<PAGE>   1
 
                            SCHEDULE 14A INFORMATION
 
                PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                               (AMENDMENT NO.   )
 
Filed by the Registrant [X]
 
Filed by a Party other than the Registrant [ ]
 
Check the appropriate box:
 
[ ]  Preliminary Proxy Statement
[ ]  Confidential, for Use of the Commission Only (as permitted by 
     Rule 14a-6(e))
[X]  Definitive Proxy Statement
[ ]  Definitive Additional Materials
[ ]  Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

                         CARDIOVASCULAR DYNAMICS, INC.
- -------------------------------------------------------------------------------
                (Name of Registrant as Specified In Its Charter)
 
- -------------------------------------------------------------------------------
    (Name of Person(s) Filing Proxy Statement, if other than the Registrant)
 
Payment of Filing Fee (Check the appropriate box):
 
[X]  No fee required.
 
[ ]  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
     (1)  Title of each class of securities to which transaction applies:
 
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     (2)  Aggregate number of securities to which transaction applies:
 
          ---------------------------------------------------------------------
 
     (3)  Per unit price or other underlying value of transaction computed
          pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
          filing fee is calculated and state how it was determined):
 
          ---------------------------------------------------------------------
 
     (4)  Proposed maximum aggregate value of transaction:
 
          ---------------------------------------------------------------------
     (5)  Total fee paid:
 
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[ ]  Fee paid previously with preliminary materials.
 
[ ]  Check box if any part of the fee is offset as provided by Exchange Act
     Rule 0-11(a)(2) and identify the filing for which the offsetting fee was 
     paid previously. Identify the previous filing by registration statement 
     number, or the form or schedule and the date of its filing.
 
     (1)  Amount Previously Paid:

          ---------------------------------------------------------------------
     (2)  Form, Schedule or Registration Statement no.:
 
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     (3)  Filing Party:
 
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     (4)  Date Filed:

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Notes:    ---------------------------------------------------------------------

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<PAGE>   2
 
                         CARDIOVASCULAR DYNAMICS, INC.
 
                                      LOGO
                         13700 ALTON PARKWAY, SUITE 160
                            IRVINE, CALIFORNIA 92618
                            ------------------------
 

                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                            TO BE HELD MAY 19, 1998
                            ------------------------
 
To the Stockholders of CardioVascular Dynamics, Inc.:
 
     You are cordially invited to attend the Annual Meeting of Stockholders of
CardioVascular Dynamics, Inc. ("CVD" or the "Company") on May 19, 1998 at 10:00
a.m., California time. The Annual Meeting will be held at the Company's
executive offices at 13700 Alton Parkway, Suite 160, Irvine, California 92618.
 
     At the meeting, you will be asked to consider and vote upon the following
proposals: (i) the approval of an amendment to the 1996 Stock Option/Stock
Issuance Plan which will effect an increase in the number of shares of the
Company's Common Stock available for issuance by an additional 200,000 shares;
(ii) the approval of an amendment to the Employee Stock Purchase Plan to delete
the share number limit on the maximum number of shares of the Company's Common
Stock purchasable by each participant; (iii) the approval of an amendment to the
Company's Amended & Restated Certificate of Incorporation to eliminate
cumulative voting for the election of directors; (iv) the approval of an
amendment to the Company's Amended & Restated Certificate of Incorporation to
provide for a classified Board of Directors; (v) the election of five
individuals to serve as the members of the Company's Board of Directors; and
(vi) the ratification of Ernst & Young LLP as the Company's independent auditors
for the current fiscal year.
 
     Whether or not you plan to attend the Annual Meeting, please mark, sign,
date and return the enclosed proxy card promptly in the accompanying
postage-paid reply envelope. By returning the proxy, you can help CVD avoid the
expense of duplicate proxy solicitations and possibly having to reschedule the
Annual Meeting if a quorum of the outstanding shares is not present or
represented by proxy. If you decide to attend the Annual Meeting and wish to
change your proxy vote, you may do so simply by voting in person at the Annual
Meeting.
 
                                          MICHAEL R. HENSON
                                          Chairman of the Board and
                                          Chief Executive Officer
A
pril 15, 1998

<PAGE>   3
                         CARDIOVASCULAR DYNAMICS, INC.
 
                                   [CVD LOGO]

                         13700 ALTON PARKWAY, SUITE 160
                            IRVINE, CALIFORNIA 92618

                            ------------------------
 

                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                            TO BE HELD MAY 19, 1998

                            ------------------------
 
     NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
CardioVascular Dynamics, Inc., a Delaware corporation ("CVD" or the "Company"),
will be held on May 19, 1998 at 10:00 a.m. at the Company's executive offices at
13700 Alton Parkway, Suite 160, Irvine, California 92618, for the following
purposes:
 
          1. To approve an amendment to CVD's 1996 Stock Option/Stock Issuance
     Plan to effect an increase in the number of shares available for issuance
     by an additional 200,000 shares of Common Stock.
 
          2. To approve an amendment to CVD's Employee Stock Purchase Plan to
     delete the share number limit on the maximum number of shares of the
     Company's Common Stock purchasable by each participant.
 
          3. To approve an amendment to the Company's Amended & Restated
     Certificate of Incorporation to eliminate cumulative voting for the
     election of directors.
 
          4. To approve an amendment to the Company's Amended & Restated
     Certificate of Incorporation to provide for a classified Board of
     Directors.
 
          5. To elect five members to the Board of Directors of CVD from the
     following nominees: Michael R. Henson, William G. Davis, Franklin D. Brown,
     Edward M. Leonard and Gerard von Hoffmann.
 
          6. To ratify the selection of Ernst & Young LLP as CVD's independent
     auditors for the current fiscal year ending December 31, 1998.
 
          7. To transact such other business as may properly come before the
     meeting.
 
     The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
 
     The Board of Directors has fixed the close of business on April 7, 1998 as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any continuation or adjournment thereof.
 
                                       By Order of the Board of Directors
 
                                       DANA P. NICKELL
                                       Secretary
 
Irvine, California
A
pril 15, 1998
 
     ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT
THE MEETING. A POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. EVEN IF
YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE
MEETING.

<PAGE>   4
 
                         CARDIOVASCULAR DYNAMICS, INC.
 
                                    CVD LOGO
                         13700 ALTON PARKWAY, SUITE 160
                            IRVINE, CALIFORNIA 92618
                            ------------------------
 

                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                            TO BE HELD MAY 19, 1998
                            ------------------------
 
                                PROXY STATEMENT
                            ------------------------
 
                 INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
 
     The enclosed proxy is solicited on behalf of the Board of Directors of
CardioVascular Dynamics, Inc. ("CVD" or the "Company") for use at the Annual
Meeting of Stockholders (the "Annual Meeting") to be held on May 19, 1998 at
10:00 a.m. at the Company's executive offices at 13700 Alton Parkway, Suite 160,
Irvine, California 92618, at which time stockholders of record on April 7, 1998
will be entitled to vote. On April 7, 1998, CVD had 8,775,989 shares of its
Common Stock ("Common Stock") outstanding and entitled to vote. Stockholders of
record on such date are entitled to one vote for each share of Common Stock held
on all matters to be voted upon at the meeting.
 
     CVD intends to mail this proxy statement and the accompanying proxy card on
or about April 15, 1998 to all stockholders entitled to vote at the Annual
Meeting. CVD's principal executive offices are located at 13700 Alton Parkway,
Suite 160, Irvine, California 92618. The telephone number at that address is
(714) 457-9546.
 
VOTING
 
     The presence in person or by proxy of the holders of a majority of the
Common Stock issued and outstanding constitutes a quorum for the transaction of
business at the Annual Meeting. Under the cumulative voting provision in the
Company's Amended & Restated Certificate of Incorporation, each stockholder may
cast for a single nominee for director, or distribute among up to five nominees,
a number of votes equal to five multiplied by the number of shares held by such
stockholder. The amendments to the Company's Amended & Restated Certificate of
Incorporation must be approved by a majority of the outstanding shares of Common
Stock entitled to vote thereon. The other matters submitted for stockholder
approval at this Annual Meeting will be decided by the affirmative vote of a
majority of shares present in person or represented by proxy at the Annual
Meeting and entitled to vote on each matter. With regard to the election of
directors, votes may be cast in favor of or withheld from each nominee; votes
that are withheld will be excluded entirely from the vote and will have no
effect. Abstentions may be specified on all proposals except the election of
directors and will be counted as present for purposes of determining the
existence of a quorum regarding the item on which the abstention is noted, and
thus have the same effect as negative votes. If shares are not voted by a broker
who is the record holder of the shares present at the Annual Meeting, or if
shares are not voted in other circumstances in which proxy authority is
defective or has been withheld with respect to any matter, these non-voted
shares will be counted for quorum purposes but are not deemed to be present or
represented for purposes of determining whether stockholder approval of that
matter has been obtained.
 
REVOCABILITY OF PROXIES
 
     Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by the holder of
record by filing with the Secretary of CVD at CVD's principal

<PAGE>   5
 
executive office, a written notice of revocation or a new duly executed proxy
bearing a date later than the date indicated on the previous proxy, or it may be
revoked by the holder of record attending the meeting and voting in person.
Attendance at the meeting will not, by itself, revoke a proxy.
 
SOLICITATION
 
     CVD will bear the entire cost of proxy solicitation, including costs of
preparing, assembling, printing and mailing this proxy statement, the proxy card
and any additional material furnished to stockholders. Copies of the
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others, to forward to such beneficial owners. CVD may, if deemed necessary or
advisable, retain a proxy solicitation firm to deliver solicitation materials to
beneficial owners and to assist the Company in collecting proxies from such
individuals. CVD may reimburse persons representing beneficial owners of shares
for their expenses in forwarding solicitation materials to such beneficial
owners. Original solicitation of proxies by mail may be supplemented by
telephone, telegram or personal solicitation by directors, officers or other
regular employees of CVD. No additional compensation will be paid to directors,
officers or other regular employees for such services.
 
 
                                PROPOSAL NO. 1
 
           AMENDMENT TO THE 1996 STOCK OPTION/STOCK ISSUANCE PLAN OF
                         CARDIOVASCULAR DYNAMICS, INC.
 
     The stockholders are being asked to vote on a proposal to approve an
amendment to the Company's 1996 Stock Option/Stock Issuance Plan (the "Option
Plan") to increase the number of shares of Common Stock authorized for issuance
under the Option Plan by an additional 200,000 shares.
 
     The amendment to the Option Plan was adopted by the Board on March 12,
1998, subject to stockholder approval at the 1998 Annual Meeting. The Board
believes it is in the best interests of the Company to increase the share
reserve so that the Company can continue to attract and retain the services of
those persons essential to the Company's growth and financial success.
 
     The Option Plan originally was adopted by the Board of Directors on May 1,
1996 and approved by the stockholders on May 1, 1996. The Option Plan was
amended by the Board of Directors on April 8, 1997 and approved by the
stockholders on May 16, 1997.
 
     The following is a summary of the principal features of the Option Plan, as
recently amended for the share increase. The summary, however, does not purport
to be a complete description of all the provisions of the Option Plan. Any
stockholder who wishes to obtain a copy of the actual plan document may do so by
written request to the Secretary of CVD at CVD's executive offices in Irvine,
California.
 
EQUITY INCENTIVE PROGRAMS
 
     The Option Plan is comprised of three separate equity incentive programs:
(i) a Discretionary Option Grant Program; (ii) a Stock Issuance Program; and
(iii) an Automatic Option Grant Program. The Compensation Committee of the Board
administers the Discretionary Option Grant and Stock Issuance Programs to all
persons eligible to participate in the Option Plan, the Discretionary Option
Grant and Stock Issuance Programs, subject to separate but concurrent
administration by the Board. The Plan Administrator (either the Compensation
Committee or the Board, to the extent such entity is carrying out its
administrative functions under the Option Plan with respect to one or more
classes of eligible individuals), has complete discretion (subject to the
provisions of the Option Plan) to authorize discretionary option grants or stock
issuances under the Option Plan. However, all grants under the Automatic Option
Grant Program will be made in strict compliance with the provisions of that
program, and no administrative discretion is exercised by the Plan Administrator
with respect to the grants made thereunder.
 
                                        2

<PAGE>   6
 
SHARE RESERVE
 
     The maximum number of shares of Common Stock issuable over the term of the
Option Plan may not exceed 2,100,000 shares (including the 200,000 shares for
which stockholder approval is sought under this Proposal). In no event may any
one participant in the Option Plan be granted stock options or separately
exercisable stock appreciation rights for more than 800,000 shares in the
aggregate over the term of the Option Plan.
 
     In the event any change is made to the outstanding shares of Common Stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to the number and class of securities issuable (in the aggregate and to
each participant) under the Option Plan and to the number and class of
securities subject to each outstanding option and the exercise price payable per
share for those securities.
 
ELIGIBILITY
 
     Employees (including officers), non-employee Board members, consultants and
other independent advisors who provide services to CVD and its parent or
subsidiaries (whether now existing or subsequently established) will be eligible
to participate in the Discretionary Option Grant and Stock Issuance Programs.
Non-employee members of the Board will also be eligible to participate in the
Automatic Grant Program.
 
     As of March 4, 1998, approximately 98 employees (including 6 executive
officers), and 4 non-employee Board members were eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs and 4 non-employee Board
members were eligible to participate in the Automatic Option Grant Program.
 
VALUATION
 
     The fair market value per share of Common Stock on any relevant date under
the Option Plan will be the closing selling price per share on that date on the
Nasdaq National Market. On March 4, 1998, the closing selling price per share
was $4.50.
 
DISCRETIONARY OPTION GRANT PROGRAM
 
     Options may be granted under the Discretionary Option Grant Program at an
exercise price per share not less than 85 percent of the fair market value per
share of Common Stock on the option grant date. No granted option will have a
term in excess of ten years.
 
     Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
 
     The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
 
     Tandem stock appreciation rights provide the holders with the right to
surrender their options for an appreciation distribution from the Company equal
in amount to the excess of (a) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (b) the aggregate exercise
price payable for such shares. Such appreciation distribution may, at the
discretion of the Plan Administrator, be made in cash or in shares of Common
Stock. Limited stock appreciation rights may be granted to officers of the
Company as part of their option grants. Any option with such a limited stock
appreciation right in effect will be automatically cancelled upon the successful
completion of a hostile take-over of the Company. In return for the cancelled
option, the officer will be entitled to a cash distribution from the Company in
an
 
                                        3

<PAGE>   7
 
amount per cancelled option share equal to the excess of (a) the take-over price
per share over (b) the exercise price payable for such share.
 
     The Plan Administrator will have the authority to effect the cancellation
of outstanding options under the Discretionary Option Grant Program which have
exercise prices in excess of the then current market price of Common Stock and
to issue replacement options with an exercise price based on the market price of
Common Stock at the time of the new grant.
 
                             STOCK ISSUANCE PROGRAM
 
     Shares may be sold under the Stock Issuance Program at a price per share
not less than eighty-five percent (85%) of the fair market value per share of
Common Stock, payable in cash or through a promissory note payable to the
Company. Shares may also be issued solely as a bonus for past services.
 
     The issued shares either may be vested immediately upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. The Plan Administrator will, however, have the discretionary
authority at any time to accelerate the vesting of any unvested shares.
 
                         AUTOMATIC OPTION GRANT PROGRAM
 
     Under the Automatic Option Grant Program, option grants have been made to
the current non-employee Board members, and option grants will be made to
individuals who join the Board as non-employee members in the future. Additional
automatic option grants will be made at annual intervals to all non-employee
Board members over their continued period of service on the Board. These special
grants may be summarized as follows:
 
          A.  Each individual who served as a non-employee Board member on June
     19, 1996 was automatically granted on such date an option to purchase 5,000
     shares of Common Stock.
 
          B.  Each individual who first becomes a non-employee Board member at
     any time after June 19, 1996, whether through election by the stockholders
     or appointment by the Board, will automatically be granted, at the time of
     such initial election or appointment, an option to purchase 5,000 shares of
     Common Stock.
 
          C.  On the date of each Annual Stockholders Meeting held after June
     19, 1996, each individual who is to continue to serve as a non-employee
     Board member after such Annual Meeting will receive an additional option
     grant to purchase 5,000 shares of Common Stock, provided such individual
     has been a member of the Board for at least six (6) months.
 
     Each option will have an exercise price per share equal to 100% of the fair
market value per share of Common Stock on the option grant date and a maximum
term of ten years measured from the option grant date.
 
     Each option will be immediately exercisable for all the option shares, but
any purchased shares will be subject to repurchase by the Company, at the
exercise price paid per share, upon the optionee's cessation of Board service.
 
     Each initial option grant will vest (and the Company's repurchase rights
will lapse) in four equal annual installments over the optionee's period of
Board service, with the first such installment to vest upon the completion of
one year of Board service measured from the option grant date. Each annual
option grant will vest (and the Company's repurchase rights will lapse) upon the
completion of one year of Board service measured from the option grant date.
 
