities to which this Statement relates is the common stock (the "Common Stock") of CardioDynamics International Corporation, a California corporation ("Issuer"), whose address is 6155 Cornerstone Court East, Suite 125, San Diego, California 92121. ITEM 2. IDENTITY AND BACKGROUND Pursuant to Rule 13d-1(f) promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), the undersigned hereby jointly file this amended statement on Schedule 13D ("Statement") on behalf of CardioDynamics Holdings, LLC ("LLC"), a California limited liability company, Allen Paulson, a Member of LLC, James Gilstrap, a Member of LLC, Nicholas Diaco, a Member of LLC, and Joseph Diaco, a Member of LLC. The foregoing persons are sometimes hereinafter referred to collectively as the "Reporting Persons." The Reporting Persons are making this single, joint filing to comply with the reporting requirements with respect to Common Stock of the Issuer that each beneficially owns. With respect to Mr. Paulson's 4,646,000 privately beneficially-owned shares of Common Stock, this is also a group filing (Paulson and LLC). A. CardioDynamics Holdings, LLC (a) CardioDynamics Holdings, LLC. (b) LLC's business address is c/o Del Mar Country Club, P.O. Box 9660, Rancho Santa Fe, California 92067. (c) LLC's business is to acquire and own the Common Stock and other securities of Issuer as reported in this Statement. (d)-(e) LLC has not, during the last five years, been convicted in any criminal proceeding, excluding traffic violations or similar misdemeanors, nor been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which it was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. (f) LLC is a limited liability company formed under the laws of California. B. Allen Paulson -- Member of LLC (a) Allen Paulson. (b) Residence address: 6001 Clubhouse Drive, Rancho Santa Fe, CA 92067. (c) Present principal occupation: private investor. (d)-(e) Allen Paulson has not, during the last five years, been convicted in any criminal proceeding, excluding traffic violations or similar misdemeanors, nor been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which he was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Page 7 of 13 Pages 8 (f) Citizenship: USA. C. James Gilstrap -- Member of LLC (a) James Gilstrap. (b) Residence address: 5067 Shore Drive, Carlsbad, CA 92008. (c) Present principal occupation: private investor. (d)-(e) James Gilstrap has not, during the last five years, been convicted in any criminal proceeding, excluding traffic violations or similar misdemeanors, nor been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which he was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. (f) Citizenship: USA. D. Nicholas Diaco -- Member of LLC (a) Nicholas Diaco. (b) Business address: 1301 20th St., Suite 400, Santa Monica, CA 90404. (c) Present principal occupation: Physician; Cardiology Consultants of Santa Monica, 1301 20th St., Suite 400, Santa Monica, CA 90404. (d)-(e) Nicholas Diaco has not, during the last five years, been convicted in any criminal proceeding, excluding traffic violations or similar misdemeanors, nor been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which he was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. (f) Citizenship: USA. E. Joseph Diaco -- Member of LLC (a) Joseph Diaco. (b) Business address: 4700 N. Habana, Suite 403, Tampa, FL 33614. (c) Present principal occupation: Physician. (d)-(e) Joseph Diaco has not, during the last five years, been convicted in any criminal proceeding, excluding traffic violations or similar misdemeanors, nor been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which he was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. (f) Citizenship: USA. Page 8 of 13 Pages 9 ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION LLC used $2,875,000 contributed by its four Members (from their personal funds) to purchase the securities set forth in Item 5(a) of this Statement. Allen Paulson used $1,156,500 of his personal funds to purchase 4,626,000 of the shares of outstanding Common Stock within the 4,646,000 shares of Common Stock set forth in Item 5(a) of this Statement. Any exercises of outstanding stock options would also be from his personal funds. James Gilstrap used $219,000 of his personal funds to purchase 876,000 of the shares of outstanding Common Stock within the 1,046,000 shares of Common Stock set forth in Item 5(a) of this Statement. Any exercises of outstanding stock options would also be from his personal funds. Also, he earlier received 150,000 shares of Common Stock from Issuer as a fee for services in connection with LLC's February 1995 investment in Issuer. Nicholas Diaco used $1,500 of his personal funds to purchase 6,000 of the shares of outstanding Common Stock within the 276,000 shares of Common Stock set forth in Item 5(a) of this Statement. Any exercises of outstanding stock options would also be from his personal funds. Also, he earlier received 150,000 shares of Common Stock from Issuer as a fee for services in connection with LLC's February 1995 investment in Issuer. ITEM 4. PURPOSE OF TRANSACTION LLC acquired control of Issuer through election of a majority of Issuer's Board of Directors on May 15, 1995, and retains that control. The individual Reporting Persons' acquisitions of securities have been for investment purposes. (a) See Items 6.d, 6.e, 6.i and 6.j, which are incorporated herein by reference. With respect to acquisitions by other Reporting Persons, see Item 5(c)(4), discussed below. (b) None. (c) None. (d) None (see previous Statement). (e) None. (f) None. (g) None. (h) None. (i) None. (j) None. The Members of LLC have no such plans or proposals, or purposes, apart from LLC's. Page 9 of 13 Pages 10 ITEM 5. INTEREST IN SECURITIES OF THE ISSUER (a) LLC beneficially owns 15,682,243 shares of Common Stock outright, and beneficially owns (by virtue of its sole voting power) an additional 4,522,247 shares of Common Stock owned by others which LLC holds irrevocable proxies to vote. LLC also beneficially owns, by virtue of its right to acquire them from Issuer, 100,000 shares of Common Stock issuable upon conversion of the Fifth Amended and Restated Secured Convertible Promissory Note. Together, all this represents 63.5% of the Common Stock under the Rule 13d-3(d)(1) calculation (with 31,872,628 shares outstanding today). Other than through the LLC, the Members have no such beneficial ownership except for 4,646,000 shares beneficially owned by Mr. Paulson, 1,046,000 shares beneficially owned by Mr. Gilstrap and 276,000 shares beneficially owned by Mr. N. Diaco. Together, the LLC and its Members beneficially own 81.7% of the Issuer's Common Stock. Together, LLC and Mr. Paulson beneficially own 78.0% of the Issuer's Common Stock. (b) The Reporting Persons' voting and dispositive power is set forth in the cover pages under items 7-10 on pages 2-6 of this Statement. Each of Mr. Paulson, Mr. Gilstrap and Mr. N. Diaco has sole voting power and sole dispositive power for his respective Issuer shares. In addition, each Member of LLC has given Mr. Paulson a proxy to vote his respective LLC interests. Mr. Paulson has a sufficient interest in the LLC, even without the proxies, to control the disposition of LLC's Issuer shares. (c) No other transactions in the Common Stock were effected by LLC, Mr. Paulson or any of the other Members since the filing of LLC's Amendment No. 3 to Schedule 13D, except for the following: (1) From April 1 through June 11, 1996, LLC exercised (in eight separate installments) its right to make $1,800,000 of further advances under the Third Amended and Restated Convertible Promissory Note. (2) On June 12, 1996, LLC converted $1,800,000 principal amount of the Third Amended and Restated Secured Convertible Promissory Note into 7,200,000 unregistered shares of Common Stock. This resulted in Issuer issuing to LLC as of June 30, 1996 the Fourth Amended and Restated Secured Convertible Promissory Note in place of the Third Amended and Restated Secured Convertible Promissory Note. (3) As of February 1, 1997, the Company and LLC amended various terms of the Fourth Amended and Restated Secured Convertible Promissory Note. This resulted in Issuer issuing to LLC the Fifth Amended and Restated Secured Convertible Promissory Note in place of the Fourth Amended and Restated Secured Convertible Promissory Note. (4) Pursuant to Issuer's 1995 Stock Option/Stock Issuance Plan, each of Messrs. Paulson, Gilstrap and N. Diaco has, on the last day of each month beginning August 1995, been automatically granted options to purchase 1,000 shares of Issuer Common Stock, with an exercise price equal to the fair market value of such stock as of each such date, in respect of his service as a non-employee director. Such automatic option grants were not considered to constitute beneficial ownership of the underlying shares until June 12, 1996, when Issuer's shareholders voted to approve such Plan. Through March 31, 1997, each of Messrs. Paulson, Gilstrap and N. Diaco has received automatic option grants for a per-person total of 20,000 shares. Page 10 of 13 Pages 11 (d) No other person is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the securities. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER (a) The relationship among the Members of LLC is governed by the Operating Agreement of LLC, as amended from time to time. (b) Purchase Agreement. See Item 7.c. (c) Amendment of Purchase Agreement. See Item 7.m. (d) Fourth Amended and Restated Secured Convertible Promissory Note (convertible into Common Stock, currently at $0.25 per share; also provides a matching purchase right in favor of LLC in the event of Common Stock issuances by Issuer). Secured by all assets of Issuer. See Items 7.d, 7.j, 7.k, 7.n and 7.o. (e) Fifth Amended and Restated Secured Convertible Promissory Note (convertible into Common Stock, currently at $0.25 per share; also provides a matching purchase right in favor of LLC in the event of Common Stock issuances by Issuer). Secured by all assets of Issuer. See Items 7.d, 7.j, 7.k, 7.n, 7.o and 7.p. (f) Agreement and Irrevocable Proxy (five-year proxy to LLC from DaVinci Scientific Corporation -- 3,902,956 shares of Common Stock; includes an agreement to vote such shares so as to cause the election of one nominee of DaVinci Scientific Corporation as a director of Issuer). See Item 7.e. Now applicable to those shares in the hands of various transferees. (g) Agreement and Irrevocable Proxy (five-year proxy to LLC from Dr. L.S. Smith -- 96,291 shares of Common Stock currently outstanding and 120,365 shares of Common Stock issuable upon exercise of warrants). See Item 7.f. (h) Agreement and Irrevocable Proxy (five-year proxy to LLC from Dallas Gold & Silver Exchange, Inc. -- 523,000 shares of Common Stock). See Item 7.g. (i) Agreement of Right of First Refusal (Dr. L.S. Smith in favor of LLC for three years). See Item 7.h. (j) Agreement of Right of First Refusal (Dallas Gold & Silver Exchange, Inc. in favor of LLC for three years). See Item 7.i. (k) Investment Agreement. See Item 7.l. (l) 1995 Stock Option/Stock Issuance Plan of Issuer, as amended through August 15, 1995 (entitling each non-employee director of Issuer to automatic grants of 1,000 stock options on the last day of each month of service beginning August 1995). Messrs. Paulson, Gilstrap and N. Diaco are non-employee directors of Issuer. See Item 7.q. The Members have no such contracts, arrangements, understandings or relationships. Page 11 of 13 Pages 12 ITEM 7. MATERIAL TO BE FILED AS EXHIBITS a. Letter dated January 6, 1995 from Messrs. Paulson, Gilstrap and Walters to Messrs. Tate and Schmeltzer (previously filed). b. Letter dated February 6, 1995 from Arter & Hadden to Messrs. Paulson, Gilstrap and Walters (previously filed). c. Purchase Agreement dated February 7, 1995 between LLC and Issuer (previously filed). d. Secured Convertible Promissory Note dated February 7, 1995 from Issuer to LLC (previously filed). e. Agreement and Irrevocable Proxy dated February 2, 1995 between LLC and DaVinci Scientific Corporation (previously filed). f. Agreement and Irrevocable Proxy dated February 7, 1995 between LLC and Dr. L.S. Smith (previously filed). g. Agreement and Irrevocable Proxy dated February 7, 1995 between LLC and Dallas Gold & Silver Exchange, Inc. (previously filed). h. Agreement of Right of First Refusal dated February 7, 1995 between LLC and Dr. L.S. Smith (previously filed). i. Agreement of Right of First Refusal dated February 7, 1995 between LLC and Dallas Gold & Silver Exchange, Inc. (previously filed). j. First Amended and Restated Secured Convertible Promissory Note from Issuer to LLC, as amended March 30, 1995 (previously filed). k. Second Amended and Restated Secured Convertible Promissory Note from Issuer to LLC, as amended May 19, 1995 (previously filed). l. Investment Agreement, as amended, dated as of April 12, 1995 between Issuer and LLC (previously filed). m. Amendment of Purchase Agreement, dated March 31, 1996 between LLC and Issuer (previously filed). n. Third Amended and Restated Secured Convertible Promissory Note from Issuer to LLC, as amended March 31, 1996 (previously filed). o. Fourth Amended and Restated Secured Convertible Promissory Note from Issuer to LLC, as amended as of June 30, 1996. p. Fifth Amended and Restated Secured Convertible Promissory Note from Issuer to LLC, as amended as of February 1, 1997. q. 1995 Stock Option/Stock Issuance Plan of Issuer, as amended through August 15, 1995. r. Agreement of Joint Filing, dated April 7, 1997 among LLC and Messrs. A. Paulson, J. Gilstrap, N. Diaco and J. Diaco. Page 12 of 13 Pages 13 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. April 7, 1997 CARDIODYNAMICS HOLDINGS, LLC By:/s/ Allen Paulson -------------------------- Allen Paulson, Member By:/s/ James Gilstrap -------------------------- James Gilstrap, Member /s/ Allen Paulson ----------------------------- ALLEN PAULSON /s/ James Gilstrap ----------------------------- JAMES GILSTRAP /s/ Nicholas Diaco ----------------------------- NICHOLAS DIACO /s/ Joseph Diaco ----------------------------- JOSEPH DIACO Attention: Intentional misstatements or omissions of fact constitute Federal criminal violations (see 18 U.S.C. 1001). 14 EXHIBIT INDEX 7.o. Fourth Amended and Restated Secured Convertible Promissory Note from Issuer to LLC, as amended as of June 30, 1996. 7.p. Fifth Amended and Restated Secured Convertible Promissory Note from Issuer to LLC, as amended as of February 1, 1997. 7.q. 1995 Stock Option/Stock Issuance Plan of Issuer, as amended through August 15, 1995. 7.r. Agreement of Joint Filing. EX-7.O 2 EXHIBIT 7.O 1 EXHIBIT 7.o. FOURTH AMENDED AND RESTATED SECURED CONVERTIBLE PROMISSORY NOTE $25,000.00 February 7, 1995, as amended March 30, 1995, May 19, 1995, March 31, 1996 and June 30, 1996 FOR VALUE RECEIVED, CardioDynamics International Corporation, a California corporation ("Maker"), 6155 Cornerstone Court East, Suite 125, San Diego, California 92121, hereby promises to pay to the order of CardioDynamics Holdings, LLC, a California limited liability company ("Lender"), 5067 Shore Drive, Carlsbad, California 92008, TWENTY-FIVE THOUSAND DOLLARS ($25,000.00), at such address of Lender, in lawful money of the United States together with interest on the principal balance outstanding at the lesser of (a) eight percent per annum, or (b) if less, the maximum rate permissible by applicable law. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed, and shall be payable in arrears on each March 31, June 30, September 30 and December 31. The principal amount of and all unpaid accrued interest under the Note shall become due and payable in full on March 31, 1998. This Note is an amendment and restatement of a certain Secured Convertible Promissory Note dated February 7, 1995 in the original principal amount of $100,000. 1. Additional Provisions Relating to Debt Characteristics. This Note may not be prepaid in full or in part. This Note is secured by the collateral identified and described as security therefor in that certain Security Agreement, dated as of February 7, 1995, by and between Maker and Lender and the collateral identified and described as security therefor in that certain Patent Security Agreement, dated as of February 7, 1995, by and between Maker and Lender (collectively, the "Security Agreement"). Upon the happening of any of the following events, Lender may, at its option, declare immediately due and payable the entire unpaid principal amount of this Note, together with all interest thereon, plus any other amounts payable at the time of such declaration pursuant to this Note. Such events are the following: (1) failure to make any interest payment as it falls due, (2) Maker shall admit in writing its inability to pay its debts as they become due, shall make a general assignment for the benefit of creditors or shall file any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law, 2 or any other law or laws for the relief of, or relating to, debtors; or (3) an involuntary petition shall be filed against Maker under any bankruptcy, reorganization, insolvency or moratorium law, or any other law or laws for the relief of, or relating to, debtors unless such petition shall be dismissed or vacated within sixty (60) days of the date thereof. Lender shall further be entitled to the remedies provided in the event of default provided in the Security Agreement. Maker hereby waives diligence, presentment, demand, protest or other notice of any kind. 2. Conversion. 2.1 Conversion Privilege. Lender has the right, at Lender's option, at any time after February 6, 1996 and prior to payment in full of the principal balance of this Note, to convert this Note, in accordance with the provisions hereof, in whole or in part, into fully paid and nonassessable shares of Common Stock of Maker. The number of shares of Common Stock into which this Note may be converted shall be determined by dividing the aggregate principal amount together with all accrued interest to the date of conversion by the Conversion Price (as defined below) in effect at the time of such conversion. The initial Conversion Price shall be equal to $0.50. On March 31, 1996, the Conversion Price shall decrease to $0.25, subject to further possible adjustment under subsection 2.2 hereof. Before Lender shall be entitled to convert this Note into shares of Common Stock, it shall surrender this Note at the office of Maker and shall give written notice by mail, postage prepaid, to Maker at its principal corporate office, of the election to convert the same, and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. Maker shall, as soon as practicable thereafter, issue and deliver at such office to the holder of this Note a certificate or certificates for the number of shares of Common Stock to which the holder of this Note shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of this Note, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. Upon the conversion of this Note, Lender shall surrender this Note, duly endorsed, at the principal office of Maker. At its expense, Maker shall, as soon as practicable thereafter, issue and deliver to such Lender at such principal office a certificate or certificates for the number of shares of such Common Stock to which the Lender shall be entitled upon such conversion (bearing such legends as may be required by applicable state and federal securities laws in the opinion of counsel to Maker), together with any other securities and property to which Lender is entitled upon such conversion under the terms of this Note. If less than the entire Note is converted, Maker shall issue to Lender a new Note, of like tenor, for the remaining principal amount. -2- 3 2.2 Conversion Price Adjustments. In the event Maker should at any time or from time to time after the date of issuance hereof fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of this Note shall be appropriately decreased so that the number of shares of Common Stock issuable upon conversion of this Note shall be increased in proportion to such increase of outstanding shares. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for this Note shall be appropriately increased so that the number of shares of Common Stock issuable on conversion hereof shall be decreased in proportion to such decrease in outstanding shares. In the event Maker shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by Maker or other persons, assets (excluding cash dividends) or options or rights, then, in each such case for the purpose of this subsection 2.2, the holder hereof shall be entitled to a proportionate share of any such distribution as though such holder was the holder of the number of shares of Common Stock of Maker into which this Note is convertible as of the record date fixed for the determination of the holders of Common Stock of Maker entitled to receive such distribution. -3- 4 2.3 Notices of Record Date, etc. In the event of: o any taking by Maker of a record of the holders of any class of securities of Maker for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend payable out of earned surplus at the same rate as that of the last such cash dividend theretofore paid) or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right; or o any capital reorganization of Maker, any reclassification or recapitalization of the capital stock of Maker or any transfer of all or substantially all of the assets of Maker to any other person or any consolidation or merger involving Maker; or o any voluntary or involuntary dissolution, liquidation or winding-up of Maker, Maker will mail to the holder of this Note at least ten (10) days prior to the earliest date specified therein, a notice specifying: (a) The date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right; and, (b) The date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding-up is expected to become effective and the record date for determining shareholders entitled to vote thereon. 2.4 Reservation of Stock Issuable Upon Conversion. Maker shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the Note such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of the Note; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the entire outstanding principal amount of this Note, in addition to such other remedies as shall be available to the holder of this Note, Maker will use its reasonable best efforts to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. -4- 5 3. Matching Right. If during the term of this Note, Maker shall issue any Common Stock to any person in any circumstances, Lender shall have the right (exercisable by written notice of exercise delivered to Maker no later than 60 days after Maker's written notice to Lender of such issuance to such other person, accompanied by a cashier's check for payment in full), but not the obligation, to purchase from Maker (at the Conversion Price in effect on the date of the issuance to the other person) the same number of shares of Common Stock issued to the other person. This right may be exercised any number of times, and no non-exercise shall affect such right in future instances. 4. Miscellaneous. The rights and obligations of Maker and Lender shall be binding upon and benefit the successors, assigns, heirs, administrators, and transferees of Maker and Lender. Lender shall not be deemed by any act or omission or commission to have waived any of its rights or remedies hereunder unless such waiver is in writing and expressly stated as such and signed by Lender and then only to the extent specifically set forth in the writing. A waiver of one event shall not be construed as continuing or a bar to or waiver of any right or remedy as to a subsequent event. Maker expressly agrees that this Note, or any payment hereunder, may be extended from time to time and consents to the acceptance of security, if any, or the release of security, if any, from this Note, all without in any way affecting the liability of Maker. Any notice that Maker or Lender desires to give to the other related to this Note shall be in writing and shall be deemed delivered when personally delivered by any courier service which obtains a receipt upon delivery to an officer or registered agent of the respective corporation, or two business days after deposit in the United States mail, certified mail, return receipt requested, postage prepaid, addressed to the party being notified at its respective address specified in this Note. If Lender should institute collection efforts, of any nature whatsoever, to attempt to collect any and all amounts due hereunder upon the default of Maker on this Note or under the Security Agreement, or any other efforts to enforce any of its rights under this Note, Maker shall be liable to pay to Lender immediately and without demand all reasonable costs and expenses of collection incurred by Lender, including without limitation reasonable attorneys fees, whether or not suit or other action or proceeding be instituted and specifically including but not limited to collection efforts that may be made on appeal or through a bankruptcy court, and all such sums shall be fully secured by all instruments securing this Note. -5- 6 The provisions of this Note are intended by Maker to be severable and divisible and the invalidity or unenforceability of a provision or term herein shall not invalidate or render unenforceable the remainder of this Note or any part thereof. This Note shall be construed in accordance with the laws of the State of California without giving effect to principles of conflict of laws. IN WITNESS WHEREOF, Maker has executed this instrument in San Diego, California. MAKER: CARDIODYNAMICS INTERNATIONAL CORPORATION By:/s/ Richard E. Otto --------------------------------- Richard E. Otto, President By:/s/ Stephenson M. Dechant --------------------------------- Stephenson M. Dechant, Secretary -6- EX-7.P 3 EXHIBIT 7.P 1 EXHIBIT 7.p. FIFTH AMENDED AND RESTATED SECURED CONVERTIBLE PROMISSORY NOTE $25,000.00 February 7, 1995, as amended March 30, 1995, May 19, 1995, March 31, 1996 June 30, 1996, and February 1, 1997 FOR VALUE RECEIVED, CardioDynamics International Corporation, a California corporation ("Maker"), 6155 Cornerstone Court East, Suite 125, San Diego, California 92121, hereby promises to pay to the order of CardioDynamics Holdings, LLC, a California limited liability company ("Lender"), 5067 Shore Drive, Carlsbad, California 92008, TWENTY-FIVE THOUSAND DOLLARS ($25,000.00), at such address of Lender, in lawful money of the United States together with interest on the principal balance outstanding at the lesser of (a) seven and one-half percent per annum, or (b) if less, the maximum rate permissible by applicable law. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed, and shall be payable in arrears on each March 31, June 30, September 30 and December 31. The principal amount of and all unpaid accrued interest under the Note shall become due and payable in full on March 31, 2000. This Note is an amendment and restatement of a certain Secured Convertible Promissory Note dated February 7, 1995 in the original principal amount of $100,000. 1. Additional Provisions Relating to Debt Characteristics. This Note may not be prepaid in full or in part. This Note is secured by the collateral identified and described as security therefor in that certain Security Agreement, dated as of February 7, 1995, by and between Maker and Lender and the collateral identified and described as security therefor in that certain Patent Security Agreement, dated as of February 7, 1995, by and between Maker and Lender (collectively, the "Security Agreement"). Upon the happening of any of the following events, Lender may, at its option, declare immediately due and payable the entire unpaid principal amount of this Note, together with all interest thereon, plus any other amounts payable at the time of such declaration pursuant to this Note. Such events are the following: (1) failure to make any interest payment as it falls due, (2) Maker shall admit in writing its inability to pay its debts as they become due, shall make a general assignment for the benefit of creditors or shall file any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law, or any other law or laws for the relief of, or relating to, debtors; or (3) an involuntary petition shall 2 be filed against Maker under any bankruptcy, reorganization, insolvency or moratorium law, or any other law or laws for the relief of, or relating to, debtors unless such petition shall be dismissed or vacated within sixty (60) days of the date thereof. Lender shall further be entitled to the remedies provided in the event of default provided in the Security Agreement. Maker hereby waives diligence, presentment, demand, protest or other notice of any kind. 2. Conversion. 