SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: October 23, 1997
MEDICAL DYNAMICS, INC.
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(Exact name of Registrant as specified in its charter)
Commission file number: 0-8632
Colorado 84-0631765
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
99 Inverness Drive East
Englewood, Colorado 80112
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(303) 790-2990
not applicable
former name or former address, if applicable
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Item 2: Acquisition or Disposition of Assets
On October 23, 1997, effective as of October 1, 1997, Medical Dynamics,
Inc. ("MEDY") acquired all of the outstanding capital stock of Computer Age
Dentist, Inc. ("CADI"), a California corporation, which is based in Los Angeles,
California and is engaged in the business of development and sales of dental
practice management software and related electronic services.
The acquisition was accomplished pursuant to a reverse triangular merger by
which MEDY paid to the two former shareholders of CADI: 1,295,520 shares of its
restricted common stock, promissory notes aggregating $300,000, and $254,697 in
cash. In addition, MEDY assumed certain existing obligations of CADI to a former
shareholder and satisfied such obligations by paying the former shareholder
304,480 shares of restricted MEDY common stock, $45,303 in cash, and a $100,000
promissory note. The promissory notes are due, in full, no later than October
23, 1998. MEDY used its working capital to pay the cash portion of the
acquisition price. There was no prior relationship between MEDY and either CADI
or its shareholders. As a result of the acquisition, the two former CADI
shareholders, Daniel L. Richmond and Chae U. Kim, were named to the MEDY Board
of Directors. MEDY's president and Chief Executive Officer, Van Horsley, became
a director and vice president of CADI. MEDY agreed to use its best efforts to
register for resale 240,000 shares of the stock issued in the transaction at
some time during the first year following the completion of the transaction.
MEDY has not yet commenced this registration.
In acquiring CADI, MEDY also acquired cash, trade receivables, inventories,
and personal property and equipment owned by CADI. CADI employs approximately 40
people, including its two principals, Daniel L. Richmond and Chae U. Kim. In the
opinion of MEDY's management, the fundamental source of value obtained was
CADI's software technology which includes source code, development costs, and
the potential for future sales of the dental practice management software, as
well as CADI's current technical support contracts with its customers. CADI has
a base of more than 2,200 customer installations throughout the United States,
serving in excess of 3,500 dental professionals.
Daniel L. Richmond, one of the two principals of CADI and Chief Executive
Officer of CADI since its inception in June 1987, holds a Bachelor of Science
degree in mathematics and computer science from the University of California at
Los Angeles. Chae U. Kim, the other principal of CADI, has been president of
CADI since its inception in June 1987 and holds a Bachelor of Science degree in
biology from the University of California at Los Angeles. Messrs. Richmond and
Kim also continued as employees of CADI under five year employment contracts. As
partial consideration for their continuing employment, they each accepted
options to acquire a total of 600,000 shares of MEDY common stock. These options
vest on the occurrence of certain revenue and profit goals. If not vested
earlier, the options will all vest on March 31, 2004, and they expire unless
exercised by September 30, 2004.
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Item 5. Other Events.
On October 31, 1997, MEDY sold a convertible debenture in the amount of
$1,100,000 to Tail Wind Fund, Ltd. pursuant to Regulation D. The following
provides the information required by Item 701 of Regulation S-B.
(A) The title of the securities sold is: 8% convertible debenture,
convertible into shares of MEDY common stock at the rate equal to the
Market Price (as defined in the debenture) but not greater than $3.45
per share. Interest on the principal amount is payable quarterly, and
the principal amount of the debenture is payable in full on October
31, 2000. MEDY is entitled to make payment of interest in shares of
its common stock valued at the Market Price (as defined).
(B) Rochon Capital Ltd., San Rafael, California, acted as placement agent
for the transaction.
(C) The total offering price was $1,100,000. A commission of 8.75% was
paid to the placement agent, and legal fees and expenses of $17,500
were reimbursed to the placement agent and the purchaser.
(D) The transaction was exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933, as amended, and Rule 506 thereunder.
(E) The debenture is convertible into shares of MEDY common stock as
described in paragraph (A), above. In addition, MEDY issued a
five-year warrant to the purchaser to acquire 84,615 shares of MEDY
common stock, exercisable at 120% of Market Price (as defined) at the
time of the Closing of the private placement, but not greater than
$3.375. One-third of the principal amount of the debenture is
convertible from and after January 29, 1998, an additional one-third
from and after February 28, 1998; and the entire debenture from and
after March 30, 1998.