     The shares subject to each automatic option grant will immediately vest
upon the optionee's death or permanent disability or an acquisition of the
Company by merger or asset sale or a hostile change in control of the Company
(whether by successful tender offer for more than 50% of the outstanding voting
stock or by proxy contest for the election of Board members). In addition, upon
the successful completion of a hostile
 
                                        4

<PAGE>   8
 
take-over, each automatic option grant may be surrendered to the Company for a
cash distribution per surrendered option share in an amount equal to the excess
of (a) the take-over price per share over (b) the exercise price payable for
such share.
 
                               GENERAL PROVISIONS
 
ACCELERATION
 
     In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or replaced with a comparable option to
purchase shares of the capital stock of the successor corporation will
automatically accelerate in full, and all unvested shares under the Stock
Issuance Program will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. The Plan Administrator will have the discretion to grant
options under the Discretionary Option Grant Program which automatically
accelerate if the options are assumed or replaced in connection with such
acquisition and the individual's service is subsequently terminated within a
designated period (not to exceed 18 months) following the acquisition. The Plan
Administrator will also have the discretion to grant options which automatically
accelerate in the event the individual's service is terminated within a
designated period (not to exceed 18 months) following a hostile change in
control of the Company (whether by successful tender offer for more than 50% of
the outstanding voting stock or by proxy contest for the election of Board
members). The Plan Administrator may also provide for the automatic vesting of
any outstanding shares under the Stock Issuance Program upon similar terms and
conditions.
 
     The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
 
FINANCIAL ASSISTANCE
 
     The Plan Administrator may permit one or more participants to pay the
exercise price of outstanding options or the purchase price of the shares under
the Option Plan by delivering a promissory note payable in installments. The
Plan Administrator will determine the terms of any such promissory note.
However, the maximum amount of financing provided any optionee may not exceed
the cash consideration payable for the purchased shares plus all applicable
taxes incurred in connection with the acquisition of the shares. Any such
promissory note may be subject to forgiveness in whole or in part, at the
discretion of the Plan Administrator, over the participant's period of service.
 
SPECIAL TAX ELECTION
 
     The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options or the vesting of those shares. Alternatively, the Plan Administrator
may allow such individuals to deliver previously acquired shares of Common Stock
in payment of such tax liability.
 
AMENDMENT AND TERMINATION
 
     The Board may amend or modify the Option Plan in any or all respects
whatsoever subject to any required stockholder approval. The Board may terminate
the Option Plan at any time, and the Option Plan will in any event terminate on
April 29, 2006.
 
                                        5

<PAGE>   9
 
OPTION GRANTS
 
     The table below shows, as to each of the executive officers named in the
Summary Compensation Table and the various indicated groups, the number of
shares of Common Stock subject to options granted between January 1, 1997 and
March 4, 1998 under the Option Plan, together with the weighted average exercise
price payable per share.
 

<TABLE>
<CAPTION>
                                                                NUMBER OF     WEIGHTED AVERAGE
                     NAME AND POSITION                        OPTION SHARES    EXERCISE PRICE
                     -----------------                        -------------   ----------------
<S>                                                           <C>             <C>
Michael R. Henson...........................................      55,000           $8.79
  Chairman of the Board and
  Chief Executive Officer
Edward McDonald.............................................      50,000           $6.50
  Vice President, Advanced Technologies
Dana P. Nickell.............................................      30,000           $9.06
  Vice President, Finance and Administration,
  Chief Financial Officer and Corporate Secretary
Jeffrey F. O'Donnell........................................     145,000           $7.19
  President and Chief Operating Officer
Jeffrey H. Thiel............................................      58,000           $6.59
  Vice President, Operations
Claire K. Walker............................................      38,000           $7.07
  Vice President, Clinical Affairs
All current executive officers as a group
  (6 persons)...............................................     376,000           $7.38
All current directors (other than executive officers)
  as a group (4 persons)....................................      40,000           $8.31
All employees, including current officers
  who are not executive officers, as a group (87 persons)...     598,000           $7.10
</TABLE>

 
     As of March 4, 1998, approximately 353,000 shares of Common Stock had been
issued under the Option Plan, approximately 1,474,000 shares of Common Stock
were subject to outstanding options, and approximately 364,000 shares of Common
Stock were available for future option grants, inclusive of the 200,000 share
increase which stockholders are being asked to approve under this Proposal No.
1.
 
NEW PLAN BENEFITS
 
     As of March 4, 1998, no options have been granted on the basis of the
200,000 share increase for which stockholder approval is sought under this
Proposal. However, each individual who is reelected as a non-employee Board
member at the Annual Meeting automatically will receive at that time an option
for 5,000 shares of Common Stock at an exercise price equal to the fair market
value of the shares on such grant date.
 
                   SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
 
OPTION GRANTS
 
     The following is a summary of certain federal income tax consequences of
participation in the Option Plan. The summary should not be relied upon as being
a complete statement. Federal tax laws are complex and subject to change.
Moreover, participation in the Plan may also have consequences under state and
local tax laws which may vary from the federal tax consequences described below.
For such reasons, the Company recommends that each participant consult his or
her personal tax advisor to determine the specific tax consequences applicable
to him or her.
 
     The 1997 Tax Act changed, among other things, the federal income tax
treatment of capital gains. Generally, the federal tax rate on gains from the
sale of shares of the Company's stock depends upon how long the shares have been
held at the time of sale. For shares held less than 12 months, the gain
("short-term capital gain") is taxed at ordinary income tax rates. For sales
made after July 28, 1997, where the shares have
                                        6

<PAGE>   10
 
been held more than 12 months but less than 18 months, the gain ("mid-term
capital gain") is subject to federal income tax at a maximum rate of 28 percent,
and for shares held more than 18 months, the gain ("long-term capital gain") is
subject to federal income tax at a maximum rate of 20 percent.
 
INCENTIVE STOCK OPTIONS
 
     No taxable income will be recognized by an optionee under the Plan upon
either the grant or the exercise of an incentive option. Instead, a taxable
event will occur upon the sale or other disposition of the shares acquired upon
exercise of an incentive option, and the tax treatment of the gain or loss
realized will depend upon how long the shares were held before their sale or
disposition. As is discussed below, the exercise of an incentive option also may
result in items of "tax preference" for purposes of the "alternative minimum
tax."
 
     If a sale or other disposition of the shares received upon the exercise of
an incentive option occurs more than (i) one year after the date of exercise of
the option and (ii) two years after the date of grant of the option, the holder
will recognize either mid-term or long-term capital gain or loss (depending upon
whether the shares were held more than 12 or more than 18 months after exercise)
at the time of sale equal to the full amount of the difference between the
proceeds realized and the exercise price paid. However, a sale, exchange, gift
or other transfer of legal title of such stock before the expiration of either
the one-year or two-year period described above will constitute a "disqualifying
disposition." A disqualifying disposition involving a sale or exchange will
result in ordinary income to the optionee in an amount equal to the lesser of
(i) the fair market value of the stock on the date of exercise minus the
exercise price, or (ii) the amount realized on disposition minus the exercise
price. If the amount realized in a disqualifying disposition exceeds the fair
market value of the stock on the date of exercise, the gain realized, in excess
of the amount taxed as ordinary income as indicated above, will be taxed as
capital gain. A disqualifying disposition as a result of a gift will result in
ordinary income to the optionee in an amount equal to the difference between the
exercise price and the fair market value of the stock on the date of exercise.
Any loss realized upon a disqualifying disposition will be treated as a capital
loss. Capital gains and losses resulting from disqualifying dispositions will be
treated as long-term, mid-term or short-term depending upon whether the shares
were held for more or less than the applicable statutory holding period (which
is currently more than one year but less 18 months for mid-term capital gains
and more than 18 months for long-term capital gains). The Company will be
entitled to a tax deduction in an amount equal to the ordinary income recognized
by the optionee as a result of the disqualifying disposition.
 
     If legal title to any shares acquired upon exercise of an incentive option
is transferred by sale, gift or exchange, such transfer will be treated as a
disposition for purposes of determining whether a "disqualifying disposition"
has occurred. However, certain transfers will not be treated as dispositions for
such purposes, such as transfers to an estate or by inheritance upon an
optionee's death, a mere pledge or hypothecation, or a transfer into the name of
the optionee and another person as joint tenants.
 
     Section 55 of the Code imposes an "alternative minimum tax" on an
individual's income to the extent the amount of the alternative minimum tax
exceeds the individual's regular tax for the year. For purposes of computing the
alternative minimum tax, the excess of the fair market value (on the date of
exercise) of the shares received upon the exercise of an incentive option over
the exercise price paid is included in alternative minimum taxable income in the
year the option is exercised. If the shares are sold in the same year that the
option is exercised, the regular tax treatment and the alternative tax treatment
will be the same. If the shares are sold during a year subsequent to that in
which the option was exercised, the basis of the stock acquired will equal its
fair market value on the date of exercise for purposes of computing alternative
minimum taxable income in the year of sale. For example, assume that an
individual pays an exercise price of $10 to purchase stock having a fair market
value of $15 on the date of exercise. The amount included in alternative minimum
taxable income is $5, and the stock has a basis of $10 for regular tax purposes
and $15 for alternative minimum tax purposes. If the individual sells the stock
in a subsequent year for $20, the gain recognized is $10 for regular tax
purposes and $5 for alternative minimum tax purposes.
 
     An optionee who is subject to the alternative minimum tax in the year of
exercise of an incentive option may claim as a credit against the optionee's
regular tax liability in future years, the amount of alternative
 
                                        7

<PAGE>   11
 
minimum tax paid that is attributable to the exercise of the incentive option.
This credit is available in the first year following the year of exercise in
which the optionee has a regular tax liability.
 
     Under the Plan, the Plan Administrator may permit an optionee to pay the
exercise price of an incentive option in certain circumstances by delivering
shares of Common Stock of the Company already owned by the optionee, valued at
their fair market value on the date of exercise. Generally, if the exercise
price of an incentive option is paid with already-owned shares or by a
combination of cash and already-owned shares, there will be no current taxable
gain or loss recognized by the optionee on the already-owned shares exchanged. A
special rule applies, however, if the shares exchanged were previously acquired
through the exercise of an incentive option and the applicable holding period
requirements for favorable tax treatment of such shares have not been met at the
time of the exchange. In such event, the exchange will be treated as a
disqualifying disposition of such shares and will result in the recognition of
income to the optionee, in accordance with the rules described above for
disqualifying dispositions. If this special rule does not apply, then the new
shares received by the optionee upon the exercise of the option equal in number
to the old shares exchanged will have the same tax basis and holding period for
capital gain purposes as the optionee's basis and holding period in the old
shares. The balance of the shares received by the optionee upon exercise of the
option will have a tax basis equal to any cash paid by the optionee, and if no
cash was paid, the tax basis of such shares will be zero. The holding period of
the additional shares for capital gain purposes will commence on the date of
exercise. The holding period for purposes of the one-year and two-year periods
described above will commence on the date of exercise as to all of the shares
received upon the exercise of an incentive option. If any of the shares subject
to the basis allocation rules described above are subsequently transferred in a
disqualifying disposition, the shares with the lowest tax basis will be treated
as being transferred first.
 
NONQUALIFIED OPTIONS
 
     No taxable income is recognized by an optionee upon the grant of a
nonqualified option. Upon exercise, however, the optionee will recognize
ordinary income in the amount by which the fair market value of the shares
purchased exceeds, on the date of exercise, the exercise price paid for such
shares. The income recognized by an optionee who is an employee will be subject
to income tax withholding by the Company, which the optionee will be required to
satisfy. The Company will be entitled to a tax deduction equal to the amount of
ordinary income recognized by the optionee, provided certain reporting
requirements are satisfied.
 
     If the exercise price of a nonqualified option is paid by the optionee in
cash, the tax basis of the shares acquired will be equal to the cash paid plus
the amount of income recognized by the optionee as a result of such exercise. If
the exercise price is paid by delivering shares of Common Stock of the Company
already owned by the optionee or by a combination of cash and already-owned
shares, there will be no current taxable gain or loss recognized by the optionee
on the already-owned shares exchanged (however, the optionee will nevertheless
recognize ordinary income to the extent that the fair market value of the shares
purchased on the date of exercise exceeds the price paid, as described above).
The new shares received by the optionee equal in number to the old shares
exchanged will have the same tax basis and holding period as the optionee's
basis and holding period in the old shares. The balance of the shares received
will have a tax basis equal to any cash paid by the optionee plus the amount of
income recognized by the optionee as a result of such exercise, and will have a
holding period commencing with the date of exercise.
 
     If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
 
                                        8

<PAGE>   12
 
     Upon the sale or disposition of shares acquired pursuant to the exercise of
a nonqualified option, the difference between the proceeds realized and the
optionee's basis in the shares will be a capital gain or loss and will be
treated as long-term, mid-term or short-term capital gain or loss if the shares
have been held for more than the applicable statutory holding period (which is
currently more than one year but less 18 months for mid-term capital gains and
more than 18 months for long-term capital gains).
 
STOCK ISSUED UNDER STOCK ISSUANCE PROGRAM
 
     The receipt of restricted stock issued under the Stock Issuance Program
will not result in a taxable event to the participant until the expiration of
any repurchase rights retained by the Company with respect to such stock, unless
the participant makes an election under Section 83(b) of the Code to be taxed as
of the date of purchase. If no repurchase rights are retained, or if a Section
83(b) election is made, the participant will recognize ordinary income in an
amount equal to the excess of the fair market value of such shares on the date
of purchase over the purchase price paid for such shares. Even if the purchase
price and the fair market value of the shares are the same (in which case there
would be no ordinary income), a Section 83(b) election must be made to avoid
deferral of the date ordinary income is recognized. The election must be filed
with the Internal Revenue Service not later than 30 days after the date of
transfer.
 
     If no Section 83(b) election is made or if no repurchase rights are
retained, a taxable event will occur on each date the participant's ownership
rights vest (e.g., when the Company's repurchase rights expire) as to the number
of shares that vest on that date, and the holding period for capital gain
purposes will not commence until the date the shares vest. The participant will
recognize ordinary income on each date shares vest in an amount equal to the
excess of the fair market value of such shares on that date over the amount paid
for such shares. Any income recognized by a participant who is an employee will
be subject to income tax withholding by the Company, which the participant will
be required to satisfy. The Company is entitled to a tax deduction in an amount
equal to the ordinary income recognized by the participant. The participant's
basis in the shares will be equal to the purchase price, if any, increased by
the amount of ordinary income recognized.
 
STOCK APPRECIATION RIGHTS
 
     An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution for the taxable year in which such ordinary income
is recognized by the optionee.
 
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
 
     The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options granted with exercise prices equal to the
fair market value of the shares on the grant date will qualify as
performance-based compensation for purposes of Internal Revenue Code Section
162(m) and will not have to be taken into account for purposes of the $1 million
limitation per covered individual on the deductibility of the compensation paid
to certain executive officers of the Company. Accordingly, all compensation
deemed paid with respect to those options will remain deductible by the Company
without limitation under Internal Revenue Code Section 162(m).
 
STOCKHOLDER APPROVAL
 
     The affirmative vote of a majority of the shares of the Company's
outstanding voting stock present or represented by proxy at the Annual Meeting
and entitled to vote on Proposal No. 1 is required for approval to amend the
Option Plan. If such stockholder approval is not obtained, then the share
reserve will not be increased.
 
RECOMMENDATION OF THE BOARD OF DIRECTORS
 
 
    THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE AMENDMENT TO THE 1996 STOCK OPTION/STOCK ISSUANCE PLAN.
 
                                        9

<PAGE>   13
 

                                 PROPOSAL NO. 2
 
                AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN OF
                         CARDIOVASCULAR DYNAMICS, INC.
 
     The stockholders are being asked to vote on a proposal to approve an
amendment to the Company's Employee Stock Purchase Plan (the "Purchase Plan") to
delete the 950 share number limit on the maximum number of shares of the
Company's Common Stock purchasable by each participant.
 
     The amendment to the Purchase Plan was adopted by the Board on March 12,
1998, subject to stockholder approval at the Annual Meeting. The Board believes
it is in the best interest of the Company to adopt the amendment to the Purchase
Plan to provide eligible employees with a greater opportunity to acquire a
proprietary interest in the Company. The Board believes that by acquiring a
proprietary interest in the Company, the interests of employees are more closely
aligned with the interests of the stockholders due to their personal financial
interest in the growth and financial success of the Company.
 
     The Purchase Plan originally was adopted by the Board approved by the
Company's stockholders on May 1, 1996, and subsequently was amended by the Board
on April 8, 1997 and approved by the stockholders at the 1997 Annual Meeting.
 