2.1 Conversion Privilege. Lender has the right, at Lender's option, at any time after February 6, 1996 and prior to payment in full of the principal balance of this Note, to convert this Note, in accordance with the provisions hereof, in whole or in part, into fully paid and nonassessable shares of Common Stock of Maker. The number of shares of Common Stock into which this Note may be converted shall be determined by dividing the aggregate principal amount together with all accrued interest to the date of conversion by the Conversion Price (as defined below) in effect at the time of such conversion. The initial Conversion Price shall be equal to $0.50. On March 31, 1996, the Conversion Price shall decrease to $0.25, subject to further possible adjustment under subsection 2.2 hereof. On each of March 31, 1998 and March 31, 1999, the Conversion Price shall increase by 20% from its immediately preceding level. Before Lender shall be entitled to convert this Note into shares of Common Stock, it shall surrender this Note at the office of Maker and shall give written notice by mail, postage prepaid, to Maker at its principal corporate office, of the election to convert the same, and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. Maker shall, as soon as practicable thereafter, issue and deliver at such office to the holder of this Note a certificate or certificates for the number of shares of Common Stock to which the holder of this Note shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of this Note, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. Upon the conversion of this Note, Lender shall surrender this Note, duly endorsed, at the principal office of Maker. At its expense, Maker shall, as soon as practicable thereafter, issue and deliver to such Lender at such principal office a certificate or certificates for the number of shares of such Common Stock to which the Lender shall be entitled upon such conversion (bearing such legends as may be required by applicable state and federal securities laws in the opinion of counsel to Maker), together with any other securities and property to which Lender is entitled upon such conversion under the terms -2- 3 of this Note. If less than the entire Note is converted, Maker shall issue to Lender a new Note, of like tenor, for the remaining principal amount. 2.2 Conversion Price Adjustments. In the event Maker should at any time or from time to time after the date of issuance hereof fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of this Note shall be appropriately decreased so that the number of shares of Common Stock issuable upon conversion of this Note shall be increased in proportion to such increase of outstanding shares. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for this Note shall be appropriately increased so that the number of shares of Common Stock issuable on conversion hereof shall be decreased in proportion to such decrease in outstanding shares. In the event Maker shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by Maker or other persons, assets (excluding cash dividends) or options or rights, then, in each such case for the purpose of this subsection 2.2, the holder hereof shall be entitled to a proportionate share of any such distribution as though such holder was the holder of the number of shares of Common Stock of Maker into which this Note is convertible as of the record date fixed for the determination of the holders of Common Stock of Maker entitled to receive such distribution. -3- 4 2.3 Notices of Record Date, etc. In the event of: o any taking by Maker of a record of the holders of any class of securities of Maker for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend payable out of earned surplus at the same rate as that of the last such cash dividend theretofore paid) or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right; or o any capital reorganization of Maker, any reclassification or recapitalization of the capital stock of Maker or any transfer of all or substantially all of the assets of Maker to any other person or any consolidation or merger involving Maker; or o any voluntary or involuntary dissolution, liquidation or winding-up of Maker, Maker will mail to the holder of this Note at least ten (10) days prior to the earliest date specified therein, a notice specifying: (a) The date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right; and, (b) The date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding-up is expected to become effective and the record date for determining shareholders entitled to vote thereon. 2.4 Reservation of Stock Issuable Upon Conversion. Maker shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the Note such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of the Note; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the entire outstanding principal amount of this Note, in addition to such other remedies as shall be available to the holder of this Note, Maker will use its reasonable best efforts to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. -4- 5 3. Matching Right. If during the term of this Note, Maker shall issue any Common Stock to any person in any circumstances, Lender shall have the right (exercisable by written notice of exercise delivered to Maker no later than 60 days after Maker's written notice to Lender of such issuance to such other person, accompanied by a cashier's check for payment in full), but not the obligation, to purchase from Maker (at the Conversion Price in effect on the date of the issuance to the other person) the same number of shares of Common Stock issued to the other person. This right may be exercised any number of times, and no non-exercise shall affect such right in future instances. 4. Miscellaneous. The rights and obligations of Maker and Lender shall be binding upon and benefit the successors, assigns, heirs, administrators, and transferees of Maker and Lender. Lender shall not be deemed by any act or omission or commission to have waived any of its rights or remedies hereunder unless such waiver is in writing and expressly stated as such and signed by Lender and then only to the extent specifically set forth in the writing. A waiver of one event shall not be construed as continuing or a bar to or waiver of any right or remedy as to a subsequent event. Maker expressly agrees that this Note, or any payment hereunder, may be extended from time to time and consents to the acceptance of security, if any, or the release of security, if any, from this Note, all without in any way affecting the liability of Maker. Any notice that Maker or Lender desires to give to the other related to this Note shall be in writing and shall be deemed delivered when personally delivered by any courier service which obtains a receipt upon delivery to an officer or registered agent of the respective corporation, or two business days after deposit in the United States mail, certified mail, return receipt requested, postage prepaid, addressed to the party being notified at its respective address specified in this Note. If Lender should institute collection efforts, of any nature whatsoever, to attempt to collect any and all amounts due hereunder upon the default of Maker on this Note or under the Security Agreement, or any other efforts to enforce any of its rights under this Note, Maker shall be liable to pay to Lender immediately and without demand all reasonable costs and expenses of collection incurred by Lender, including without limitation reasonable attorneys fees, whether or not suit or other action or proceeding be instituted and specifically including but not limited to collection efforts that may be made on appeal or through a bankruptcy court, and all such sums shall be fully secured by all instruments securing this Note. -5- 6 The provisions of this Note are intended by Maker to be severable and divisible and the invalidity or unenforceability of a provision or term herein shall not invalidate or render unenforceable the remainder of this Note or any part thereof. This Note shall be construed in accordance with the laws of the State of California without giving effect to principles of conflict of laws. IN WITNESS WHEREOF, Maker has executed this instrument in San Diego, California. MAKER: CARDIODYNAMICS INTERNATIONAL CORPORATION By:/s/ Richard E. Otto -------------------------------- Richard E. Otto, President By:/s/ Stephenson M. Dechant -------------------------------- Stephenson M. Dechant, Secretary -6- EX-7.Q 4 EXHIBIT 7.Q 1 EXHIBIT 7.q. CARDIODYNAMICS INTERNATIONAL CORPORATION 1995 STOCK OPTION/STOCK ISSUANCE PLAN (AS AMENDED AND RESTATED THROUGH AUGUST 15, 1995) ARTICLE ONE GENERAL PROVISIONS I. PURPOSE OF THE PLAN This 1995 Stock Option/Stock Issuance Plan (the "Plan") is intended to promote the interests of CardioDynamics International Corporation, a California corporation, by providing eligible persons with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the service of the Corporation. Capitalized terms not otherwise defined shall have the meanings assigned to such terms in the attached Appendix. II. STRUCTURE OF THE PLAN A. The Plan shall be divided into three separate equity programs: (i) the Discretionary Option Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of common stock of the Corporation, (ii) the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of common stock of the Corporation directly, either through the immediate purchase of such shares or as a bonus for services rendered the Corporation (or any Parent