(F) MEDY undertook to file a registration on Form S-3 and (subject to
certain conditions) obtain its effectiveness within 90 days of the
completion of the transaction. The registration statement will allow
resale of the MEDY shares only after conversion, if the investor
actually elects to convert. If the registration statement is not
effective as required under the Registration Rights Agreement, MEDY
will be obligated to pay liquidated damages to the investor equal to
2% of the aggregate principal amount of the debenture for each month
during which the Registration Statement is not effective.
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Item 7. Financial Statements and Exhibits
(A) Financial statements of Computer Age Dentist, Inc. (to be filed by
amendment).
(B) Pro forma financial statements of Medical Dynamics, Inc. (to be filed
by amendment)
(C) Exhibits
1. Agreement and Plan of Merger by and between Medical Dynamics,
Inc., CADI Acquisition Corp., and Computer Age Dentist, Inc.,
dated as of October 1, 1997.
2. Form of Registration Rights Agreement between Medical Dynamics,
Inc., Daniel L. Richmond, Chae U. Kim and James DeVico, Jr.
3. Purchase Agreement between Medical Dynamics, Inc and The Tail
Wind Fund, Ltd.
4. Form of Convertible Debenture
5. Registration Rights Agreement between Medical Dynamics, Inc. and
The Tail Wind Fund, Ltd.
6. Common Stock Purchase Warrant issued to The Tail Wind Fund, Ltd.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
MEDICAL DYNAMICS, INC.
November 6, 1997 By: /s/ VAN A. HORSLEY
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Van A. Horsley, President
AGREEMENT AND PLAN OF MERGER
AMONG
MEDICAL DYNAMICS, INC. (A COLORADO CORPORATION)
CADI ACQUISITION CORP. (A CALIFORNIA CORPORATION)
AND
COMPUTER AGE DENTIST, INC. (A CALIFORNIA CORPORATION)
AS OF OCTOBER 1, 1997
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This Agreement and Plan of Merger (the "Agreement") is made as of the 1st
day of October, 1997, among Medical Dynamics, Inc., a Colorado corporation
("MEDY"); CADI Acquisition Corp., a California corporation (the "Merger
Subsidiary"), which is wholly owned by MEDY; and Computer Age Dentist, Inc., a
California corporation ("CADI").
RECITALS
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WHEREAS, the respective Boards of Directors of MEDY, the Merger Subsidiary
and CADI each have determined that it is in the best interests of their
respective stockholders for MEDY to acquire CADI through the merger of the
Merger Subsidiary with and into CADI upon the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and certain other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto covenant and
agree as follows:
ARTICLE 1.
The Merger
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1.1 Merger and the Merger Consideration. In accordance with the provisions
of the California Corporations Code (the "CCC") at the Effective Date (as
hereinafter defined), the Merger Subsidiary shall be merged (the "Merger") into
CADI, as soon as practicable following the satisfaction or waiver, if
permissible, of the conditions set forth in Articles 6 and 7. The consideration
to be paid to the shareholders of CADI as a result of the Merger (the "Merger
Consideration") consists of:
1,295,520 shares of MEDY Common Stock (which shares will be restricted as
that term is defined in Rule 144 under the Securities Act of 1933 (the
"1933 Act");
$254,697 in cash; and
Two promissory notes, each in the amount of $150,000 in the form of
Schedule 1.1 hereto.
Following the Merger, CADI shall continue as the surviving corporation (the
"Surviving Corporation") and shall continue to be governed by the laws of the
State of California.
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1.2 Continuing of Corporate Existence. Except as may otherwise be set forth
herein, the corporate existence and identity of CADI, with all its purposes,
powers, franchises, privileges, rights and immunities, shall continue unaffected
and unimpaired by the Merger, and the corporate existence and identity of the
Merger Subsidiary, with all its purposes, powers, franchises, privileges, rights
and immunities, at the Effective Date shall be merged with and into that of
CADI, and the Surviving Corporation shall be vested fully therewith and the
separate corporate existence and identity of Merger Subsidiary shall thereafter
cease except to the extent continued by statute.
1.3 Effective Date. The Merger shall become effective upon the filing of
the Articles of Merger with the Secretary of State of California pursuant to the
provisions of the CCC. The date and time when the Merger shall become effective
is hereinafter referred to as the "Effective Date".