     The amendment of the Purchase Plan by the Board on March 12, 1998 to delete
the 950 share number limit on the maximum number of shares of Common Stock that
could be purchased by a participant on any purchase date does not affect the
other limits on the number of shares of Common Stock purchasable by each
participant under the Purchase Plan. A participant also is limited by: (i) the
amount of the payroll deduction authorized by the participant for the purpose of
acquiring shares of Common Stock during an offering period, which is a maximum
of ten percent of base salary under the terms of the Purchase Plan; (ii) the
prohibition against accruing purchase rights to acquire in excess of $25,000
worth of Common Stock under the Purchase Plan or other employee stock purchase
plans for each calendar year a participant's purchase right remains outstanding
(determined on the basis of the fair market value of the Common Stock on a
participant's entry date into the offering period); and (iii) the prohibition
against granting a purchase right to an employee who, immediately after the
grant of such right, would own (or otherwise hold options or other rights to
purchase) stock possessing five percent or more of the total voting power or
value of all classes of stock of the Company. (See the discussion below under
"Timing.")
 
     Due to the current price of the Company's stock and the income level of
most of the Company's employees, the effective limit on the number of shares
purchasable by any participant under the Purchase Plan would be 950 shares
without approval of the March 12, 1998 amendment. However, the proposed
amendment will, at the Company's current stock price, effectively increase the
number of shares of Common Stock which a participant will be eligible to
purchase under the Purchase Plan. The Board does not know whether participants
will in fact increase the number of shares of Common Stock purchased under the
Purchase Plan, but believes any such increase will be in the best interests of
the Company, as described above.
 
     The following is a summary of the principal features of the Purchase Plan,
as amended to delete the share number limit on the maximum number of shares of
Common Stock purchasable by each participant. The summary, however, does not
purport to be a complete description of all of the provisions of the Purchase
Plan. Any stockholder who wishes to obtain a copy of the actual plan document
may do so by written request to the Secretary of CVD at CVD's executive offices
in Irvine, California.
 
PURPOSE
 
     The purpose of the Purchase Plan is to provide eligible employees with the
opportunity to acquire a stock ownership interest in the Company through
periodic payroll deductions designed to qualify under Section 423 of the
Internal Revenue Code. These deductions will be applied at semi-annual intervals
to purchase shares of Common Stock at a discount from the then current market
price.
 
                                       10

<PAGE>   14
 
ADMINISTRATION
 
     The Purchase Plan is administered by the Compensation Committee of the
Board. The Compensation Committee is comprised of two or more non-employee Board
members appointed by the Board who serve for as long as the Board deems
appropriate, and may be removed by the Board at any time. The Compensation
Committee in its capacity as administrator of the Purchase Plan is referred to
herein as the "Plan Administrator."
 
SHARE RESERVE
 
     A total of 200,000 shares of Common Stock are reserved for issuance under
the Purchase Plan. Although approval of the proposed amendment to the Purchase
Plan will delete the existing limit of 950 shares which any participant may
purchase on any purchase date (see the discussion -- "Offering Period" below),
certain other limitations still apply. First, the total number of shares of
Common Stock available for purchase by all participants over the ten year term
of the Purchase Plan is limited to 200,000 shares. Second, a participant is
limited by the amount of the payroll deduction authorized by such participant
during an offering period, which is a maximum of ten percent of base salary.
Third, a participant may not purchase shares at a rate in excess of $25,000
worth of Common Stock (determined on the basis of the fair market value of the
Common Stock on a participant's entry date into the offering period) for each
calendar year a participant's purchase right remains outstanding.
 
     Finally, no purchase right will be granted to an employee who, immediately
after the grant of such right, would own (or otherwise hold options or other
rights to purchase) stock possessing five percent or more of the total voting
power or value of all classes of stock of the Company. Any payroll deductions
collected which cannot be applied to the purchase of Common Stock by reason of
one or more of these limitations will be refunded. If the total number of shares
for which purchase rights are to be exercised on any purchase date exceeds the
number of shares at the time available for issuance under the Purchase Plan,
then the Plan Administrator will make a pro-rata allocation of the available
shares on a uniform and non-discriminatory basis, and any payroll deductions not
applied to the purchase of the available shares will be refunded to the
participants.
 
     In the event 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, appropriate adjustments will be made to: (i) the maximum number
and class of securities issuable under the Purchase Plan; (ii) the maximum
number and class of securities purchasable per participant on each purchase
date; and (iii) the number and class of securities and the price per share in
effect under each outstanding purchase right. Such adjustments will prevent any
dilution or enlargement of the rights and benefits of Purchase Plan
participants.
 
OFFERING PERIOD
 
     Shares of Common Stock are offered for purchase through a series of one or
more offering periods, each with a maximum duration of 24 months. The initial
offering period began on the effective date of the Company's initial public
offering of the Common Stock and ends on the last business day in July 1998. The
next offering period is expected to start on the first business day in August
1998, and any subsequent offering periods will begin as designated by the Plan
Administrator.
 
     Should the fair market value per share of Common Stock on any purchase date
within an offering period be less than the fair market value per share of Common
Stock on the start date of that offering period, then that offering period
automatically will terminate immediately after the purchase of shares on that
purchase date and a new offering period will commence on the next business day
following such purchase date.
 
     Each offering period will be comprised of successive purchase intervals.
The start date for the first purchase interval was the same as the start date of
the initial offering period. Subsequent purchase intervals will begin on the
first business day of February and the first business day of August of each
calendar year within the offering period.
 
                                       11

<PAGE>   15
 
ELIGIBILITY
 
     An employee is eligible to participate in the Purchase Plan after he or she
is employed by the Company or any participating subsidiary for more than 20
hours per week for more than 5 months per calendar year. An eligible employee
may join the Purchase Plan on any entry date (the first business day in February
or August each year) within that offering period on which he or she remains an
eligible employee. The date on which an employee first joins a particular
offering period is such employee's "Entry Date" for that offering period. On
such Entry Date, an employee is granted a purchase right to acquire shares of
Common Stock at the end of each purchase interval within that offering period.
 
     An employee may authorize payroll deductions in any multiple of one percent
of his or her earnings for each purchase interval completed within the offering
period, up to a maximum of ten percent. Earnings include regular base pay plus
any salary contributions made to any Section 401(k) Plan or Section 125
Cafeteria Benefit Plan now or hereafter maintained by the Company. The rate of
payroll deduction may be decreased at any time, but not more than once during
the same purchase interval. In addition, the rate of payroll deduction may be
increased prior to the start of any new purchase interval within the offering
period (but not in excess of ten percent of eligible earnings).
 
     Payroll deductions are credited to an account established in the name of
the participating employee on the Company's books. No interest is paid on the
balance in an account. However, because the Company pays all administrative
expenses of the Purchase Plan, the full amount of payroll deductions are applied
to the purchase of Common Stock. Payroll deductions may be commingled with the
general assets of the Company and used for general corporate purposes.
 
TIMING
 
     A purchase right is exercised on the last business day of each purchase
interval. These purchase dates occur on the last business day in January and
July each year during the offering period. The purchase right is exercised by
applying the amount credited in an employee's account to the purchase of shares
of Common Stock on each purchase date. However, any payroll deductions not
applied to the purchase of Common Stock by reason of the limitations on the
number of shares purchasable per participant on any purchase date (see the
limitations described above under "Share Reserve") will be refunded promptly
after such purchase date.
 
PURCHASE PRICE
 
     The purchase price per share of Common Stock is 85 percent of the lower of
(i) the fair market value per share of Common Stock on an Entry Date into the
offering period or (ii) the fair market value per share on the purchase date.
Generally, the fair market value per share on any relevant date under the
Purchase Plan will be the closing selling price of the Common Stock on that
date, as reported on the Nasdaq National Market. If there is no reported selling
price for such date, then the closing selling price on the next preceding date
for which there is such a quotation will be used.
 
TERMINATION OF PURCHASE RIGHT
 
     An employee may terminate his or her purchase right by filing a
notification form with the Plan Administrator at any time prior to the last
business day of any purchase interval, and no further payroll deductions are
collected during the remainder of the offering period. Any payroll deductions
already collected for the purchase interval in which the purchase right
terminates will, at an employee's election, be refunded or applied to the
purchase of Common Stock on the next purchase date. If no election is made,
payroll deductions automatically are refunded. Once an employee has terminated
his or her purchase right, he or she must wait until the start of a new offering
period to resume participation in the Purchase Plan.
 
                                       12

<PAGE>   16
 
TERMINATION OF EMPLOYMENT
 
     Upon termination of employment for any reason (including death or
disability) or other loss of eligibility, then all payroll deductions for the
purchase interval in which employment terminates or eligibility ceases
automatically are refunded.
 
     In the event of an approved unpaid leave of absence, an employee may elect
until the last day of the purchase interval in which leave begins, to: (i)
withdraw all payroll deductions already collected for that period; or (ii) have
such funds held for the purchase of shares of Common Stock on the next purchase
date. If no election is made by such purchase date, then all payroll deductions
automatically will be refunded, and no further payroll deductions may be made
during the period of such leave. However, upon return to active service, payroll
deductions automatically will resume at the rate in effect at the beginning of
such leave.
 
GENERAL
 
     In the event of any merger, acquisition or other sale of the Company (an
"Acquisition"), then all payroll deductions for the purchase interval in which
such Acquisition occurs automatically will be applied to the purchase of Common
Stock immediately prior to the effective date of the Acquisition, subject to
existing limitations on the number of shares purchasable by a participant (see
the discussion above under "Share Reserve"). The purchase price of such shares
will be eighty-five percent of the lower of (i) the fair market value of the
Common Stock on an employee's Entry Date into the offering period or (ii) the
fair market value of the Common Stock immediately prior to the Acquisition. The
Company will use its best efforts to provide at least ten days prior notice of
any such Acquisition, and each participant will thereafter have the right to
terminate his or her outstanding purchase rights at any time prior to the
effective date of the Acquisition.
 
     Although an employee's purchase right cannot be assigned or transferred,
individuals who purchase Common Stock under the Purchase Plan may resell such
shares without restriction, except for certain executive officers of the Company
who are restricted by applicable securities laws. However, the Federal and state
income tax treatment of the sale proceeds may differ depending on how long an
individual holds shares prior to sale. (See the discussion below, "FEDERAL
INCOME TAX CONSEQUENCES").
 
     The Plan Administrator has the discretion to terminate all outstanding
purchase rights immediately following any purchase date. If the Plan
Administrator exercises this discretion, the Purchase Plan will terminate in its
entirety, no further purchase rights thereafter will be granted or exercised and
no further payroll deductions will be collected under the terminated plan. The
Board may alter or amend the Purchase Plan at any time to become effective
immediately following the close of any semi-annual purchase date. However,
certain amendments may require the approval of the Company's stockholders. The
Purchase Plan in all events will terminate upon the earliest to occur of (i) the
last business day in July 2006; (ii) the date on which all shares available for
issuance under the Purchase Plan have been sold; or (iii) the date on which all
purchase rights are exercised in connection with the Acquisition.
 
                   SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
 
     The following is a summary of certain federal income tax consequences of
participation in the Purchase Plan. The summary should not be relied upon as
being a complete statement. Federal tax laws are complex and subject to change.
Moreover, participation in the Purchase Plan also may have consequences under
state and local tax laws that may vary from the federal tax consequences
described below. For such reasons, the Company recommends that each participant
consult his or her personal tax advisor in order to determine the specific tax
consequences applicable to him or her.
 
     The Purchase Plan and the right of participants to make purchases
thereunder are intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
at the time of grant or purchase of shares. However, a participant may become
liable for tax upon disposition of shares acquired under the Purchase Plan, and
the tax consequences will depend upon how long a participant has held the shares
before disposition.
 
                                       13

<PAGE>   17
 
     If the shares are disposed of at least two years after the Entry Date and
at least one year after the purchase date, or in the event of a participant's
death (whenever occurring) while owning such shares, then the lesser of (i) the
excess of the fair market value of the shares at the time of such disposition
over the purchase price of the shares or (ii) fifteen percent of the fair market
value of the shares on the Entry Date, will be treated as ordinary income to the
participant. Any further gain upon such disposition will be taxed as long-term
capital gain (if held for more than 18 months after the purchase date) or as
mid-term capital gain (if held for more than one year but less than 18 months
after the purchase date). Any long-term or mid-term capital gain will be taxed
at the rates then in effect. If the shares are sold and the sale price is less
than the purchase price, there is no ordinary income and the participant will
have a capital loss equal to the difference between the sale price and the
purchase price. The ability of a participant to utilize such a capital loss will
depend upon the participant's other tax attributes and the statutory limitation
on capital loss deductions not discussed herein.
 
     If the shares are sold or disposed of (including any disposition by way of
gift) before the expiration of the two-year holding period described above or
within one year after the shares are transferred to the participant, then the
excess of the fair market value of the shares on the purchase date over the
purchase price will be treated as ordinary income to the participant. This
excess will constitute ordinary income for the year of sale or other disposition
even if no gain is realized on the sale or a gratuitous transfer of shares is
made. The balance of the gain will be taxed as capital gain at the rates then in
effect. If the shares are sold for less than their fair market value on the
purchase date, the same amount of ordinary income will be attributed to the
participant and a capital loss is recognized equal to the difference between the
sale price and the value of the shares on such purchase date. As indicated
above, the ability of the participant to utilize such a capital loss will depend
upon the participant's other tax attributes and the statutory limitation on
capital losses not discussed herein.
 
     The ordinary income reported under the rules described above, added to the
actual purchase price of the shares, determines the tax basis of the shares for
the purpose of determining gain or loss on the sale or exchange of the shares.
 
     The Company is entitled to a deduction for amounts taxed as ordinary income
to a participant only to the extent that ordinary income must be reported upon
disposition of shares by the participant before the expiration of the holding
periods described above.
 
STOCKHOLDER APPROVAL
 
     The affirmative vote of a majority of the shares of the Company's
outstanding voting stock present or represented by proxy at the Annual Meeting
and entitled to vote on Proposal No. 2 is required for approval to amend the
Purchase Plan. If such stockholder approval is not obtained, then the 950 share
limit on the maximum number of shares of the Company's Common Stock purchasable
by each participant under the Purchase Plan will remain.
 
RECOMMENDATION OF THE BOARD OF DIRECTORS
 
 
    THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN.
 
                                       14

<PAGE>   18
 

                                 PROPOSAL NO. 3
 
 AMENDMENT TO THE AMENDED & RESTATED CERTIFICATE OF INCORPORATION TO ELIMINATE
                               CUMULATIVE VOTING
 
     The Board of Directors has proposed the adoption of two amendments to the
Company's Amended & Restated Certificate of Incorporation: (i) an amendment to
eliminate cumulative voting for the election of directors; and (ii) an amendment
to provide for a classified Board of Directors (described in more detail in
Proposal No. 4). Both amendments are designed to protect stockholder interests
in the event of hostile takeover attempts against the Company. The Board
believes that these measures will enable it to consider more effectively any
proposed takeover attempt and to negotiate terms that maximize the benefit to
the Company and its stockholders. Either one or both of the proposed amendments
may have the effect of delaying, deterring, or preventing a change in control of
the Company.
 
CUMULATIVE VOTING
 
     Cumulative voting permits the holder of each share of stock entitled to
vote in the election of directors to cast that number of votes which equal the
number of directors to be elected. The holder may allocate all votes represented
by a share to a single candidate or may allocate those votes among as many
candidates as he or she chooses. Thus, a stockholder with a significant minority
percentage of the outstanding shares may be able to elect one or more directors
if voting is cumulative. In contrast, the holder or holders of a majority of the
shares entitled to vote in an election of directors are able to elect all the
directors in the absence of cumulative voting.
 
     The Board of Directors believes that under cumulative voting, it is
possible that directors elected by a minority stockholder are likely to be
representatives of the particular interest group who elected them rather than
representatives of a majority of stockholders. Such a director or directors
representing a minority interest could disrupt the management of the Company and
prevent it from operating in the most effective manner. Further, the election of
directors who view themselves as representing or answerable to a particular
minority constituency could introduce an element of discord on the Board of
Directors, impair the ability of the Board to work effectively and discourage
qualified independent individuals from serving as directors. The Board believes
that by providing for the election of directors by majority vote, approval of
the proposed amendment will help ensure that each director acts in the best
interests of a majority of stockholders rather than the best interest of a
minority stockholder or group of stockholders.
 
     Cumulative voting is not available under Delaware law unless specifically
included in a corporation's Certificate of Incorporation. The Company's Amended
& Restated Certificate of Incorporation contains such a provision allowing
cumulative voting. The Board of Directors has proposed to eliminate cumulative
voting by deleting it from the Company's Amended & Restated Certificate of
Incorporation.
 
     The elimination of cumulative voting could deter investors from acquiring a
minority block in the Company, with a view toward obtaining a board seat and
influencing Company policy. It is also possible that the absence of cumulative
voting might deter efforts to seek control of the Company on a basis which some
stockholders might deem favorable.
 
     The following is a brief review of the anti-takeover aspect of the proposed
amendments, as well as a brief review of existing charter and statutory
provisions which may have the effect of discouraging, delaying or deferring a
hostile takeover attempt. The following, however, is not a complete description
of every anti-takeover aspect of the proposed amendments, nor does it purport to
be a complete description of existing anti-takeover provisions contained in the
Company's Amended & Restated Certificate of Incorporation or under Delaware law.
Any stockholder who wishes to obtain a copy of the Company's Amended & Restated
Certificate of Incorporation may do so by written request to the Secretary of
CVD at CVD's executive offices in Irvine, California.
 