or Subsidiary), and (iii) the Automatic Option Grant Program under which non-employee directors shall automatically receive option grants at periodic intervals to purchase shares of common stock of the Corporation. B. The provisions of Articles One and Five shall apply to all equity programs under the Plan and shall accordingly govern the interests of all persons under the Plan. III. ADMINISTRATION OF THE PLAN A. This Plan shall be administered by a compensation committee ("Committee") consisting of two (2) or more Board members who assume full responsibility for the administration of the Plan (the "Plan Administrator"). Members of such compensation committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. B. The Plan Administrator shall have full power and authority (subject to the express provisions of the Plan) to establish such rules and regulations as it may deem appropriate for the proper administration of the Plan and to make such determinations under, and issue such interpretations of, the Plan and any outstanding option grants or stock issuances as it may deem necessary or advisable. Decisions of the 2 Plan Administrator shall be final and binding on all parties who have an interest in the Plan or any outstanding option or stock issuance. C. Notwithstanding the above, the administration of the Automatic Option Grant Program under Article Three shall be self executing in accordance with the terms and conditions thereof and the Plan Administrator shall not exercise any discretionary functions in respect to matters governed by Article Three. D. The Plan Administrator shall, within the scope of its administrative jurisdiction under the Plan, have full authority to determine, (i) with respect to the option grants under the Discretionary Option Grant Program, which eligible persons are to receive option grants, the time or times when such option grants are to be made, the number of shares to be covered by each such grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option, the time or times at which each option is to become exercisable, the vesting schedule (if any) applicable to the option shares and the maximum term for which the option is to remain outstanding and (ii) with respect to stock issuances under the Stock Issuance Program, which eligible persons are to receive stock issuances, the time or times when such issuances are to be made, the number of shares to be issued to each Participant, the vesting schedule (if any) applicable to the issued shares and the consideration to be paid by the Participant for such shares. E. The Plan Administrator shall have the absolute discretion either to grant options in accordance with the Discretionary Option Grant Program or to effect stock issuances in accordance with the Stock Issuance Program. IV. OPTION GRANTS AND STOCK ISSUANCES A. Subject to Section V.B below, the persons eligible to receive stock issuances under the Stock Issuance Program ("Participant") and/or option grants pursuant to the Discretionary Option Grant Program ("Optionee") are as follows: (i) officers and other employees of the Corporation (or its parent or subsidiary corporations) who render services which contribute to the management, growth and financial success of the Corporation (or its parent or subsidiary corporations); (ii) those consultants or other independent contractors who provide valuable services to the Corporation (or its parent or subsidiary corporations); provided that, notwithstanding any other provision of this Plan, no option grants under the Discretionary Option Grant Program or stock issuances under the Stock Issuance Program shall be made to any director hereunder unless, at the time of such option or issuance, the Plan Administrator is a committee composed entirely of non-employee Board members none of whom have received an option grant or stock issuance under this Plan or any other stock plan of the Corporation (or any parent or subsidiary corporation) other than under the Automatic Option Grant Program during the one year prior to service on the committee or during such service. B. The individuals eligible to receive option grants under the Automatic Option Grant Program shall be those individuals who serve as non-employee Board members during the term of the Plan. V. STOCK SUBJECT TO THE PLAN A. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired common stock of the Corporation ("Common Stock"), including shares repurchased by the Corporation on the open market. The maximum number of shares of Common Stock which may be issued over the term of the Plan shall not exceed 1,529,000 shares. 2. 3 B. No one person participating in the Plan may receive options, separately exercisable stock appreciation rights and direct stock issuances for more than 800,000 shares of Common Stock in the aggregate over the term of the Plan. C. Shares of Common Stock subject to outstanding options shall be available for subsequent issuance under the Plan to the extent (i) the options expire or terminate for any reason prior to exercise in full or (ii) the options are cancelled in accordance with the cancellation-regrant provisions of Article Two. All shares issued under the Plan, whether or not those shares are subsequently repurchased by the Corporation pursuant to its repurchase rights under the Plan, shall reduce on a share-for-share basis the number of shares of Common Stock available for subsequent issuance under the Plan. In addition, should the exercise price of an option under the Plan be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an option or the vesting of a stock issuance under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised or which vest under the stock issuance, and not by the net number of shares of Common Stock issued to the holder of such option or stock issuance. D. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of securities for which the share reserve is to increase automatically each year, (iii) the number and/or class of securities for which any one person may be granted options, separately exercisable stock appreciation rights and direct stock issuances over the term of the Plan, (iv) the number and/or class of securities for which automatic option grants are to be subsequently made under the Automatic Option Grant Program and (v) the number and/or class of securities and the exercise price per share in effect under each outstanding option in order to prevent the dilution or enlargement of benefits thereunder. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. ARTICLE TWO DISCRETIONARY OPTION GRANT PROGRAM I. OPTION TERMS Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options. A. Exercise Price. 1. The exercise price per share shall be fixed by the Plan Administrator but shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the option grant date. 2. The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of Section I of Article Five and the documents evidencing the option, be payable in one or more of the forms specified below: (i) cash or check made payable to the Corporation, 3. 4 (ii) shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the exercise date, or (iii) to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable written instructions to (a) a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the exercise date. B. Exercise and Term of Options. Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option shall have a term in excess of ten (10) years measured from the option grant date. C. Effect of Termination of Service. 1. The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or death: (i) Any option outstanding at the time of the Optionee's cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall be exercisable after the expiration of the option term. (ii) Any option exercisable in whole or in part by the Optionee at the time of death may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. (iii) During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionee's cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Service, terminate and cease to be outstanding to the extent it is not exercisable for vested shares on the date of such cessation of Service. (iv) In the event of a Corporate Transaction,the provisions of Section III of this Article Two shall govern the period for which the outstanding options are to remain exercisable following the Optionee's cessation of Service and shall supersede any provisions to the contrary in this section. 4. 5 2. The Plan Administrator shall have the discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to: (i) extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service from the period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or (ii) permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested under the option had the Optionee continued in Service. D. Shareholder Rights. The holder of an option shall have no shareholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares. E. Repurchase Rights. The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of Common Stock. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase, at the exercise price paid per share, any or all of those unvested shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right. F. Limited Transferability of Options. During the lifetime of the Optionee, the option shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the Optionee's death. However, a Non-Statutory Option may be assigned in accordance with the terms of a Qualified Domestic Relations Order within the meaning of Internal Revenue Code Section 414(p). The assigned option may only be exercised by the person or persons who acquire a proprietary interest in the option pursuant to such Qualified Domestic Relations Order. The terms applicable to the assigned option (or portion thereof) shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate II. INCENTIVE OPTIONS The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Five shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section II. A. Eligibility. Incentive Options may only be granted to Employees. B. Exercise Price. The exercise price per share shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date. C. Dollar Limitation. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time 5. 6 become exercisable as Incentive Options during any one (1) calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted. D. 10% Shareholder. If any Employee to whom an Incentive Option is granted is a 10% shareholder (within the meaning of Internal Revenue Code Section 424(d)), then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the option term shall not exceed five (5) years measured from the option grant date. III. CORPORATE TRANSACTION A. In the event of any Corporate Transaction, each outstanding option shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable for all of the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. However, an outstanding option shall NOT so accelerate if and to the extent: (i) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation (or parent thereof) or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation (or parent thereof), (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing on the unvested option shares at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such option or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. The determination of option comparability under clause (i) above shall be made by the Plan Administrator, and its determination shall be final, binding and conclusive. B. All outstanding repurchase rights shall also terminate automatically, and the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent: (i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued. C. Immediately following the consummation of the Corporate Transaction, all outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof). D. Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to (i) the number and class of securities available for issuance under the Plan on both an aggregate and per Optionee basis following the consummation of such Corporate Transaction and (ii) the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same. E. Any options which are assumed or replaced in the Corporate Transaction and do not otherwise accelerate at that time, shall automatically accelerate (and any of the Corporation's outstanding repurchase rights which do not otherwise terminate at the time of the Corporate Transaction shall automatically terminate and the shares of Common Stock subject to those terminated rights shall immediately vest in full) in the event the Optionee's Service should subsequently terminate by reason of an Involuntary Termination within 6. 7 eighteen (18) months following the effective date of such Corporate Transaction. Any options so accelerated shall remain exercisable for fully-vested shares until the earlier of (i) the expiration of the option term or (ii) the expiration of the one (1) year period measured from the effective date of the Involuntary Termination. F. The portion of any Incentive Option accelerated in connection with a Corporate Transaction or Change in Control shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal tax laws. G. The grant of options under the Discretionary Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. IV. CANCELLATION AND REGRANT OF OPTIONS The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Discretionary Option Grant Program and to grant in substitution new options covering the same or different number of shares of Common Stock but with an exercise price per share based on the Fair Market Value per share of Common Stock on the new option grant date. V. STOCK APPRECIATION RIGHTS A. The Plan Administrator shall have full power and authority to grant to selected Optionees tandem stock appreciation rights and/or limited stock appreciation rights. B. The following terms shall govern the grant and exercise of tandem stock appreciation rights: (i) One or more Optionees may be granted the right, exercisable upon such terms as the Plan Administrator may establish, to elect between the exercise of the underlying option for shares of Common Stock and the surrender of that option in exchange for a distribution from the Corporation in an amount equal to the excess of (A) the Fair Market Value (on the option surrender date) of the number of shares in which the Optionee is at the time vested under the surrendered option (or surrendered portion thereof) over (B) the aggregate exercise price payable for such shares. (ii) No such option surrender shall be effective unless it is approved by the Plan Administrator. If the surrender is so approved, then the distribution to which the Optionee shall be entitled may be made in shares of Common Stock valued at Fair Market Value on the option surrender date, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate. (iii) If the surrender of an option is rejected by the Plan Administrator, then the Optionee shall retain whatever rights the Optionee had under the surrendered option (or surrendered portion thereof) on the option surrender date and may exercise such rights at any time prior to the later of (A) five (5) business days after the receipt of the rejection notice or (B) the last day on which the option is otherwise exercisable in accordance with the terms of the documents evidencing such option, but in no event may such rights be exercised more than ten (10) years after the option grant date. 7. 8 C. The following terms shall govern the grant and exercise of limited stock appreciation rights: (i) One or more persons subject to Section 16 of the Act may be granted limited stock appreciation rights with respect to their outstanding options. (ii) Upon the occurrence of a Hostile Take-Over, each such individual holding one or more options with such a limited stock appreciation right in effect for at least six (6) months shall have the unconditional right (exercisable for a thirty (30)-day period following such Hostile Take-Over) to surrender each such option to the Corporation, to the extent the option is at the time exercisable for vested shares of Common Stock. In return for the surrendered option, the Optionee shall receive a cash distribution from the Corporation in an amount equal to the excess of (A) the Take-Over Price of the shares of Common Stock which are at the time vested under each surrendered option (or surrendered portion thereof) over (B) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the option surrender date. (iii) Neither the approval of the Plan Administrator nor the consent of the Board shall be required in connection with such option surrender and cash distribution. (iv) The balance of the option (if any) shall continue in full force and effect in accordance with the documents evidencing such option. ARTICLE THREE STOCK ISSUANCE PROGRAM I. STOCK ISSUANCE TERMS Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. A. Purchase Price 1. The purchase price per share shall be fixed by the Plan Administrator, but shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the stock issuance date. 2. Subject to the provisions of Section I of Article Five, shares of Common Stock may be issued under the Stock Issuance Program for one or both of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance: (i) cash or check made payable to the Corporation, or (ii) past services rendered to the Corporation (or any Parent or Subsidiary). 8. 9 B. Vesting Provisions 1. Shares of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant's period of Service or upon attainment of specified performance objectives. The elements of the vesting schedule applicable to any unvested shares of Common Stock issued under the Stock Issuance Program, namely: (i) the Service period to be completed by the Participant or the performance objectives to be attained, (ii) the number of installments in which the shares are to vest, (iii) the interval or intervals (if any) which are to lapse between installments, and (iv) the effect which death, Permanent Disability or other event designated by the Plan Administrator is to have upon the vesting schedule, shall be determined by the Plan Administrator and incorporated into the stock issuance agreement. 2. Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to the Participant's unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant's unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate. 3. The Participant shall have full shareholder rights with respect to any shares of Common Stock issued to the Participant under the Stock Issuance Program, whether or not the Participant's interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares. 4. Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further shareholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant's purchase-money indebtedness), the Corporation shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid principal balance of any outstanding purchase-money note of the Participant attributable to such surrendered shares. 