1.4 Corporate Government of the Surviving Corporation.
(a) The Articles of Incorporation of CADI, as in effect on the
Effective Date, shall continue in full force and effect and shall be the
Articles of Incorporation of the Surviving Corporation.
(b) The Bylaws of CADI, as in effect as of the Effective Date, shall
continue in full force and effect and shall be the Bylaws of the Surviving
Corporation.
(c) The members of the Board of Directors of the Surviving Corporation
shall be the persons holding such office in the Merger Subsidiary as of the
Effective Date. Immediately following the Effective Date, the Board of Directors
of the Surviving Corporation shall be reconstituted to consist of Daniel
Richmond, Chae Uk Kim, and Van Horsley.
(d) The officers of the Surviving Corporation shall be the persons
holding such offices in CADI as of the Effective Date.
1.5 Rights and Liabilities of the Surviving Corporation. The Surviving
Corporation shall have the following rights and obligations:
(a) The Surviving Corporation shall have all the rights, privileges,
immunities and powers and shall be subject to all the duties and liabilities of
a corporation organized under the laws of the State of California.
(b) The title to all real estate and other property owned by each of
CADI and the Merger Subsidiary shall be, at the Effective Date, transferred to
and vested in the Surviving Corporation without reversion or impairment; and
such transfer to and vesting in the Surviving Corporation shall be deemed to
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to occur by operation of law, and no consent or approval of any other person
shall be required in connection with any such transfer or vesting unless such
consent or approval is specifically required in the event of merger by law or by
express provision in any contract, agreement, decree, order, or other instrument
to which CADI or the Merger Subsidiary is a party or by which it is bound.
(c) At the Effective Date, the Surviving Corporation shall thenceforth
have all liabilities of CADI and the Merger Subsidiary, and any proceeding
pending against CADI or the Merger Subsidiary may be continued as if the Merger
did not occur or the Surviving Corporation may be substituted in the proceeding
for the Merger Subsidiary.
1.6 Closing. Completion of the transactions contemplated by this Agreement
(the "Closing") shall take place at the executive offices of MEDY in Denver,
Colorado, commencing at 10:00 a.m., local time, as soon as practicable after the
last to be fulfilled or waived of the conditions set forth in Articles 6 and 7
or at such other place, time and date as shall be fixed by mutual agreement
between MEDY and CADI. The day on which the Closing shall occur is referred to
herein as the "Closing Date." Each party will cause to be prepared, executed and
delivered the Articles of Merger to be filed with the Secretary of State of
California and all other appropriate and customary documents as any party or its
counsel may reasonably request for the purpose of completing the transactions
contemplated by this Agreement. All actions taken at the Closing shall be deemed
to have been taken simultaneously at the time the last of any such actions is
taken or completed.
1.7 Tax Consequences. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended (the "Code"), and that this Agreement shall
constitute a "plan of reorganization" for the purposes of Section 368 of the
Code.
ARTICLE 2
Conversion of Shares; Treatment of Options
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2.1 Conversion of Shares; Payment of the Merger Consideration. At the
Effective Date, by virtue of the Merger and without any action on the part of
the holder thereof:
(a) Each share of common stock of CADI ("CADI Common Stock"), which
shall be outstanding immediately prior to the Effective Date (the "Converted
Shares") shall at the Effective Date, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and represent the
right to receive:
43.184 shares of Common Stock of MEDY (the "MEDY Common Stock"); and
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A proportionate amount of the Merger Consideration represented by the cash
and note payable.
(b) Each share of Common Stock of the Merger Subsidiary which shall be
outstanding immediately prior to the Effective Date shall at the Effective Date,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into one share of newly issued CADI Common Stock.
(c) No CADI shareholders will dissent from the transaction.
2.2 Fractional Shares. No scrip or fractional shares of MEDY Common Stock
shall be issued in the Merger. All fractional shares of MEDY Common Stock to
which a holder of CADI Common Stock immediately prior to the Effective Date
would otherwise be entitled at the Effective Date shall be aggregated. If a
fractional share results from such aggregation, the fraction will be rounded to
one and such stockholder shall be entitled to receive an additional share of
MEDY Common Stock.
2.3 Stock Options and Warrants. There are no options, warrants or
convertible securities outstanding entitling the holder thereof to purchase CADI
Common Stock.