                                       15

<PAGE>   19
 
EFFECT ON CHANGE IN CONTROL OF THE COMPANY
 
     Stockholders should be aware that the overall effect of the two proposed
amendments to the Amended & Restated Certificate of Incorporation is to make it
more difficult for the holders of a majority of the outstanding shares of Common
Stock to change the composition of the Board of Directors and to remove existing
management in circumstances where a majority of the stockholders may be
dissatisfied with the performance of the incumbent directors or otherwise desire
to make changes. These provisions, if included in the Company's Amended &
Restated Certificate of Incorporation, could make a proxy contest a less
effective means of removing or replacing existing directors or could make it
more difficult to make a change in control of the Company which is opposed by
the Board of Directors. This strengthened tenure and authority of the Board of
Directors could enable the Board of Directors to resist change and otherwise
thwart the desires of a majority of the stockholders. Because these provisions
may have the effect of continuing the tenure of the current Board of Directors,
the Board has recognized that the individual directors have a personal interest
in this provision that may differ from those of the stockholders. However, the
Board believes that the primary purpose of the two proposed amendments is to
ensure that the Board will have sufficient time to consider fully any proposed
takeover attempt in light of the short and long-term benefits and other
opportunities available to the Company and, to the extent the Board determines
to proceed with the takeover, to effectively negotiate terms that would maximize
the benefits to the Company and all of its stockholders.
 
     A hostile takeover attempt may have a positive or negative effect on the
Company and its stockholders, depending on the circumstances surrounding a
particular takeover attempt. Takeover attempts that have not been negotiated or
approved by the board of directors of a corporation can seriously disrupt the
business and management of a corporation and generally present to the
stockholders the risk of being forced to consider terms which may be less
favorable to all of the stockholders than would be available in a Board-approved
transaction. Board approved transactions may be carefully planned and undertaken
at an opportune time in order to obtain maximum value for the corporation and
all of its stockholders with due consideration to matters such as the
recognition or postponement of gain or loss for tax purposes, the management and
business of the acquiring corporation and maximum strategic deployment of
corporate assets. In addition, in the case of a proposal which is presented to
the Board of Directors, there is a greater opportunity for the Board to analyze
the proposal thoroughly, to develop and evaluate alternatives, to negotiate for
improved terms and to present its recommendations to the stockholders in the
most effective manner.
 
     The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and
frequently may be beneficial to stockholders, providing all stockholders with
considerable value for their shares. However, the Board believes that the
potential disadvantages of unapproved takeover attempts are sufficiently great
that prudent steps to reduce the likelihood of such takeover attempts are in the
best interests of the Company and its stockholders.
 
     Notwithstanding the belief of the Board as to the benefits to stockholders
of the two proposed amendments, stockholders should recognize that one of the
effects of such changes may be to discourage a future attempt to acquire control
of the Company which is not presented to and approved by the Board of Directors,
but which a substantial number, and perhaps even a majority, of the Company's
stockholders might believe to be in their best interests or in which
stockholders might receive a substantial premium for their shares over the
current market price. As a result, stockholders who might desire to participate
in such a transaction may not have an opportunity to do so.
 
     By increasing the probability that any person or group seeking control of
the Company would be forced to negotiate directly with the Board of Directors,
the proposed takeover defenses could discourage takeover bids by means of a
hostile tender offer, proxy contest or otherwise without the approval of the
Board. Thus, the principal disadvantages to the stockholders which result from
discouraging such hostile takeover bids would be to (i) reduce the likelihood
that any acquiror would make a hostile tender offer for the outstanding shares
of stock of the Company at a premium over the market rate and (ii) increase the
difficulty of removing the existing Board of Directors and management even if,
in a particular case, removal would be beneficial to stockholders generally.
 
                                       16

<PAGE>   20
 
     Regardless of the terms of any proposed takeover attempt, the Board of
Directors has a fiduciary duty to the stockholders to negotiate for the best
interests of the stockholders and not for its own interests. Further, while the
proposed takeover defenses may discourage hostile takeover attempts, these
provisions would not prevent a hostile acquisition of the Company.
 
EXISTING ANTI-TAKEOVER PROVISIONS
 
     In addition to the two proposed amendments to the Company's Amended &
Restated Certificate of Incorporation, stockholders should be aware that, to a
certain extent, certain existing statutory and charter provisions may have the
effect of discouraging or deferring hostile takeover attempts. For example, the
Company's Amended & Restated Certificate of Incorporation provides that the
stockholders may not take action by written consent in lieu of a stockholder
meeting. Although the Board is required under Delaware law and the Company's
Amended & Restated Certificate of Incorporation to hold an annual meeting of
stockholders within a certain time period, this provision may deter or delay any
takeover attempt or change in control of the Company. Second, the Company's
Amended & Restated Certificate of Incorporation authorizes the issuance of up to
30,000,000 shares of Common Stock, of which approximately 9,000,000 are
outstanding and approximately 2,000,000 are reserved for issuance under the
Company's equity incentive plans, and up to 5,000,000 shares of preferred stock,
none of which are currently issued and outstanding. Authorized and unissued
stock is available for issuance without further action by the stockholders
except as required by law or applicable stock exchange requirements. In addition
to providing the Board with flexibility to issue the stock for valid corporate
purposes such as financings, stock dividends or approved mergers and
acquisitions, such stock can discourage hostile takeover attempts or make it
more difficult to remove existing management. For example, additional shares of
stock could be used to dilute the voting power of shares then outstanding or
issued to persons who would support the Board in opposing a takeover bid or
solicitation in opposition to management.
 
     As a Delaware corporation, the Company is afforded the protection of
Delaware General Corporation Law ("DGCL") Section 203 ("Section 203"), which
generally prohibits a Delaware corporation from engaging in a "Business
Combination" (including, for example, mergers, asset sales, issuance of stock
and other transactions with an "Interested Stockholder" (in general, a person
that is the beneficial owner of 15% or more of a corporation's outstanding
voting stock) for a period of three years following the date that such person
became an Interested Stockholder, unless (a) prior to the date such person
became an Interested Stockholder, the board of directors of the corporation
approved either the Business Combination or the transaction that resulted in the
stockholder becoming an Interested Stockholder, (b) upon consummation of the
transaction that resulted in the stockholder's becoming an Interested
Stockholder, the Interested Stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
shares held by directors who are also officers of the corporation and certain
employee stock ownership plans), or (c) on or subsequent to the date such person
became an Interested Stockholder, the Business Combination is approved by the
board of directors of the corporation and authorized at a meeting of
stockholders, and not by written consent, by the affirmative vote of the holders
of at least 66 2/3% of the outstanding voting stock of the corporation not owned
by the Interested Stockholder.
 
SUMMARY
 
     The Board of Directors has considered the potential disadvantages and
believes that the potential benefits of the two proposed amendments outweigh the
possible disadvantages. In particular, the Board believes that the benefits
associated with enabling the Board to fully consider and negotiate proposed
takeover attempts make these proposals beneficial to the Company and its
stockholders.
 
     The proposal to include these anti-takeover provisions to the Company's
Amended & Restated Certificate of Incorporation does not reflect knowledge on
the part of the Board of Directors or management of any proposed takeover or
other attempt to acquire control of the Company. Management may in the future
propose or adopt other measures designed to discourage takeovers apart from
those proposed in this Proxy Statement, if warranted from time to time in the
judgment of the Board of Directors, although the Board has no such intention at
the present time.
                                       17

<PAGE>   21
 
STOCKHOLDER APPROVAL
 
     If the amendment to eliminate cumulative voting for the election of
directors is approved, Article IV, Section 4 of the Company's Amended & Restated
Certificate of Incorporation will read in its entirety as follows:
 
          4. Voting Rights. The holder of each share of Common Stock shall
     have the right to one vote, and shall be entitled to notice of any
     stockholders' meeting in accordance with the Bylaws of this
     corporation, and shall be entitled to vote upon such matters and in
     such manner as may be provided by law.
 
     The affirmative vote of a majority of the voting power of all outstanding
capital stock of the Company is required for approval of this proposal.
Abstentions and broker non-votes each will have the same effect as a negative
vote on this proposal.
 
RECOMMENDATION OF THE BOARD OF DIRECTORS
 
 
    THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSED AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO
ELIMINATE CUMULATIVE VOTING FOR THE ELECTION OF DIRECTORS.
 

                                 PROPOSAL NO. 4
 
AMENDMENT TO THE AMENDED & RESTATED CERTIFICATE OF INCORPORATION TO PROVIDE FOR
                        A CLASSIFIED BOARD OF DIRECTORS
 
     Concurrent with the proposed amendment to eliminate cumulative voting, the
Company has proposed a second amendment to its Amended & Restated Certificate of
Incorporation to provide for a classified Board of Directors (the "Classified
Board Provisions"). This amendment also is designed to protect stockholder
interests in the event of hostile takeover attempts against the Company. The
Board believes that both proposed amendments will enable it to consider more
effectively any proposed takeover attempt and to negotiate terms that maximize
the benefit to the Company and all of its stockholders. See the discussion
contained under Proposal No. 3, "EFFECT ON CHANGE IN CONTROL OF THE COMPANY."
The discussion of the amendment to provide for a classified board of directors
should be read in conjunction with the discussion of Proposal No. 3. The
discussions under Proposal No. 3 and hereunder do not describe every
anti-takeover aspect of each proposed amendment, nor do they describe every
anti-takeover provision contained in the Company's Amended & Restated
Certificate of Incorporation or under Delaware law. Any stockholder who wishes
to obtain a copy of the Company's Amended & Restated Certificate of
Incorporation may do so by written request to the Secretary of CVD at CVD's
executive offices in Irvine, California.
 
     Delaware law permits the adoption of a classified Board of Directors, which
divides the Board into two or three "classes" elected for staggered "terms" of
two or three years. A maximum of three classes of directors is permitted by
Delaware law, with members of one class to be elected each year for a maximum
term of three years. Delaware law also provides that, unless the certificate of
incorporation provides otherwise, directors serving on a classified board of
directors may be removed only for cause. The amendment to the Company's Amended
& Restated Certificate of Incorporation does not provide otherwise.
 
     The classified Board proposal may tend to maintain the incumbency of the
Board as it generally makes it more difficult for stockholders to change a
majority of the directors. A classified board of directors also might make it
more difficult for a person acquiring shares to take immediate control of the
Board of Directors. However, the Board believes that a classified board
contributes to the continuity and stability of leadership and policy.
 
     The directors of the Company are set forth in Proposal No. 5. Under the
Classified Board Provisions, the Board of Directors will be divided into three
classes, designated Class I, Class II and Class III, subject to the approval of
the stockholders at the Annual Meeting. The director in Class I, Gerard von
Hoffmann, will hold
                                       18

<PAGE>   22
 
office until the Annual Meeting of Stockholders to be held in 1999; the
directors in Class II, Franklin D. Brown and Edward M. Leonard, will hold office
until the Annual Meeting of Stockholders in 2000; and the directors in Class
III, William G. Davis and Michael R. Henson, will hold office until the Annual
Meeting of Stockholders in 2001 (and, in each case, until their successors are
duly elected and qualified or until their earlier resignation, removal from
office or death). After each such election, the directors shall then serve in
succeeding terms of three years and until their successors are duly elected and
qualified.
 
     With the Classified Board Provisions proposed for inclusion in the Amended
& Restated Certificate of Incorporation, unless directors are removed for cause,
it may require at least two annual meetings of stockholders for a majority of
stockholders to make a change in control of the Board of Directors, since only a
portion of the directors will be elected at each meeting. A significant effect
of a classified Board of Directors may be to deter hostile takeover attempts
because an acquirer would experience delay in replacing a majority of the
directors. However, a classified Board of Directors also makes it more difficult
for stockholders to effect a change in control of the Board of Directors, even
if such a change in control is sought due to dissatisfaction with the
performance of the Company's directors.
 
     In the event this proposal is not approved, all directors of the Company
will be elected at each annual meeting. In the event this proposal is approved,
the Company's Amended & Restated Certificate of Incorporation will include the
Classified Board Provisions.
 
STOCKHOLDER APPROVAL
 
     If the amendment to provide for a classified Board of Directors is
approved, Article VIII of the Company's Amended & Restated Certificate of
Incorporation will be amended to add the following:
 
          The Board of Directors shall be divided into three (3) classes,
     as nearly equal in number as possible, designated Class I, Class II
     and Class III. The number of directors constituting each Class shall
     be fixed from time to time by a resolution duly adopted by the Board
     of Directors. Class I directors shall hold office for an initial term
     expiring at the annual meeting of stockholders in 1999. Class II
     directors shall hold office for an initial term expiring at the annual
     meeting of stockholders in 2000, and Class III directors shall hold
     office for a term expiring at the annual meeting of stockholders in
     2001. At each annual meeting of stockholders held thereafter,
     directors shall be elected for a three-year term to succeed the
     directors of the Class whose terms then expire.
 
     The affirmative vote of a majority of the voting power of all outstanding
capital stock of the Company is required for approval of this proposal.
Abstentions and broker non-votes each will have the same effect as a negative
vote on this proposal.
 
RECOMMENDATION OF THE BOARD OF DIRECTORS
 
 
    THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSED AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO
PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS.
 
                                       19

<PAGE>   23
 

                                 PROPOSAL NO. 5
 
                             ELECTION OF DIRECTORS
 
     Five (5) directors will be elected at the Annual Meeting by the holders of
CVD Common Stock to serve until the next Annual Meeting and until their
successors are elected and qualified, or until their earlier death, resignation
or removal.
 
     Assuming the approval of the amendment to the Company's Certificate to
provide for a classified Board (as discussed in Proposal No. 4), Gerard von
Hoffmann will serve as a Class I director, with a term expiring at the Annual
Meeting of Stockholders to be held in 1999, Franklin D. Brown and Edward M.
Leonard will serve as Class II directors, with terms expiring at the Annual
Meeting of Stockholders to be held in 2000 and William G. Davis and Michael R.
Henson will serve as Class III directors, with terms expiring at the Annual
Meeting of Stockholders to be held in 2001. Thereafter, each class of directors
shall be elected for a term of office to expire at the third succeeding annual
meeting of stockholders. Should the amendment providing for the classified Board
not be approved, each of the nominees will serve as a director until the next
annual meeting of stockholders or until his successor is elected and qualified.
 
     The Board of Directors will vote all proxies received by them FOR the
nominees listed below unless otherwise instructed in writing on such proxy. The
five (5) candidates receiving the highest number of affirmative votes of shares
entitled to vote at the Annual Meeting will be elected directors of CVD. In the
event any nominee is unable to or declines to serve as a director at the time of
the Annual Meeting, the proxies will be voted for an additional nominee who
shall be designated by the current Board of Directors to fill the vacancy. As of
the date of this Proxy Statement, the Board of Directors is not aware of any
nominee who is unable or will decline to serve as director. In the event that
additional persons are nominated for election as directors, the proxy holders
intend to vote all proxies received by them in such a manner in accordance with
cumulative voting as will assure the election of as many of the nominees listed
below as possible, with any required selection among such nominees to be
determined by the proxy holders.
 
     Franklin Brown was appointed a director by the Board on June 19, 1997, and
Mitchell Dann resigned from his position as director of the Company on December
18, 1997.
 
                                       20

<PAGE>   24
 
INFORMATION WITH RESPECT TO NOMINEES
 
     Set forth below, as of March 1, 1998, for each nominee for director of CVD
is information regarding his age, position(s) with CVD, the period he has served
as a director, any family relationship with any other director or executive
officer of CVD, and the directorships currently held by him in corporations
whose shares are publicly registered.
 