5. The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock (or other assets attributable thereto) which would otherwise occur upon the non-completion of the vesting schedule applicable to such shares. Such waiver shall result in the immediate vesting of the Participant's interest in the shares of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant's cessation of Service or the attainment or non-attainment of the applicable performance objectives. 9. 10 II. CORPORATE TRANSACTION A. All of the outstanding repurchase rights under the Stock Issuance Program shall terminate automatically, and all the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent (i) those repurchase rights are assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed in the stock issuance agreement. B. Any repurchase rights that are assigned in the Corporate Transaction shall automatically terminate, and all the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event the Optionee's Service should subsequently terminate by reason of an Involuntary Termination within eighteen (18) months following the effective date of such Corporate Transaction. III. SHARE ESCROW/LEGENDS Unvested shares may, in the Plan Administrator's discretion, be held in escrow by the Corporation until the Participant's interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares. ARTICLE FOUR AUTOMATIC OPTION GRANT PROGRAM I. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS A. Grant of Options. Option grants will be made automatically to each non-employee Board member who has not otherwise been in the prior employ of the Corporation during the preceding two years. Each such person shall automatically be granted a nonstatutory option to purchase 1,000 shares with respect to each calendar month (beginning August 1995) during all of which he or she serves as a director, on the last day of each such respective calendar month. The number of shares granted pursuant to this Automatic Grant Program shall be subject to periodic adjustment pursuant to the applicable provisions of Section V.D. of Article One. B. Exercise Price. The exercise price per share of each automatic option grant made under this Article Three shall be equal to one hundred percent (100%) of the fair market value per share of Common Stock on the grant date. C. Payment. The exercise price shall be payable in one of the alternative forms specified below: (i) full payment in cash or check drawn to the Corporation's order; (ii) full payment in shares of Common Stock held for at least six (6) months and valued at fair market value on the Exercise Date (as such term is defined below); (iii) full payment in a combination of shares of Common Stock held for at least six (6) months and valued at fair market value on the Exercise Date and cash or check; or 10. 11 (iv) full payment through a broker-dealer sale and remittance procedure pursuant to which the non-employee Board member (A) shall provide irrevocable written instructions to a designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate option price payable for the purchased shares plus all applicable Federal and state income taxes required to be withheld by the Corporation in connection with such purchase and (B) shall provide written directives to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. For purposes of this Section I.C. of Article Three, the Exercise Date shall be the date on which written notice of the option exercise is delivered to the Corporation, and the fair market value per share of Common Stock on any relevant date shall be determined in accordance with the provisions of Section II.A of Article Five. Except to the extent the sale and remittance procedure is utilized in connection with the exercise of the option, payment of the option price for the purchased shares must accompany such notice. D. Option Term. Each automatic grant under this Article Four shall have a maximum term of ten (10) years measured from the automatic grant date. E. Exercisability. Each automatic grant under this Article Four shall be exercisable in full immediately. F. Non-Transferability. During the lifetime of the optionee, each automatic option grant, together with the limited stock appreciation right pertaining to such option, if any, shall be exercisable only by the optionee and shall not be assignable or transferable by the optionee other than a transfer of the option effected by will or by the laws of descent and distribution following optionee's death. G. Effect of Termination of Board Membership. Should the optionee cease to serve as a Board member for any reason (other than death) while holding one or more automatic option grants under this Article Four, then such optionee shall have a twenty-four (24) month period following the date of such cessation of Board membership in which to exercise each such option. In no event shall any automatic grant under this Article Four remain exercisable after the specified expiration date of the ten (10)-year option term. Upon the expiration of the applicable exercise period in accordance with the preceding subparagraph or (if earlier) upon the expiration of the ten (10) year option term, the automatic grant shall terminate and cease to be outstanding for any unexercised shares. II. LIMITED STOCK APPRECIATION RIGHT. A. Upon the occurrence of a Hostile Take-Over, each non-employee Board member holding an automatic option grant which has been outstanding under this Article Four for a period of at least six (6) months shall have the unconditional right (exercisable for a thirty (30)-day period following such Hostile Take-Over) to surrender such option in return for a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to the surrendered option (whether or not the option is otherwise at the time exercisable for such shares) over (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the option surrender date. Neither the approval of the Plan Administrator nor the consent of the Board shall be required in connection with such option surrender and cash distribution. 11. 12 B. The shares of Common Stock subject to each option surrendered in connection with the Hostile Take-Over shall NOT be available for subsequent issuance under this Plan. III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER A. Immediately following the consummation of any Corporate Transaction, each automatic option grant shall (subject to paragraph B below) terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof). B. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each automatic option held by him or her for a period of at least six (6) months. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to the surrendered option over (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the surrender of the option to the Corporation. No approval or consent of the Board shall be required in connection with such option surrender and cash distribution. C. The grant of options under the Automatic Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. IV. AMENDMENT OF THE AUTOMATIC OPTION GRANT PROGRAM The provisions of this Automatic Option Grant Program, together with the option grants outstanding thereunder, may not be amended at intervals more frequently than once every six (6) months, other than to the extent necessary to comply with applicable Federal income tax laws and regulations. V. REMAINING TERMS The remaining terms of each option granted under the Automatic Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program. ARTICLE FIVE MISCELLANEOUS I. ACCELERATION The Plan Administrator shall have the discretion, exercisable either at the time an option is granted under the Discretionary Stock Option Program, at the time that stock is issued under the Stock Issuance Program or at any time while the option or stock remains outstanding, to provide for the acceleration of one or more outstanding options and the termination of repurchase rights on one or more outstanding shares upon the occurrence of such events as the Plan Administrator may determine, including upon a Corporate Transaction regardless or whether or not such options are to be assumed or replaced or the repurchase rights are to be assigned in the Corporate Transaction. II. FINANCING A. The Plan Administrator may permit any Optionee or Participant to pay the option exercise price under the Discretionary Option Grant Program or the purchase price for shares issued under the Stock Issuance Program by delivering a promissory note payable in one or more installments. The terms of any 12. 