<TABLE>
<CAPTION>
             NOMINEE, AGE AND
          FIRST YEAR AS DIRECTOR                  PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
          ----------------------                  --------------------------------------------
<S>                                         <C>
Franklin D. Brown, 54, 1997                 Franklin D. Brown is Chairman and President of FDB
                                            Healthcare Consulting. Mr. Brown has served on the board
                                            of several domestic and international companies, and has
                                            more than 25 years of multinational management
                                            experience in the health care industry in the areas of
                                            pharmaceuticals, disposables, implantables and capital
                                            equipment. Mr. Brown served as Chairman, President and
                                            CEO at Imagyn Medical, Inc. from October 1994 until the
                                            sale of the company in September 1997. Prior to Imagyn,
                                            Mr. Brown served as President and CEO of Pharmacia
                                            Deltec, Inc., an ambulatory drug delivery company, for
                                            eight years. From 1982 to 1986, he was President of
                                            Pharmacia Inc.'s health care group and General Manager
                                            of its hospital division. Prior to his employment with
                                            Pharmacia, Mr. Brown held various sales and marketing
                                            positions with Choay Laboratories, Mead Johnson, Abbott
                                            and Sterling Drug. Mr. Brown currently is a director of
                                            Xillix Technologies and Bridge Medical. Mr. Brown was
                                            awarded Entrepreneur of the year award in 1991. Mr.
                                            Brown received an M.B.A. from the University of Michigan
                                            and a bachelors degree from Western Michigan University.
William G. Davis, 66, 1995                  Mr. Davis is an independent business consultant. From
                                            1957 to 1984, Mr. Davis was associated with Eli Lilly
                                            and Company, a diversified health care company, where he
                                            served as Executive Vice President, Eli Lilly
                                            International Corporation, from 1972 to 1975, Executive
                                            Vice President, Pharmaceutical Division, from 1975 to
                                            1982, and President, Medical Instrument Systems
                                            Division, from 1982 until his retirement in 1984. Mr.
                                            Davis also is a director of ALZA Corporation, Collagen
                                            Corporation and EndoSonics Corporation, and served as a
                                            director of Target Therapeutics, Inc. from 1993 to 1997.
Michael R. Henson, 52, 1995                 Mr. Henson joined CVD in February 1995 as President,
                                            Chief Executive Officer and Chairman of the Board of
                                            Directors. Prior to joining CVD, Mr. Henson served as
                                            the Chief Executive of EndoSonics Corporation from 1988
                                            to February 1995, and as Chairman of the Board from
                                            February 1993 to November 1996. Between April 1983 and
                                            February 1988, Mr. Henson served as President and Chief
                                            Executive Officer of Trimedyne, Inc., a manufacturer of
                                            medical lasers and catheters. Prior to joining Trimedyne
                                            in 1983, Mr. Henson held positions as Vice President for
                                            G.D. Searle & Company, Director of Marketing for the
                                            Hospital Products Division of Abbott Laboratories and
                                            Marketing Manager for Bristol Myers and Company. Mr.
                                            Henson also serves as a director of Urologix, Inc.
</TABLE>

 
                                       21

<PAGE>   25
 

<TABLE>
<CAPTION>
             NOMINEE, AGE AND
          FIRST YEAR AS DIRECTOR                  PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
          ----------------------                  --------------------------------------------
<S>                                         <C>
Edward M. Leonard, 56, 1996                 Since September 1997, Mr. Leonard has been a Managing
                                            Director of Broadview Associates LLC, an investment bank
                                            specializing in mergers and acquisitions. From 1978 to
                                            September 1997, Mr. Leonard was a partner in the law
                                            firm of Brobeck, Phleger & Harrison LLP, which served as
                                            CVD's general counsel from the Company's formation until
                                            September 1997. Mr. Leonard also serves as a director of
                                            EndoSonics Corporation.
Gerard von Hoffmann, 41, 1996               Gerard von Hoffmann joined the Company as a director in
                                            April 1996. He has been with the law firm of Knobbe,
                                            Martens, Olson & Bear LLP, CVD's patent counsel, since
                                            1986 and has been a partner since 1989.
</TABLE>

 
THE BOARD OF DIRECTORS AND ITS COMMITTEES
 
     The Board of Directors met eight times during the year ended December 31,
1997. Each Director attended at least 75% of the aggregate of (i) the total
number of meetings of the Board of Directors and (ii) the total number of
meetings held by all Committees of the Board on which such Director served. CVD
has a standing Audit Committee composed of Messrs. Edward M. Leonard and Gerard
von Hoffmann. The Audit Committee primarily is responsible for approving the
services performed by the Company's independent public accountants and for
reviewing and evaluating the Company's accounting principles and reporting
practices and its system of internal accounting controls. The Audit Committee
met two times during the year ended December 31, 1997. CVD has a standing
Compensation Committee which met five times during the year ended December 31,
1997. For the 1997 fiscal year, this Committee consisted of Franklin D. Brown
and William G. Davis. The Committee administers the 1996 Option Plan and reviews
and acts on matters relating to compensation levels and benefit plans for key
executives of CVD. The Compensation Committee has the exclusive power and
authority to make stock option grants under the 1996 Option Plan to the
Company's officers.
 
REMUNERATION
 
     Non-employee directors each receive a fee of $1,000 per quarter, $1,000 for
each Board meeting attended and reimbursement for certain travel expenses and
other out-of-pocket costs. Members of Committees of the Board each receive an
additional fee of $500 for each Committee meeting attended. Non-employee Board
members are eligible to receive periodic option grants under the Automatic
Option Grant Program in effect under the Company's 1996 Stock Option/Stock
Issuance Plan, as summarized in Proposal No. 1 above.
 
     Mr. Leonard, a member of the Company's Board of Directors, was a partner at
Brobeck, Phleger & Harrison LLP until September 1997, which firm served as the
Company's general counsel until September 1997. Mr. von Hoffmann, a member of
the Company's Board of Directors, is a partner at Knobbe, Martens, Olson & Bear
LLP, which serves as Patent Counsel to the Company.
 
     All directors hold office until the next Annual Meeting of Stockholders and
until their successors have been elected. However, upon approval by the
stockholders of Proposal No. 4 of a classified Board of Directors, Gerard von
Hoffmann will serve as a Class I director, with a term expiring at the Annual
Meeting of Stockholders to be held in 1999, Franklin D. Brown and Edward M.
Leonard will serve as Class II directors, with terms expiring at the Annual
Meeting of Stockholders to be held in 2000 and William G. Davis and Michael R.
Henson will serve as Class III directors, with terms expiring at the Annual
Meeting of Stockholders to be held in 2001. Thereafter, each class of directors
shall be elected for a term of office to expire at the third succeeding annual
meeting of stockholders. Officers are appointed to serve, at the discretion of
the Board of Directors, until their successors are appointed. There are no
family relationships among executive officers or directors of CVD. There are no
arrangements or understandings involving any director or any nominee regarding
such person's status as a director or nominee.
 
                                       22

<PAGE>   26
 

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
 
     The members of the Board of Directors, the executive officers of CVD and
persons who hold more than 10% of the Company's outstanding Common Stock are
subject to the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934 which require them to file reports with respect to their
ownership of the Common Stock and their transactions in such Common Stock. Based
upon (i) the copies of Section 16(a) reports which CVD received from such
persons for their 1997 fiscal year transactions in the Common Stock and their
Common Stock holdings and (ii) the written representations received from one or
more of such persons that no annual Form 5 reports were required to be filed by
them for the 1996 fiscal year, CVD believes that all reporting requirements
under Section 16(a) for such fiscal year were met in a timely manner by its
executive officers, Board members and greater than ten-percent stockholders,
except for the following: (a) Mr. von Hoffmann filed one late report with
respect to shares of Common Stock received as a stockholder of Cardiometrics,
Inc. as partial merger consideration pursuant to the acquisition of
Cardiometrics, Inc. by EndoSonics Corporation; (b) Franklin D. Brown filed an
amended report with respect to 1,000 shares of Common Stock owned by Mr. Brown
at the time Mr. Brown became a director of the Company; and (c) the Company has
no record of an initial report filed on behalf of Harold Heitzman or Edward
Morton, former executive officers of the Company.
 
C
ERTAIN TRANSACTIONS
 
     Other than the officer loan described above under Executive Compensation
and Related Information, the Company was not involved in any transaction during
the fiscal year ended December 31, 1997 in which a director, officer or greater
than 5% stockholder had a direct or indirect material interest involving an
amount in excess of $60,000.
 
R
ECOMMENDATION OF THE BOARD OF DIRECTORS
 
 
    THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL FIVE
NOMINEES NAMED ABOVE.
 

                                 PROPOSAL NO. 6
 
               RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
 
     The firm of Ernst & Young LLP served as independent auditors for CVD for
the fiscal year ended December 31, 1997. The Board of Directors, on the
recommendation of CVD's management, has selected that firm to continue in this
capacity for the current fiscal year. CVD is asking the stockholders to ratify
the selection by the Board of Directors of Ernst & Young LLP, as independent
auditors to audit the consolidated financial statements of CVD for the fiscal
year ending December 31, 1998 and to perform other appropriate services. A
representative of Ernst & Young LLP is expected to be present at the Annual
Meeting to respond to stockholders' questions, and that representative will be
given an opportunity to make a brief presentation to the stockholders if he or
she so desires and will be available to respond to appropriate questions. CVD
has been advised by Ernst & Young LLP that neither that firm nor any of its
associates has any material relationship with CVD nor any affiliate of CVD.
 
T
HE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION.
 
     In the event that a majority of the shares voted at the Annual Meeting do
not vote for ratification of the selection of Ernst & Young LLP, the Board of
Directors will reconsider such selection. Under all circumstances, the Board
retains the corporate authority to change the auditors at a later date.
 
                                       23

<PAGE>   27
 
GENERAL
 
      SECURITY OWNERSHIP OF OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
 
     The following table sets forth certain information known to CVD regarding
the ownership of CVD's Common Stock as of March 1, 1998 by (i) each stockholder
known to CVD to be a beneficial owner of more than five percent (5%) of CVD's
Common Stock, (ii) each director and nominee for director, (iii) the Named
Officers (as such term is defined under the caption "Executive Compensation and
Related Information -- Summary of Cash and Certain Other Compensation") and (iv)
all current directors and officers of CVD as a group.
 

<TABLE>
<CAPTION>
                                                   NUMBER OF SHARES    PERCENT OF
                                                     BENEFICIALLY      OUTSTANDING
                NAME AND ADDRESS                       OWNED(1)         SHARES(2)
                ----------------                   ----------------    -----------
<S>                                                <C>                 <C>
EndoSonics Corporation(3)........................     1,724,016           19.66
  2870 Kilgore Rd
  Rancho Cordova, CA 95670
Chancellor LGT Asset Management, Inc.(4).........       916,261           10.45
  50 California Street, 27th Floor
  San Francisco, CA 94111
Interactive Research Advisors, Inc.(5)...........       556,000            6.34
  101 Park Center Plaza, Suite 1300
  San Jose, CA 95113
Boston Scientific Corporation(6).................       501,000            5.71
  One Boston Scientific Place
  Natick, MA 01760
Michael R. Henson(7).............................       247,450            2.82
Franklin D. Brown(8).............................        11,000               *
William G. Davis(9)..............................        25,430               *
Gerard von Hoffmann(10)..........................        21,054               *
Edward M. Leonard(11)............................        48,692               *
Edward A. McDonald(12)...........................        43,048               *
Dana P. Nickell(13)..............................        42,402               *
Jeffrey F. O'Donnell(14).........................        68,393               *
Jeffrey H. Thiel(15).............................        31,937               *
Claire K. Walker(16).............................        61,238               *
All directors and officers as a group (10
  persons)(17)...................................       600,644            6.85
Total Principal Stockholders.....................     4,297,921           49.02
</TABLE>

 
- ---------------
  *  Represents beneficial ownership of less than 1%.
 
 (1) The number of shares of Common Stock beneficially owned includes any shares
     issuable pursuant to stock options that may be exercised within 60 days
     after March 1, 1998. Shares issuable pursuant to such options are deemed
     outstanding for computing percentage of the person holding such options but
     are not deemed to be outstanding for computing the percentage of any other
     person.
 
 (2) Applicable percentages are based on 8,768,000 shares, which represents
     9,413,000 shares outstanding on March 1, 1998, less 645,000 shares held by
     the Company.
 
 (3) Pursuant to a Schedule 13G/A filed with the Commission on March 2, 1998,
     EndoSonics Corporation reported that it had sole voting and investment
     power over 1,724,016 shares.
 
 (4) Chancellor LGT Asset Management, Inc. filed a Schedule 13G/A with the
     Commission on February 9, 1998 on behalf of itself and Chancellor LGT Trust
     Company, as investment advisors for various fiduciary accounts and LGT
     Asset Management, Inc., as the holding company for Chancellor LGT Asset
     Management, Inc. Chancellor LGT Asset Management, Inc and Chancellor LGT
     Trust Company reported that as of January 31, 1997, it had sole voting and
     investment power over 916,261 shares. LGT Asset Management, Inc. is an
     indirect wholly owned subsidiary of Liechtenstein Global
 
                                       24

<PAGE>   28
 
     Trust, AG, which has numerous worldwide affiliates and is controlled by The
     Prince of Liechtenstein Foundation, a parent organization for the various
     business enterprises of the Princely Family of Liechtenstein.
 
 (5) Pursuant to a Schedule 13G filed with the Commission on February 17, 1998,
     Interactive Research Advisors, Inc. reported that it had sole voting and
     investment power over 556,000 shares.
 
 (6) Pursuant to a Schedule 13G/A filed with the Commission on February 13,
     1998, Boston Scientific Corporation reported that as of December 31, 1997
     it had sole voting and investment power over 501,000 shares.
 
 (7) Includes 58,450 shares subject to options exercisable within 60 days after
     March 1, 1998.
 
 (8) Includes 10,000 shares subject to options exercisable within 60 days after
     March 1, 1998.
 
 (9) Includes 5,917 shares subject to options exercisable within 60 days after
     March 1, 1998. Mr. Davis shares voting and investment power with his spouse
     as co-trustee with respect to 6,930 shares held in a revocable trust.
 
(10) Includes 15,000 shares subject to options exercisable within 60 days after
     March 1, 1998.
 
(11) Includes 15,000 shares subject to options exercisable within 60 days after
     March 1, 1998. Mr. Leonard shares voting and investment power as a
     beneficiary with respect to 22,807 shares held in a retirement trust. Mr.
     Leonard disclaims beneficial ownership with respect to 200 shares held by
     his spouse and 3,000 shares held as custodian for his minor children under
     the Uniform Gift to Minors Act.
 
(12) Includes 10,000 shares subject to options exercisable within 60 days after
     March 1, 1998. Mr. McDonald disclaims beneficial ownership with respect to
     3,000 shares held by his spouse, Kathleen E. Briscoe, M.D., in an IRA
     account and 2,000 shares held by the Estate of Lisa M. Briscoe, of which
     his spouse serves as a co-executrix and is a beneficiary with respect to 50
     percent of the assets.
 
(13) Includes 19,729 shares subject to options exercisable within 60 days after
     March 1, 1998.
 
(14) Includes 65,521 shares subject to options exercisable within 60 days after
     March 1, 1998.
 
(15) Includes 27,658 shares subject to options exercisable within 60 days after
     March 1, 1998. Mr. Thiel shares voting and investment power with his spouse
     with respect to 4,229 shares.
 
(16) Includes 25,791 shares subject to options exercisable within 60 days after
     March 1, 1998.
 
(17) Includes 265,649 shares subject to options exercisable within 60 days after
     March 1, 1998.
 
                 EXECUTIVE COMPENSATION AND RELATED INFORMATION
 
COMPENSATION COMMITTEE REPORT
 
     The Compensation Committee of the Board of Directors makes recommendations
to the full Board with respect to the base salary and bonuses to be paid to the
Company's executive officers each fiscal year. In addition, the Compensation
Committee has the exclusive authority to administer the CVD 1996 Stock
Option/Stock Issuance Plan with respect to option grants and stock issuances
made thereunder to officers and other key employees. The following is a summary
of the policies of the Compensation Committee which affect the compensation paid
to executive officers, as reflected in the tables and text set forth elsewhere
in this Proxy Statement.
 
GENERAL COMPENSATION POLICY
 
     The Company's compensation policy is designed to attract and retain
qualified key executives critical to the Company's success and to provide such
executives with performance-based incentives tied to the achievement of Company
milestones. One of the Compensation Committee's primary objectives is to have a
substantial portion of each officer's total compensation contingent upon the
Company's performance as well as upon the individual's contribution to the
success of CVD as measured by his personal performance. Accordingly, each
executive officer's compensation package is comprised primarily of three
elements: (i) base salary which reflects individual performance and expertise
and is designed to be competitive with salary levels
 
                                       25

<PAGE>   29
 
in the industry; (ii) variable performance awards payable in cash and tied to
the Company's achievement of certain goals; and (iii) long-term stock-based
incentive awards which strengthen the mutuality of interests between the
executive officers and the CVD stockholders.
 
FACTORS
 
     The principal factors which the Compensation Committee considered in
establishing the components of each executive officer's compensation package for
the 1997 fiscal year are summarized below. However, the Committee may in its
discretion apply different factors, particularly different measures of financial
performance, in setting executive compensation for future fiscal years.
 
BASE SALARY
 
     The base salary levels for the executive officers were established by the
Board for the 1997 fiscal year on the basis of the following factors: personal
performance, the estimated salary levels in effect for similar positions at a
select group of companies with which the Company competes for executive talent,
and internal comparability considerations. Although the Compensation Committee
reviewed various compensation surveys, the Board, did not rely upon any specific
survey for comparative compensation purposes. Instead, the Board made its
decisions as to the appropriate market level of base salary for each executive
officer on the basis of its understanding of the salary levels in effect for
similar positions at those companies with which the Company competes for
executive talent. Base salaries will be reviewed by the Compensation Committee
on an annual basis, and adjustments will be made in accordance with the factors
indicated above.
 
ANNUAL INCENTIVE COMPENSATION
 
     The CVD Employee Bonus Plan provides the Board of Directors with
discretionary authority to award cash bonuses to executive officers and
employees in accordance with recommendations made by the Compensation Committee.
The Compensation Committee's recommendations are based upon the extent to which
certain financial and performance targets (established semi-annually by the
Compensation Committee) are met and the contribution of each such officer and
employee to the attainment of such targets. For fiscal year 1997, the
performance targets for each of the Named Officers included gross sales, cash
flow, engineering product goals and regulatory submission goals. The weight
given to each factor varied from individual to individual.
 
LONG-TERM INCENTIVE COMPENSATION
 
     The 1996 Stock Option/Stock Issuance Plan also provides the Board with the
ability to align the interests of the executive officer with those of the
stockholders and provide each individual with a significant incentive to manage
CVD from the perspective of an owner with an equity stake in the business. The
number of shares subject to each option grant is based upon the officer's
tenure, level of responsibility and relative position in CVD. The Company has
established general guidelines for making option grants to the executive
officers in an attempt to target a fixed number of unvested option shares based
upon the individual's position with the Company and their existing holdings of
unvested options. However, the Company does not adhere strictly to these
guidelines and will vary the size of the option grant made to each executive
officer as it feels the circumstances warrant. Each grant allows the officer to
acquire shares of CVD Common Stock at a fixed price per share (the market price
on the grant date) over a specified period of time (up to 10 years from the date
of grant). The option normally vests in periodic installments over a four-year
period, contingent upon the executive officer's continued employment with the
Company. Accordingly, the option will provide a return to the executive officer
only if he or she remains in the Company's employ and the market price of the
Company's Common Stock appreciates over the option term.
 
CEO COMPENSATION
 
     The Compensation Committee set the base salary for Mr. Michael R. Henson,
the Company's Chief Executive Officer for the 1997 fiscal year, at a level which
is designed to provide him with a salary competitive
 
                                       26

<PAGE>   30
 
with salaries paid to chief executive officers of similarly-sized companies in
the industry and commensurate with Mr. Henson's experience. The Compensation
Committee did not intend to have this particular component of Mr. Henson's
compensation affected to any significant degree by Company performance. Mr.
Henson received stock option grants in January and April of 1997 to purchase a
total of 55,000 shares. The grants were intended as compensation for Mr.
Henson's performance during the 1996 fiscal year. Mr. Henson did not receive any
option grants intended as long-term incentive compensation for the 1997 fiscal
year.
 
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
 
     Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held corporations for compensation
exceeding $1 million paid to certain of the corporation's executive officers.
The limitation applies only to compensation which is not considered to be
performance-based. The non-performance based compensation to be paid to the
Company's executive officers for the 1997 fiscal year did not exceed the $1
million limit per officer, nor is it expected that the non-performance based
compensation to be paid to the Company's executive officers for fiscal 1998 will
exceed that limit. The Company's 1996 Stock Option/Stock Issuance Plan is
structured so that any compensation deemed paid to an executive officer in
connection with the exercise of option grants made under that plan will qualify
as performance-based compensation which will not be subject to the $1 million
limitation. Because it is very unlikely that the cash compensation payable to
any of the Company's executive officers in the foreseeable future will approach
the $1 million limit, the Compensation Committee has decided at this time not to
take any other action to limit or restructure the elements of cash compensation
payable to the Company's executive officers. The Compensation Committee will
reconsider this decision should the individual compensation of any executive
officer ever approach the $1 million level.
 
                                        COMPENSATION COMMITTEE
 
                                        William G. Davis
                                        Franklin D. Brown
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
     The members of the Compensation Committee of the Company's Board of
Directors for the 1997 fiscal year were Franklin D. Brown (who replaced Mitchell
Dann in December 1997 upon Mr. Dann's resignation from the Board) and William G.
Davis. No member of the Compensation Committee was at any time during the 1997
fiscal year or at any other time an officer or employee of CVD.
 
     No executive officer of CVD served on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
 
                                       27

<PAGE>   31
STOCK PERFORMANCE GRAPH
 
     The graph depicted below shows CVD's stock price as an index assuming $100
invested on June 19, 1996 (the date of CVD's initial public offering), along
with the composite prices of companies listed on the CRSP Total Return Index for
National Association of Securities Dealers Automated Quotation ("Nasdaq") Stock
Market and the Hambrecht & Quist Incorporated Total Return Index for Healthcare
Technology Companies (Excluding Biotechnology). This information has been
provided to CVD by Hambrecht & Quist Incorporated.
 

<TABLE>
<CAPTION>
        Measurement Period           CardioVascular       Nasdaq Stock       H&Q Healthcare
      (Fiscal Year Covered)             Dynamics          Market -U.S.        Excl. Biotech
<S>                                 <C>                 <C>                 <C>
6/19/96                                  100.00              100.00              100.00
Jun-96                                   102.08               95.49              100.69
Jul-96                                   106.25               86.99               92.23
Aug-96                                   125.00               91.86               98.24
Sep-96                                   127.08               98.89              110.50
Oct-96                                   108.33               97.80              104.75
Nov-96                                   102.08              103.84              107.98
Dec-96                                   108.33              103.75              111.18
Jan-97                                    85.42              111.12              117.25
Feb-97                                    89.58              104.98              115.32
Mar-97                                    83.33               98.12              105.61
Apr-97                                    59.38              101.19              107.95
May-97                                    64.58              112.67              118.64
Jun-97                                    65.63              116.11              126.43
Jul-97                                    75.52              128.37              133.40
Aug-97                                    64.58              128.17              126.71
Sep-97                                    66.67              135.75              132.52
Oct-97                                    56.25              128.70              125.97
Nov-97                                    45.83              129.33              128.32
Dec-97                                    45.83              127.31              132.50
</TABLE>

 
Note: Assumes $100 invested on 6/19/96 in CVD and in the CRSP Total Return Index
      for Nasdaq Stock Market and the H&Q Total Return Index for Healthcare
      Technology Companies (Excluding Biotechnology). Assumes Reinvestment of
      Dividends on a daily basis.
 
     Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 which might incorporate future filings, including this Proxy Statement,
the preceding Compensation Committee Report on Executive Compensation and the
Company Stock Performance Graph will not be incorporated by reference into any
of those prior filings, nor will such report or graph be incorporated by
reference into any future filings made by the Company under those statutes.
 
                                       28

<PAGE>   32
 
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
 
     The following table sets forth the compensation earned, by the Company's
Chief Executive Officer, Mr. Henson, who has served in such capacity since
February 1, 1995, and five executive officers whose compensation for the 1997
fiscal year was in excess of $100,000, for services rendered in all capacities
to the Company for each of the last two fiscal years. All the individuals named
in the table will hereinafter be referred to as the "Named Officers."
 
                           SUMMARY COMPENSATION TABLE
 

<TABLE>
<CAPTION>
                                                   ANNUAL COMPENSATION
                                       -------------------------------------------
                                                                          SHARES
                                                                        UNDERLYING
     NAME AND PRINCIPAL POSITION       YEAR    SALARY(1)    BONUS(2)     OPTIONS
     ---------------------------       ----    ---------    --------    ----------
<S>                                    <C>     <C>          <C>         <C>
Michael R. Henson....................  1997     219,051      22,000       55,000(3)
  Chairman of the Board and            1996     200,000      60,000      130,000(4)
  Chief Executive Officer              1995     189,850      70,000      250,000
Edward A. McDonald...................  1997     119,580       9,600       50,000
  Vice President, Advanced
  Technologies
Dana P. Nickell......................  1997     120,960       7,258       30,000(3)
  Vice President, Finance and          1996     108,000      19,440           --
  Administration, Chief Financial      1995       5,934          --       56,000
  Officer and Corporate Secretary
Jeffrey F. O'Donnell.................  1997     181,034      15,550      145,000(5)
  President and Chief Operating        1996     179,200      15,000           --
  Officer                              1995       8,585       4,000      100,000
Jeffrey H. Thiel.....................  1997     120,000      12,000       58,000(6)
  Vice President, Operations           1996      18,371          --       50,000
Claire K. Walker.....................  1997     113,275      11,214       38,000(3)
  Vice President, Clinical Affairs
</TABLE>

 
- ---------------
(1) Includes amounts contributed by the Named Officers to the Company's 401(k)
    Plan.
 
(2) Represents amounts paid in subsequent fiscal year for work performed in
    prior fiscal year.
 
(3) Represents options granted in 1997 fiscal year for work performed in 1996
    fiscal year.
 
(4) Mr. Henson voluntarily returned to the Company in 1997 options to acquire
    130,000 shares. The Company has not made any replacement grants for such
    options, nor is there any agreement to do so.
 
(5) Includes 25,000 options granted in 1997 fiscal year for work performed in
    1996 fiscal year.
 
(6) Includes 38,000 options granted in 1997 fiscal year for work performed in
    1996 fiscal year.
 
(7) Includes 28,000 options granted in 1997 fiscal year for work performed in
    1996 fiscal year.
 
                                       29

<PAGE>   33
 
STOCK OPTIONS
 
     The following table provides information with respect to the stock option
grants made during the 1997 fiscal year under the Company's 1996 Stock
Option/Stock Issuance Plan to the Named Officers. No stock appreciation rights
were granted during such fiscal year to the Named Officers.
 
                       OPTION GRANTS IN LAST FISCAL YEAR
 

<TABLE>
<CAPTION>
                                                 INDIVIDUAL GRANTS
                               ------------------------------------------------------     POTENTIAL REALIZABLE
                                               % OF TOTAL                                   VALUE AT ASSUMED
                                NUMBER OF       OPTIONS                                  ANNUAL RATES OF STOCK
                                SECURITIES     GRANTED TO     EXERCISE                     PRICE APPRECIATION
                                UNDERLYING     EMPLOYEES       OR BASE                      FOR OPTION TERM
                                  OPTION       IN FISCAL        PRICE      EXPIRATION    ----------------------
            NAME                GRANTED(1)      YEAR(2)       ($/SH)(3)       DATE       5%($)(4)    10%($)(4)
            ----               ------------   ------------   -----------   ----------    --------    ----------
<S>                            <C>            <C>            <C>           <C>           <C>         <C>
Michael R. Henson............     40,000            5           9.50         1/12/07     238,980       605,622
                                  15,000            2           6.88         4/20/07      64,902       164,474
Edward A. McDonald...........     40,000            5           6.88         4/20/07     173,072       438,598
                                  10,000            1           5.00        12/17/07      31,445        79,687
Dana P. Nickell..............     25,000            3           9.50         1/12/07     149,362       378,514
                                   5,000            1           6.88         4/20/07      21,634        54,825
Jeffrey F. O'Donnell.........     15,000            2           9.50         1/12/07      89,617       227,108
                                  10,000            1           6.88         4/20/07      43,268       109,649
                                 100,000           11           7.31         9/18/07     459,722     1,165,026
                                  20,000            2           5.00        12/17/07      62,889       159,374
Jeffrey H. Thiel.............      8,000            1           9.50         1/12/07      47,796       121,124
                                  30,000            3           6.88         4/20/07     129,804       328,948
                                  20,000            2           5.00        12/17/07      62,889       159,374
Claire K. Walker.............     10,000            1           9.50         1/12/07      59,745       151,406
                                  18,000            2           6.88         4/20/07      77,882       197,369
                                  10,000            1           5.00        12/18/07      31,445        79,687
</TABLE>

 
- ---------------
(1) The options listed in the table were granted under the Company's 1996 Stock
    Option/Stock Issuance Plan. The options have a maximum term of ten years
    measured from the date of grant. Twenty-five percent (25%) of the options
    are exercisable upon the optionee's completion of one year of service
    measured from the date of grant, and as to the balance of the option shares
    in a series of successive equal monthly installments upon the optionee's
    completion of each additional month of service over the next 36 months
    thereafter.
 
(2) Based upon options granted for an aggregate of 870,000 shares to employees
    in 1997, including the Named Officers.
 
(3) The exercise price may be paid in cash, in shares of the Company's Common
    Stock valued at fair market value on the exercise date or through a cashless
    exercise procedure involving a same-day sale of the purchased shares. The
    Company may also finance the option exercise by loaning the optionee
    sufficient funds to pay the exercise price for the purchased shares,
    together with any federal and state income tax liability incurred by the
    optionee in connection with such exercise. The Compensation Committee of the
    Board of Directors, as the Plan Administrator of the Company's 1996 Stock
    Option/Stock Issuance Plan, has the discretionary authority to reprice the
    options through the cancellation of those options and the grant of
    replacement options with an exercise price based on the fair market value of
    the option shares on the grant date.
 
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
    are mandated by rules of the Securities and Exchange Commission. There can
    be no assurance provided to any executive officer or any other holder of the
    Company's securities that the actual stock price appreciation over the
    option term will be at the assumed 5% and 10% levels or at any other defined
    level. Unless the market price of the Common Stock appreciates over the
    option term, no value will be realized from the option grants made to the
    executive officers.
 
                                       30

<PAGE>   34
 
OPTION EXERCISES AND HOLDINGS
 
     The table below sets forth information concerning the exercise of options
during the 1997 fiscal year and unexercised options held by the Named Officers
as of the end of such year. No stock appreciation rights were exercised by the
Named Officers during such fiscal year or were outstanding at the end of that
year.
 
                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL YEAR-END OPTION VALUES
 

<TABLE>
<CAPTION>
                                                            NUMBER OF SECURITIES
                                             AGGREGATE     UNDERLYING UNEXERCISED         VALUE OF UNEXERCISED
                                 SHARES        VALUE          OPTIONS AT FY-END          OPTIONS AT FY-END($)(2)
                                ACQUIRED     REALIZED    ---------------------------   ---------------------------
            NAME               ON EXERCISE    ($)(1)     EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
            ----               -----------   ---------   -----------   -------------   -----------   -------------
<S>                            <C>           <C>         <C>           <C>             <C>           <C>
Michael R. Henson............    57,800      $386,963      33,867         113,333       $186,269      $  623,332
Edward A. McDonald...........         0             0           0          50,000              0         275,000
Dana P. Nickell..............    22,000       140,500       6,000          58,000         33,000         319,000
Jeffrey F. O'Donnell.........         0             0      50,000         195,000        275,000       1,072,500
Jeffrey H. Thiel.............         0             0           0         108,000              0         594,000
Claire K. Walker.............         0             0      16,333          50,667         89,832         278,669
</TABLE>

 
- ---------------
(1) Based on the deemed fair value (as determined by the Board) for options
    exercised prior to the initial public offering, less the exercise price
    payable for such shares
 
(2) Based on the fair market value of the Company's Common Stock at year-end,
    $5.50 per share, less the exercise price payable for such shares.
 
MANAGEMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
 
     None of the Named Officers have employment agreements with CVD. The
employment of each of the Named Officers may be terminated at any time at the
discretion of the Board of Directors. However, the Compensation Committee of the
Board of Directors has the authority as administrator of the Company's 1996
Stock Option/Stock Issuance Plan to provide for the accelerated vesting of the
shares of Common Stock subject to any outstanding options held by the Chief
Executive Officer and the Company's other executive officers and any unvested
shares actually held by those individuals under the 1996 Plan, in the event
their employment were to be terminated (whether involuntarily or through a
forced resignation) following a hostile take-over of the Company effected
through a successful tender for more than 50% of the Company's outstanding
Common Stock or through a change in the majority of the Board as a result of one
or more contested elections for Board membership.
 
OFFICER LOANS
 
     On June 15, 1996, CVD extended a loan in the amount of $150,000, to Jeffrey
F. O'Donnell, the Company's President and Chief Operating Officer. The note was
secured by a second deed of trust on Mr. O'Donnell's home and has a five-year
term with interest compounding semi-annually at 6%. Mr. O'Donnell paid the loan
in full on January 22, 1998. On September 16, 1996, the Company extended an
interest free loan to Michael R. Henson, the Company's President and Chief
Executive Officer, in the amount of $175,000. The Company secured the note by a
deed of trust on certain real property owned by Mr. Henson. Mr. Henson paid the
loan in full on August 19, 1997. On January 24, 1997, the Company extended a
loan in the amount of $100,000 to Jeffrey H. Thiel, the Company's Vice President
of Operations. The note was secured by a second deed of trust on Mr. Thiel's
home and has a five-year term with interest compounding semi-annually at 6%. The
principal and interest will be due five years from the date of the note.
 
                                       31

<PAGE>   35
 
                 DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
 
     Under the present rules of the Commission, the deadline for stockholders to
submit proposals to be considered for inclusion in CVD's Proxy Statement for
next year's Annual Meeting of Stockholders is December 16, 1998. Such proposals
may be included in next year's Proxy Statement if they comply with certain rules
and regulations promulgated by the Commission.
 
                                 OTHER BUSINESS
 
     The Board of Directors is not aware of any other matter which may be
presented for action at the Annual Meeting. Should any other matter requiring a
vote of the stockholders arise, it is intended that the proxy holders will vote
on such matters in accordance with their best judgment.
 
                                          BY ORDER OF THE BOARD OF DIRECTORS
 
                                          Dana P. Nickell
                                          Secretary
 
April 15, 1998
 
                                       32

<PAGE>   36
                                      PROXY

                          CARDIOVASCULAR DYNAMICS, INC.