13 such promissory note (including the interest rate and the terms of repayment) shall be established by the Plan Administrator in its sole discretion. Promissory notes may be authorized with or without security or collateral. In all events, the maximum credit available to the Optionee or Participant may not exceed the sum of (i) the aggregate option exercise price or purchase price payable for the purchased shares plus (ii) any Federal, state and local income and employment tax liability incurred by the Optionee or the Participant in connection with the option exercise or share purchase. B. The Plan Administrator may, in its discretion, determine that one or more such promissory notes shall be subject to forgiveness by the Corporation in whole or in part upon such terms as the Plan Administrator may deem appropriate. III. TAX WITHHOLDING A. The Corporation's obligation to deliver shares of Common Stock upon the exercise of options or stock appreciation rights or upon the issuance or vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements. B. The Plan Administrator may, in its discretion, provide any or all holders of Non-Statutory Options or unvested shares of Common Stock under the Plan (other than the options granted or the shares issued under the Automatic Option Grant Program) with the right to use shares of Common Stock in satisfaction of all or part of the federal, state and local income or employment taxes incurred by such holders in connection with the exercise of their options or the vesting of their shares. Such right may be provided to any such holder in either or both of the following formats: (i) Stock Withholding: The election to have the Corporation withhold, from the shares of Common Stock otherwise issuable upon the exercise of such Non-Statutory Option or the vesting of such shares, a portion of those shares with an aggregate Fair Market Value equal to the percentage of such taxes (not to exceed one hundred percent (100%)) designated by the holder. (ii) Stock Delivery: The election to deliver to the Corporation, at the time the Non-Statutory Option is exercised or the shares vest, one or more shares of Common Stock previously acquired by such holder (other than in connection with the option exercise or share vesting triggering the taxes) with an aggregate Fair Market Value equal to the percentage of such taxes (not to exceed one hundred percent (100%)) designated by the holder. IV. EFFECTIVE DATE AND TERM OF THE PLAN A. The Plan shall become effective on the date the Plan is adopted by the Board, and options may be granted under the Discretionary Option Grant Program from and after the effective date. However, no options granted under the Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation's shareholders. If such shareholder approval is not obtained within twelve (12) months after such effective date, then all options previously granted under this Plan shall terminate and cease to be outstanding, and no further options shall be granted and no shares shall be issued under the Plan. B. The Plan shall terminate upon the earliest of (i) June 14, 2005, (ii) the date on which all shares available for issuance under the Plan shall have been issued pursuant to the exercise of the options or the issuance of shares (whether vested or unvested) under the Plan or (iii) the termination of all outstanding options in connection with a Corporate Transaction. Upon such Plan termination, all options and unvested stock 13. 14 issuances outstanding on such date shall thereafter continue to have force and effect in accordance with the provisions of the documents evidencing such options or issuances. V. AMENDMENT OF THE PLAN A. The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, (i) no such amendment or modification shall adversely affect the rights and obligations with respect to options, stock appreciation rights or unvested stock issuances at the time outstanding under the Plan unless the Optionee or the Participant consents to such amendment or modification, and (ii) any amendment made to the Automatic Option Grant Program (or any options outstanding thereunder) shall be in compliance with the limitations of that program. In addition, the Board shall not, without the approval of the Corporation's shareholders, (i) materially increase the maximum number of shares issuable under the Plan, the number of shares for which options may be granted under the Automatic Option Grant Program or the maximum number of shares for which any one person may be granted options, separately exercisable stock appreciation rights and direct stock issuances in the aggregate over the term of the Plan, except for permissible adjustments in the event of certain changes in the Corporation's capitalization, (ii) materially modify the eligibility requirements for Plan participation or (iii) materially increase the benefits accruing to Plan participants. B. Options to purchase shares of Common Stock may be granted under the Discretionary Option Grant Program and shares of Common Stock may be issued under the Stock Issuance Program that are in each instance in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under those programs are held in escrow until there is obtained shareholder approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such shareholder approval is not obtained within twelve (12) months after the date the first such excess issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees and the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding. VI. USE OF PROCEEDS Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes. VII. REGULATORY APPROVALS A. The implementation of the Plan, the granting of any option or stock appreciation right under the Plan and the issuance of any shares of Common Stock (i) upon the exercise of any option or stock appreciation right or (ii) under the Stock Issuance Program shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options and stock appreciation rights granted under it and the shares of Common Stock issued pursuant to it. B. No shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any stock exchange (or the NASD, if applicable) on which Common Stock is then listed for trading. 14. 15 VIII. NO EMPLOYMENT/SERVICE RIGHTS Nothing in the Plan shall confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause. 15. 16 APPENDIX The following definitions shall be in effect under the Plan: A. BOARD shall mean the Corporation's Board of Directors. B. CHANGE IN CONTROL shall mean a change in ownership or control of the Corporation effected through either of the following transactions: (i) the acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's shareholders which the Board does not recommend such shareholders to accept, or (ii) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination. C. CORPORATE TRANSACTION shall mean either of the following shareholder-approved transactions to which the Corporation is a party: (i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Company's incorporation, (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company in liquidation or dissolution of the Company, or (iii) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to holders different from those who held such securities immediately prior to such merger. D. CORPORATION shall mean CardioDynamics International Corporation, a California corporation. E. EMPLOYEE shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. F. FAIR MARKET VALUE per share of Common Stock on any relevant date shall be determined in accordance with the following provisions: A-1. 17 (i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (iii) If the Common Stock is at the time not traded on the Nasdaq National Market or listed on any Stock Exchange, the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate. G. HOSTILE TAKE-OVER shall mean a change in ownership of the Corporation effected through acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's shareholders which the Board does not recommend such shareholders to accept. H. INCENTIVE OPTION shall mean an option which satisfies the requirements of Internal Revenue Code Section 422. I. INVOLUNTARY TERMINATION shall mean the termination of the Service of any individual which occurs by reason of: (i) such individual's involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or (ii) such individual's voluntary resignation following (A) a change in his or her position with the Corporation which materially reduces his or her level of responsibility, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and any non-discretionary and objective-standard incentive payment or bonus award) by more than fifteen percent (15%) or (C) a relocation of such individual's place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without the individual's consent. J. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation A-2. 18 (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of any Optionee, Participant or other person in the Service of the Corporation (or any Parent or Subsidiary). K. NON-STATUTORY OPTION shall mean an option which is not an Incentive Option. L. PARENT shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. M. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. N. SERVICE shall mean the provision of services to the Corporation (or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant. O. SUBSIDIARY shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. P. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value per share of Common Stock on the date the option is surrendered to the Corporation in connection with a Hostile Take-Over or (ii) the highest reported price per share of Common Stock paid by the tender offeror in effecting such Hostile Take-Over. However, if the surrendered option is an Incentive Option, the Take-Over Price shall not exceed the clause (i) price per share. A-3. EX-7.R 5 EXHIBIT 7.R 1 EXHIBIT 7.r. Agreement of Joint Filing The undersigned hereby agree that they are filing jointly pursuant to Rule 13d- 1(f)(1) of the Securities Exchange Act of 1934, as amended, the Statement dated April 7, 1997 containing the information required by Schedule 13D, for the shares of Common Stock of CardioDynamics International Corporation, held by CardioDynamics Holdings, LLC, a California limited liability company, and by the undersigned individuals. April 7, 1997 CARDIODYNAMICS HOLDINGS, LLC By:/s/ Allen Paulson --------------------------------- Allen Paulson, Member By:/s/ James Gilstrap --------------------------------- James Gilstrap, Member /s/ Allen Paulson ------------------------------------ ALLEN PAULSON /s/ James Gilstrap ------------------------------------ JAMES GILSTRAP /s/ Nicholas Diaco ------------------------------------ NICHOLAS DIACO /s/ Joseph Diaco ------------------------------------ JOSEPH DIACO -----END PRIVACY-ENHANCED MESSAGE-----