                  ANNUAL MEETING OF STOCKHOLDERS, MAY 19, 1998
           THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

        The undersigned revokes all previous proxies, acknowledges receipt of
the notice of annual meeting of stockholders to be held on May 19, 1998 and the
proxy statement and appoints Michael R. Henson and Jeffrey F. O'Donnell, or
either of them, the proxy of the undersigned, with full power of substitution,
to vote all shares of Common Stock of CardioVascular Dynamics, Inc. ("CVD")
which the undersigned is entitled to vote, either on his or her own behalf or on
behalf of an entity or entities, at the Annual Meeting of Stockholders of CVD to
be held at the Company's executive offices at 13700 Alton Parkway, Suite 160,
Irvine, California 92618 on Tuesday, May 19, 1998 at 10:00 a.m., and at any
adjournment or postponement thereof, and to vote in their discretion on such
other business as may properly come before the Annual Meeting and any
postponement or adjournment thereof.

                  (CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
- --------------------------------------------------------------------------------
                            - FOLD AND DETACH HERE -

        Please mark your votes as indicated in [X] this example

1.      AMENDMENT TO CVD'S 1996 STOCK OPTION/STOCK ISSUANCE PLAN TO EFFECT AN
        INCREASE IN THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE BY AN ADDITIONAL
        200,000 SHARES OF COMMON STOCK.

                         FOR              AGAINST            ABSTAIN
                         [ ]                [ ]                [ ]

2.      AMENDMENT TO CVD's EMPLOYEE STOCK PURCHASE PLAN TO DELETE THE SHARE
        NUMBER LIMIT ON THE MAXIMUM NUMBER OF SHARES OF COMMON STOCK PURCHASABLE
        BY EACH PARTICIPANT.

                         FOR              AGAINST            ABSTAIN
                         [ ]                [ ]                [ ]

3.      AMENDMENT TO THE COMPANY'S AMENDED & RESTATED CERTIFICATE OF
        INCORPORATION TO ELIMINATE CUMULATIVE VOTING FOR THE ELECTION OF 
        DIRECTORS.

                         FOR              AGAINST            ABSTAIN
                         [ ]                [ ]                [ ]




<PAGE>   37
4.      AMENDMENT TO THE COMPANY'S AMENDED & RESTATED CERTIFICATE OF
        INCORPORATION TO PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS.

                         FOR              AGAINST            ABSTAIN
                         [ ]                [ ]                [ ]

5.      ELECTION OF DIRECTORS INSTRUCTION: To withhold authority to vote for any
        individual nominee mark the "EXCEPTIONS" box, and strike a line through
        the nominee's name in the list below:

        FRANKLIN D. BROWN           EDWARD M. LEONARD
        WILLIAM G. DAVIS            GERARD VON HOFFMANN
        MICHAEL R. HENSON

                                         WITHHOLD
                         FOR            AUTHORITY
                    all nominees        to vote for
                    listed below       all nominees        EXCEPTIONS
                         [ ]                [ ]                [ ]


6.      RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR FISCAL 
        YEAR 1998.

                         FOR              AGAINST            ABSTAIN
                         [ ]                [ ]                [ ]

The Board of Directors recommends a vote FOR each of the director nominees
listed above and FOR the other proposals set forth above. This Proxy, when
properly executed will be voted as specified above. This Proxy will be voted FOR
Proposals 1, 2, 3, 4 and 6 and FOR each of the nominees listed under Proposal
No. 5 if no specification is made. This proxy will also be voted at the
discretion of the proxy holders on such matters other than the three specific
items as may come before the meeting.

PLEASE RETURN YOUR EXECUTED PROXY TO CVD'S TRANSFER AGENT IN THE ENCLOSED
ENVELOPE, OR, IF NECESSARY, DELIVER IT TO CVD, ATTENTION: SECRETARY.

Please print the name(s) appearing on each share certificate(s) over which you
have voting authority:

               ---------------------------------------------------
               (Print name(s) as it (they) appear on certificate)


                                       2


<PAGE>   38

Dated:_____________________  Signature(s)_______________________________________

Please sign exactly as your name(s) is (are) shown on the share certificate to
which the Proxy applies. When shares are held by joint tenants, both should
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title, as such. If a corporation, please sign in full corporate
name by the President or another authorized officer. If a partnership, please
sign in the partnership name by an authorized person.

- --------------------------------------------------------------------------------

                            - FOLD AND DETACH HERE -



                                      3


<PAGE>   39
                                                                      APPENDIX I

                          CARDIOVASCULAR DYNAMICS, INC.
                      1996 STOCK OPTION/STOCK ISSUANCE PLAN
        (AS AMENDED AND RESTATED AS OF APRIL 8, 1997 AND MARCH 12, 1998)


                                    ARTICLE I
                               GENERAL PROVISIONS

        I.     PURPOSE OF THE PLAN

               This 1996 Stock Option/Stock Issuance Plan is intended to promote
the interests of CardioVascular Dynamics, Inc., a Delaware 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 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,

                      (ii) the Stock Issuance Program under which eligible
        persons may, at the discretion of the Plan Administrator, be issued
        shares of Common Stock 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
        eligible non-employee Board members shall automatically receive option
        grants at periodic intervals to purchase shares of Common Stock.

               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. The Primary Committee shall have sole and exclusive authority
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders.

               B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons.

               C. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. 




<PAGE>   40

The Board may also at any time terminate the functions of any Secondary
Committee and reassume all powers and authority previously delegated to such
committee.

               D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant and Stock Issuance Programs and
to make such determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the
Discretionary Option Grant or Stock Issuance Program under its jurisdiction or
any option or stock issuance thereunder.

               E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.

               F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to option
grants or stock issuances made thereunder.

        IV.    ELIGIBILITY

               A. The persons eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs are as follows:

                      (i)    Employees,

                      (ii)   non-employee members of the Board or the board of
        directors of any Parent or Subsidiary, and

                      (iii)  consultants and other independent advisors who
        provide services to the Corporation (or any Parent or Subsidiary).

               B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to the
provisions of the Plan) 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 for such shares.




                                       2

<PAGE>   41

               C. 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.

               D. The individuals eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals who are serving
as non-employee Board members on the Underwriting Date, (ii) those individuals
who first become non-employee Board members after the Underwriting Date, whether
through appointment by the Board or election by the Corporation's stockholders,
and (iii) those individuals who are to continue to serve as non-employee Board
members after one or ore Annual Stockholders Meetings held after the
Underwriting Date. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an initial option grant under the Automatic Option Grant Program on the
Underwriting Date or (if later) at the time he or she first becomes a
non-employee Board member, but such individual shall be eligible to receive
periodic option grants under the Automatic Option Grant Program upon his or her
continued service as a non-employee Board member after one or more Annual
Stockholders Meetings.

        V.     STOCK SUBJECT TO THE PLAN

               A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired 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 2,100,000
shares. Such authorized share reserve is comprised of (i) the number of shares
which remained available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders, including
the shares subject to the outstanding options to be incorporated into the Plan
and (ii) an additional increase of 200,000 shares approved by the Board subject
to stockholder approval at the 1998 Annual Meeting.

               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
(including any options incorporated from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) those
options are cancelled in accordance with the cancellation-regrant provisions of
Article Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation, at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan (including any option
incorporated from the Predecessor 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 




                                       3

<PAGE>   42

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 number and/or class of securities for which any one
person may be granted options, separately exercisable stock appreciation rights
and direct stock issuances in the aggregate under the Plan, (iii) the number
and/or class of securities for which automatic option grants are to be made
subsequently per Eligible Director under the Automatic Option Grant Program and
(iv) the number and/or class of securities and the exercise price per share in
effect under each outstanding option (including any option incorporated from the
Predecessor Plan).Such adjustments to the outstanding options are to be effected
in a manner which shall preclude the dilution or enlargement of benefits under
such options. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.

                                   ARTICLE II
                       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,

                             (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





                                       4

<PAGE>   43

        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.

        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 exercised subsequently 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 the option is not
        otherwise at that time exercisable for vested shares.

                             (iv) Should the Optionee's Service be terminated
        for Misconduct, then all outstanding options held by the Optionee shall
        terminate immediately and cease to be outstanding.

                             (v) In the event of an Involuntary Termination
        following 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.

                      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:



                                       5

<PAGE>   44

                             (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. Stockholder Rights. The holder of an option shall have no
stockholder 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 whole or in part during the Optionee's lifetime in accordance
with the terms of a Qualified Domestic Relations Order. The assigned portion 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 portion 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 




                                       6

<PAGE>   45

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 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% Stockholder. If any Employee to whom an Incentive Option
is granted is a 10% Stockholder, 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/CHANGE IN CONTROL

               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. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Corporate Transaction, whether
or not those options are to be assumed or replaced (or those repurchase rights
are to be assigned) in the Corporate Transaction. The Plan Administrator shall
also have the discretion to grant options which do not accelerate whether or not
such options are assumed (and to provide for repurchase rights that do not
terminate whether or not such rights are assigned) in connection with a
Corporate Transaction.

               D. Immediately following the consummation of the Corporate
Transaction, all 




                                       7

<PAGE>   46

outstanding options shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof).

               E. 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 to reflect such Corporate Transaction shall also be made
to (i) the number and/or class of securities available for issuance under the
Plan following the consummation of such Corporate Transaction, (ii) the exercise
price payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same and (iii) the
maximum number of securities and/or class of securities for which any one person
may be granted stock options, separately exercisable stock appreciation rights
and direct stock issuances in the aggregate under the Plan.

               F. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed or replaced and do not
otherwise accelerate. 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. In addition, the Plan Administrator may
provide that one or more of the Corporation's outstanding repurchase rights with
respect to shares held by the Optionee at the time of such Involuntary
Termination shall immediately terminate, and the shares subject to those
terminated repurchase rights shall accordingly vest in full.

               G. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control. Each option 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. In addition, the Plan Administrator may provide that
one or more of the Corporation's outstanding repurchase rights with respect to
shares held by the Optionee at the time of such Involuntary Termination shall
immediately terminate, and the shares subject to those terminated repurchase
rights shall accordingly vest in full.

               H. 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
($100,000) 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.

               I. 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 




                                       8

<PAGE>   47

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 (including outstanding options incorporated from the Predecessor
Plan) 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 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.

               C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:




                                       9

<PAGE>   48

                      (i) One or more Section 16 Insiders 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 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 III
                             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 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 any 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).

               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 




                                       10

<PAGE>   49

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 stockholder 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 stockholder 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 the 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
cessation of the Participant's Service or the non-attainment of the performance
objectives applicable to those 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.




                                       11

<PAGE>   50

        II.    CORPORATE TRANSACTION/CHANGE IN CONTROL

               A. All outstanding cancellation 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 cancellation 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. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's cancellation rights remain outstanding under the Stock
Issuance Program, to provide that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those cancellation rights are
assigned to the successor corporation (or parent thereof).

               C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's cancellation rights remain outstanding under the Stock
Issuance Program, to provide that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control.

               D. The Plan Administrator shall have the discretion to provide
for cancellation rights with terms different from those in effect under Section
II.A. in connection with a 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 IV
                         AUTOMATIC OPTION GRANT PROGRAM

        I.     OPTION TERMS

               A. GRANT DATES. Option grants shall be made on the dates
specified below:

                      1. Each individual who is serving as a non-employee Board
member on the Underwriting Date shall automatically be granted, on the
Underwriting Date, a Non-Statutory Option to purchase 5,000 shares of Common
Stock, provided such individual has not previously been in the employ of the
Corporation (or any Parent or Subsidiary).




                                       12

<PAGE>   51

                      2. Each individual who is first elected or appointed as a
non-employee Board member on or after the Underwriting Date shall automatically
be granted, on the date of such initial election or appointment, a Non-Statutory
Option to purchase 5,000 shares of Common Stock, provided such individual has
not previously been in the employ of the Corporation (or any Parent or
Subsidiary).

                      3. On the date of each Annual Stockholders Meeting held
after the Underwriting Date, each individual who is to continue to serve as an
Eligible Director, shall automatically be granted a Non-Statutory Option to
purchase an additional 5,000 shares of Common Stock, provided such individual
has served as a non-employee Board member for at least six (6) months. There
shall be no limit on the number of such 5,000-share option grants any one
Eligible Director may receive over his or her period of Board service.

               B.     EXERCISE PRICE.

                      1. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.

                      2. The exercise price shall be payable in one or more of
the alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.

               C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.

               D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each initial grant shall vest, and the
Corporation's repurchase right shall lapse, in a series of four (4) successive
equal annual installments over the Optionee's period of continued service as a
Board member, with the first such installment to vest upon the Optionee's
completion of one (1) year of Board service measured from the option grant date.
Each annual grant shall vest, and the Corporation's repurchase right shall
lapse, upon the Optionee's completion of one (1) year of Board service measured
from the option grant date.

               E. EFFECT OF TERMINATION OF BOARD SERVICE. The following
provisions shall govern the exercise of any options held by the Optionee at the
time the Optionee ceases to serve as a Board member:

                      (i) The Optionee (or, in the event of Optionee's death,
        the personal representative of the Optionee's estate or 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) shall
        have a twelve (12)-month period following the date of such cessation of
        Board service in which to exercise each such option.

                      (ii) During the twelve (12)-month exercise period, the
        option may not be 




                                       13

<PAGE>   52

        exercised in the aggregate for more than the number of vested shares of
        Common Stock for which the option is exercisable at the time of the
        Optionee's cessation of Board service.

                      (iii) Should the Optionee cease to serve as a Board member
        by reason of death or Permanent Disability, then all shares at the time
        subject to the option shall immediately vest so that such option may,
        during the twelve (12)-month exercise period following such cessation of
        Board service, be exercised for all or any portion of those shares as
        fully-vested shares of Common Stock.

                      (iv) In no event shall the option remain exercisable after
        the expiration of the option term. Upon the expiration of the twelve
        (12)-month 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 Board
        service for any reason other than death or Permanent Disability,
        terminate and cease to be outstanding to the extent the option is not
        otherwise at that time exercisable for vested shares.

        II.    CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER

               A. In the event of any Corporate Transaction, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full 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 all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

               B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.

               C. 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. 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 (whether or not the Optionee is otherwise at the time vested
in those shares) 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
or any Plan Administrator shall be required in connection with such option
surrender and cash distribution.




                                       14

<PAGE>   53

               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 the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.

               E. 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.

        III.   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 V
                                  MISCELLANEOUS

        I.     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 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.

        II.    TAX WITHHOLDING

               A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options 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 




                                       15

<PAGE>   54

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 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 the 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 the Taxes (not to exceed one hundred percent
        (100%)) designated by the holder.

        III.   EFFECTIVE DATE AND TERM OF THE PLAN

               A. The Plan became effective with respect to the Discretionary
Option Grant and Stock Issuance Program on the Plan Effective Date. The
Automatic Option Grant Program became effective on the Underwriting Date. On
April 8, 1997, the Board amended the Plan to (i) increase the number of shares
available for issuance by 700,000 shares, (ii) provide that non-employee Board
members shall be eligible to participate in the Discretionary Option Grant and
the Stock Issuance Programs, (iii) eliminate the restriction that the
individuals who serve as Plan Administrator may not receive any discretionary
option grants or direct stock issuances from the Company while serving as Plan
Administrator or during the twelve month period preceding appointment as Plan
Administrator, (iv) require stockholder approval of future amendments to the
Plan only to the extent necessary to satisfy applicable laws or regulations, (v)
eliminate both the six month holding period requirement and the ten business day
"window" period requirement for the exercise of any stock appreciation rights
granted under the Plan and (vi) allow the shares issued under the Plan which are
subsequently reacquired by the Company pursuant to the Company's exercise of its
repurchase rights to be added back to the share reserve available for future
issuance under the Plan. The April 8, 1997 amendments to the Plan were
subsequently approved by the stockholders at the 1997 Annual Meeting. On March
12, 1998, the Board amended the Plan to increase the number of shares available
for issuance by an additional 200,000 shares. However, no options granted under
the Plan on the basis of such share increase may be exercised, and no shares
shall be issued thereunder, until the amendment to the Plan increasing the share
reserve is approved by the Corporation's stockholders at the 1998 Annual
Meeting. If such stockholder approval is not obtained, then all options
previously granted under this Plan on the basis of such share increase shall
terminate and cease to be outstanding.

               B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants shall be made under the Predecessor Plan after the
Section 12(g) Registration Date. All options outstanding under the Predecessor
Plan as of such date shall be incorporated into the Plan at that time and shall
be treated as outstanding options under the Plan. However, each 




                                       16

<PAGE>   55

outstanding option so incorporated shall continue to be governed solely by the
terms of the documents evidencing such option, and no provision of the Plan
shall be deemed to affect or otherwise modify the rights or obligations of the
holders of such incorporated options with respect to their acquisition of shares
of Common Stock.

               C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.

               D. The Plan shall terminate upon the earliest of (i) April 29,
2006, (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 outstanding options and unvested stock issuances shall
continue to have force and effect in accordance with the provisions of the
documents evidencing such options or issuances.

        IV.    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, no such
amendment or modification shall adversely affect any 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. In addition, certain amendments may require
stockholder approval pursuant to applicable laws and regulations.

               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 stockholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such stockholder approval is not obtained within twelve (12) months after the
date the first such excess grants or 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.

        V.     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.

        VI.    REGULATORY APPROVALS

               A. The implementation of the Plan, the granting of any option or
stock 




                                       17

<PAGE>   56

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 Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.

        VII.   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.

                                   ARTICLE VI
                                    APPENDIX

        The following definitions shall be in effect under the Plan:

               A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.

               B. BOARD shall mean the Corporation's Board of Directors.

               C. 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 1934 Act) 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 stockholders which the Board
        does not recommend such stockholders 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 




                                       18

<PAGE>   57

time the Board approved such election or nomination.

               D. CODE shall mean the Internal Revenue Code of 1986, as amended.

               E. COMMON STOCK shall mean the Corporation's common stock.

               F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:

                      (i) a merger or consolidation in which securities
        possessing more than fifty percent (50%) of the total combined voting
        power of the Corporation's outstanding securities are transferred to a
        person or persons different from the persons holding those securities
        immediately prior to such transaction; or

                      (ii) the sale, transfer or other disposition of all or
        substantially all of the Corporation's assets in complete liquidation or
        dissolution of the Corporation.

               G. CORPORATION shall mean CardioVascular Dynamics, Inc., a
Delaware corporation, and any corporate successor to all or substantially all of
the assets or voting stock of CardioVascular Dynamics, Inc. which shall by
appropriate action adopt the Plan.

               H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.

               I. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or
order (including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.

               J. ELIGIBLE DIRECTOR shall mean a non-employee Board member
eligible to participate in the Automatic Option Grant Program in accordance with
the eligibility provisions of Article One.

               K. 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.

               L. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.

               M. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:

                      (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 




                                       19

<PAGE>   58

        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) For purposes of any option grants made on the
        Underwriting Date, the Fair Market Value shall be deemed to be equal to
        the price per share at which the Common Stock is sold in the initial
        public offering pursuant to the Underwriting Agreement.

               N. HOSTILE TAKE-OVER shall mean a change in ownership of the
Corporation effected through the following transaction:

                      (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 1934 Act) 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 stockholders which the Board
        does not recommend such stockholders to accept, and

                      (ii) more than fifty percent (50%) of the securities so
        acquired are accepted from persons other than Section 16 Insiders.

               O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.

               P. 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
        participation in corporate-performance based bonus or incentive
        programs) 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.

               Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by 




                                       20

<PAGE>   59

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 (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).

               R. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.

               S. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.

               T. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant or Automatic Option Grant Program.

               U. 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.

               V. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.

               W. 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. However, solely for the purposes of the Automatic Option
Grant Program, Permanent Disability or Permanently Disabled shall mean the
inability of the non-employee Board member to perform his or her usual duties as
a Board member 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.

               X. PLAN shall mean the Corporation's 1996 Stock Option/Stock
Issuance Plan, as set forth in this document.

               Y. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Primary Committee, the Board or the Secondary Committee, which is authorized
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.

               Z. PLAN EFFECTIVE DATE shall mean April 30, 1996, the date on
which the Plan was adopted by the Board.

               AA. PREDECESSOR PLAN shall mean the Corporation's 1995 Stock
Option Plan.



                                       21

<PAGE>   60

               AB. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.

               AC. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic
Relations Order which substantially complies with the requirements of Code
Section 414(p).The Plan Administrator shall have the sole discretion to
determine whether a Domestic Relations Order is a Qualified Domestic Relations
Order.

               AD. SECONDARY COMMITTEE shall mean a committee of two (2) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.

               AE. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.

               AF. SECTION 12(G) REGISTRATION DATE shall mean the first date on
which the Common Stock is first registered under Section 12(g) of the 1934 Act.

               AG. SERVICE shall mean the performance 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 or stock issuance.

               AH. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.

               AI. STOCK ISSUANCE AGREEMENT shall mean the agreement entered
into by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.

               AJ. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.

               AK. 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.

               AL. 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.

               AM. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in 




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<PAGE>   61
connection with the exercise of those options or the vesting of those shares.

               AN. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).

               AO. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.

               AP. UNDERWRITING DATE shall mean the date on which the
Underwriting Agreement is executed and priced in connection with the initial
public offering of the Common Stock.



                                       23

<PAGE>   62
                                                                     APPENDIX II

                          CARDIOVASCULAR DYNAMICS, INC.
                          EMPLOYEE STOCK PURCHASE PLAN

I.      PURPOSE OF THE PLAN

        This Employee Stock Purchase Plan is intended to promote the interests
of CardioVascular Dynamics, Inc. by providing eligible employees with the
opportunity to acquire a proprietary interest in the Corporation through
participation in a payroll-deduction based employee stock purchase plan designed
to qualify under Section 423 of the Code.

        Capitalized terms herein shall have the meanings assigned to such terms
in the attached Appendix.

II.     ADMINISTRATION OF THE PLAN

        The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.

III.    STOCK SUBJECT TO PLAN

        A. The stock purchasable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares of Common Stock
purchased 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 Two Hundred Thousand
(200,000) shares.

        B. 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 class of securities issuable under the Plan,
(ii) the maximum number and class of securities purchasable per Participant on
any one Purchase Date and (iii) the number and class of securities and the price
per share in effect under each outstanding purchase right in order to prevent
the dilution or enlargement of benefits thereunder.

IV.     OFFERING PERIODS

        A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.

        B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date. The initial offering period shall commence at the Effective Time and
terminate on the last business day in July 1998. The next offering period shall
commence on the first business day in August 1998, and subsequent offering
periods shall commence as designated by the Plan Administrator.






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        C. Each offering period shall be comprised of a series of one or more
successive Purchase Intervals. Purchase Intervals shall run from the first
business day in February each year to the last business day in July of the same
year and from the first business day in August each year to the last business
day in January of the following year. However, the first Purchase Interval in
effect under the initial offering period shall commence at the Effective Time
and terminate on the last business day in January 1997.

        D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new offering
period shall have a duration of twenty four (24) months, unless a shorter
duration is established by the Plan Administrator within five (5) business days
following the start date of that offering period.

V.      ELIGIBILITY

        A. Each individual who is an Eligible Employee on the start date of any
offering period under the Plan may enter that offering period on such start date
or on any subsequent Semi-Annual Entry Date within that offering period,
provided he or she remains an Eligible Employee.

        B. Each individual who first becomes an Eligible Employee after the
start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or she
is an Eligible Employee.

        C. The date an individual enters an offering period shall be designated
his or her Entry Date for purposes of that offering period.

        D. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.

VI.     PAYROLL DEDUCTIONS

        A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock during an offering period may be any multiple
of one percent (1%) of the Base Salary paid to the Participant during each
Purchase Interval within that offering period, up to a maximum of ten percent
(10%). The deduction rate so authorized shall continue in effect throughout the
offering period, except to the extent such rate is changed in accordance with
the following guidelines:

               1. The Participant may, at any time during the offering period,
reduce his or her rate of payroll deduction to become effective as soon as
possible after filing the appropriate form with the Plan Administrator. The
Participant may not, however, effect more than one (1) such reduction per
Purchase Interval.

               2. The Participant may, prior to the commencement of any new
Purchase 




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<PAGE>   64

Interval within the offering period, increase the rate of his or her payroll
deduction by filing the appropriate form with the Plan Administrator. The new
rate (which may not exceed the ten percent (10%) maximum) shall become effective
on the start date of the first Purchase Interval following the filing of such
form.

        B. Payroll deductions shall begin on the first pay day following the
Participant's Entry Date into the offering period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of that offering period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be held in
any segregated account or trust fund and may be commingled with the general
assets of the Corporation and used for general corporate purposes.

        C. Payroll deductions shall automatically cease upon the termination of
the Participant's purchase right in accordance with the provisions of the Plan.

        D. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.

VII.    PURCHASE RIGHTS

        A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a separate
purchase right for each offering period in which he or she participates. The
purchase right shall be granted on the Participant's Entry Date into the
offering period and shall provide the Participant with the right to purchase
shares of Common Stock, in a series of successive installments over the
remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.

        Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.

        B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant (other than Participants whose payroll deductions
have previously been refunded pursuant to the Termination of Purchase Right
provisions below) on each such Purchase Date. The purchase shall be effected by
applying the Participant's payroll deductions for the Purchase Interval ending
on such Purchase Date to the purchase of whole shares of Common Stock at the
purchase price in effect for the Participant for that Purchase Date.

        C. PURCHASE PRICE. The purchase price per share at which Common Stock
will be purchased on the Participant's behalf on each Purchase Date within the
offering period shall not be less than eighty-five percent (85%) of the lower of
(i) the Fair Market Value per share of Common 




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<PAGE>   65

Stock on the Participant's Entry Date into that offering period or (ii) the Fair
Market Value per share of Common Stock on that Purchase Date.

        D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common Stock
purchasable by a Participant on each Purchase Date during the offering period
shall be the number of whole shares obtained by dividing the amount collected
from the Participant through payroll deductions during the Purchase Interval
ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date.

        E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to the
purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded.

        F. TERMINATION OF PURCHASE RIGHT. The following provisions shall govern
the termination of outstanding purchase rights:

               1. A Participant may, at any time prior to the next scheduled
Purchase Date in the offering period, terminate his or her outstanding purchase
right by filing the appropriate form with the Plan Administrator (or its
designate), and no further payroll deductions shall be collected from the
Participant with respect to the terminated purchase right. Any payroll
deductions collected during the Purchase Interval in which such termination
occurs shall, at the Participant's election, be immediately refunded or held for
the purchase of shares on the next Purchase Date. If no such election is made at
the time such purchase right is terminated, then the payroll deductions
collected with respect to the terminated right shall be refunded as soon as
possible.

               2. The termination of such purchase right shall be irrevocable,
and the Participant may not subsequently rejoin the offering period for which
the terminated purchase right was granted. In order to resume participation in
any subsequent offering period, such individual must re-enroll in the Plan (by
making a timely filing of the prescribed enrollment forms) on or before his or
her scheduled Entry Date into that offering period.

               3. Should the Participant cease to remain an Eligible Employee
for any reason (including death, disability or change in status) while his or
her purchase right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll deductions for the
Purchase Interval in which the purchase right so terminates shall be immediately
refunded. However, should the Participant cease to remain in active service by
reason of an approved unpaid leave of absence, then the Participant shall have
the right, exercisable up until the last business day of the Purchase Interval
in which such leave commences, to (a) withdraw all the payroll deductions
collected to date on his or her behalf for that Purchase Interval or (b) have
such funds held for the purchase of shares on his or her behalf on the next
scheduled Purchase Date. In no event, however, shall any further payroll
deductions be collected on the Participant's behalf during such leave. Upon the
Participant's return to active service, his or her payroll deductions under the
Plan shall automatically resume at the rate in effect at the time the leave
began, unless the Participant withdraws from the Plan prior to his or her
return.





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<PAGE>   66

        G. CORPORATE TRANSACTION. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Interval in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share not less
than eighty-five percent (85%) of the lower of (i) the Fair Market Value per
share of Common Stock on the Participant's Entry Date into the offering period
in which such Corporate Transaction occurs or (ii) the Fair Market Value per
share of Common Stock immediately prior to the effective date of such Corporate
Transaction.

        The Corporation shall use its best efforts to provide at least ten (10)
days prior written notice of the occurrence of any Corporate Transaction, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.

        H. PRORATION OF PURCHASE RIGHTS. Should the total number of shares of
Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.

        I. ASSIGNABILITY. The purchase right shall be exercisable only by the
Participant and shall not be assignable or transferable by the Participant.

        J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder rights
with respect to the shares subject to his or her outstanding purchase right
until the shares are purchased on the Participant's behalf in accordance with
the provisions of the Plan and the Participant has become a holder of record of
the purchased shares.

VIII.   ACCRUAL LIMITATIONS

        A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans (within the meaning of
Code Section 423) of the Corporation or any Corporate Affiliate, would otherwise
permit such Participant to purchase more than Twenty-Five Thousand Dollars
($25,000) worth of stock of the Corporation or any Corporate Affiliate
(determined on the basis of the Fair Market Value per share on the date or dates
such rights are granted) for each calendar year such rights are at any time
outstanding.

        B. For purposes of applying such accrual limitations to the purchase
rights granted under the Plan, the following provisions shall be in effect:

               1. The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each successive
Purchase Date during the offering period on which such right remains
outstanding.





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<PAGE>   67

               2. No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already accrued in
the same calendar year the right to acquire Common Stock under one (1) or more
other purchase rights at a rate equal to Twenty-Five Thousand Dollars ($25,000)
worth of Common Stock (determined on the basis of the Fair Market Value per
share on the date or dates of grant) for each calendar year such rights were at
any time outstanding.

        C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions which the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.

        D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.

IX.     EFFECTIVE DATE AND TERM OF THE PLAN

        A. The Plan was adopted by the Board on April 30, 1996 and shall become
effective at the Effective Time, provided no purchase rights granted under the
Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.

        B. Unless sooner terminated by the Board, the Plan shall terminate upon
the earliest of (i) the last business day in July 2006, (ii) the date on which
all shares available for issuance under the Plan shall have been sold pursuant
to purchase rights exercised under the Plan or (iii) the date on which all
purchase rights are exercised in connection with a Corporate Transaction. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.

X.      AMENDMENT OF THE PLAN

        The Board may alter, amend, suspend or discontinue the Plan at any time
to become effective immediately following the close of any Purchase Interval.
However, the Board may not, without the approval of the Corporation's
stockholders, (i) materially increase the number of shares of Common Stock
issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in the
event of certain changes in the Corporation's capitalization, (ii) alter the
purchase price formula so as to reduce the purchase price payable for the shares
of Common Stock purchasable under the Plan or (iii) materially increase the
benefits accruing to Participants under the Plan or materially modify the




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<PAGE>   68

requirements for eligibility to participate in the Plan.

XI.     GENERAL PROVISIONS

        A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation.

        B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.

        C. The provisions of the Plan shall be governed by the laws of the State
of California without resort to that State's conflict-of-laws rules.





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<PAGE>   69

                                   SCHEDULE A

                          CORPORATIONS PARTICIPATING IN
                          EMPLOYEE STOCK PURCHASE PLAN
                            AS OF THE EFFECTIVE TIME


                          CardioVascular Dynamics, Inc.




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<PAGE>   70
                                    APPENDIX


        The following definitions shall be in effect under the Plan:

        A. BASE SALARY shall mean the (i) regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus (ii)
any pre-tax contributions made by the Participant to any Code Section 401(k)
salary deferral plan or any Code Section 125 cafeteria benefit program now or
hereafter established by the Corporation or any Corporate Affiliate. The
following items of compensation shall not be included in Base Salary: (i) all
overtime payments, bonuses, commissions (other than those functioning as base
salary equivalents), profit-sharing distributions and other incentive-type
payments and (ii) any and all contributions (other than Code Section 401(k) or
Code Section 125 contributions) made on the Participant's behalf by the
Corporation or any Corporate Affiliate under any employee benefit or welfare
plan now or hereafter established.

        B. BOARD shall mean the Corporation's Board of Directors.

        C. CODE shall mean the Internal Revenue Code of 1986, as amended.

        D. COMMON STOCK shall mean the Corporation's common stock.

        E. CORPORATE AFFILIATE shall mean any parent or subsidiary corporation
of the Corporation (as determined in accordance with Code Section 424), whether
now existing or subsequently established.

        F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:

               1. a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or

               2. the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation or
dissolution of the Corporation.

        G. CORPORATION shall mean CardioVascular Dynamics, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of CardioVascular Dynamics, Inc. which shall by
appropriate action adopt the Plan.

        H. EFFECTIVE TIME shall mean the time at which the Underwriting
Agreement is executed and finally priced. Any Corporate Affiliate which becomes
a Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee Participants.

        I. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered 




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<PAGE>   71

wages under Code Section 3401(a).

        J. ENTRY DATE shall mean the date an Eligible Employee first commences
participation in the offering period in effect under the Plan. The earliest
Entry Date under the Plan shall be the Effective Time.

        K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:

               1. 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.

               2. 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.

               3. For purposes of the initial offering period which begins at
the Effective Time, the Fair Market Value shall be deemed to be equal to the
price per share at which the Common Stock is sold in the initial public offering
pursuant to the Underwriting Agreement.

        L.     1933 ACT shall mean the Securities Act of 1933, as amended.

        M. PARTICIPANT shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.

        N. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.

        O. PLAN shall mean the Corporation's Employee Stock Purchase Plan, as
set forth in this document.

        P. PLAN ADMINISTRATOR shall mean the committee of two (2) or more Board
members appointed by the Board to administer the Plan.

        Q. PURCHASE DATE shall mean the last business day of each Purchase
Interval. The initial Purchase Date shall be January 30, 1997.

        R. PURCHASE INTERVAL shall mean each successive six (6) month period
within the offering period at the end of which there shall be purchased shares
of Common Stock on behalf of each Participant.





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        S. SEMI-ANNUAL ENTRY DATE shall mean the first business day in February
and August each year on which an Eligible Employee may first enter an offering
period.

        T. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.

        U. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.




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