2.4 Adjustment. If, between the date of this Agreement and the Closing Date
or the Effective Date, as the case may be, the outstanding shares of CADI Common
Stock or MEDY Common Stock shall have been changed into a different number of
shares or a different class by reason of any classification, recapitalization,
split-up, combination, exchange of shares, or readjustment or a stock dividend
thereon shall be declared with a record date within such period, then the Merger
Consideration shall be adjusted to accurately reflect such change.
ARTICLE 3
Representations and Warranties of CADI
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CADI represents and warrants to MEDY and the Merger Subsidiary that the
statements contained in Article 3 are true and correct in all material respects
and will be true and correct as of the Closing Date and the Effective Date,
except as set forth in the schedules attached hereto. As used in this Article 3
and elsewhere in this Agreement, the phrases "to CADI's knowledge" or "to CADI's
actual knowledge" shall mean to the actual knowledge of Dan Richmond and Chae Uk
Kim, executive officers of CADI.
3.1 Organization and Good Standing of CADI. CADI is a corporation duly
organized, validly existing and in good standing under the laws of California.
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3.2 No Subsidiaries or Investments. CADI owns no equity or debt interest in
any subsidiary corporation, limited liability company, partnership, or other
business entity except as described in Schedule 3.2 of the CADI financial
statements.
3.3 Foreign Qualification. CADI is duly qualified or licensed to do
business and is in good standing as a foreign corporation in every jurisdiction
where the failure so to qualify would have a material adverse effect (a "CADI
Material Adverse Effect") on (a) the business, operations, assets or financial
condition of CADI taken as a whole or (b) the validity or enforceability of, or
the ability of CADI to perform its obligations under, this Agreement. CADI
affirmatively represents that it is qualified to do business in no state but
California.
3.4 Company Power and Authority. CADI has the corporate power and authority
to own, lease and operate its properties and assets and to carry on its business
as currently being conducted. CADI has the corporate power and authority to
execute and deliver this Agreement and, subject to the approval of this
Agreement and the Merger by its stockholders, to perform its obligations under
this Agreement and to complete the Merger. The execution, delivery and
performance by CADI of this Agreement has been duly authorized by all necessary
corporate action.
3.5 Binding Effect. This Agreement has been duly executed and delivered by
CADI and is the legal, valid and binding obligation of CADI enforceable in
accordance with its terms except that:
(a) enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification may be limited by considerations of
public policy.
3.6 Absence of Restrictions and Conflicts. The execution, delivery and
performance of this Agreement and the completion of the Merger and the
fulfillment of and compliance with the terms and conditions of this Agreement do
not and will not, with the passing of time or the giving of notice or both,
violate or conflict with, constitute a breach of or default under, result in the
loss of any material benefit under, or permit the acceleration of any obligation
under, (i) any term or provision of the articles of Incorporation or bylaws of
CADI, (ii) any "Material Contract" (as defined in Section 3.13), (iii) any
judgment, decree or order of any court or governmental authority or agency to
which CADI is a party or by which CADI or any of its properties is bound, or
(iv) any statute, law, regulation or rule applicable to CADI other than such
violations, conflicts, breaches or defaults which would not have a CADI Material
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Adverse Effect. Except for the filing of the Articles of Merger with the
Secretary of State of California, the Securities Act of 1933 (the "Securities
Act"), Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
applicable state securities laws, no consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental agency or
public or regulatory unit, agency, body or authority with respect to CADI is
required in connection with the execution, delivery or performance of this
Agreement by CADI or the completion of the transactions contemplated hereby.
3.7 Capitalization of CADI.
(a) The authorized capital stock of CADI consists of 100,000 shares of
common stock. As of the date hereof, there were 30,000 shares of CADI Common
Stock issued and outstanding and no shares of CADI Common Stock reserved for
issuance upon the exercise of any Options.
(b) All of the issued and outstanding shares of CADI Common Stock have
been duly authorized and validly issued and are fully paid, nonassessable and
free of preemptive rights.
(c) There are no voting trusts, stockholder agreements or other voting
arrangements by the stockholders of CADI except that certain shareholders'
agreement which will be cancelled on or prior to the Effective Date.
(d) There is no outstanding subscription, contract, convertible or
exchangeable security, option, warrant, call or other right obligating CADI to
issue, sell, exchange, or otherwise dispose of, or to purchase, redeem or
otherwise acquire, shares of, or securities convertible into or exchangeable
for, capital stock of CADI.
3.8 CADI Information. CADI has made or will make available to MEDY and the
Merger Subsidiary all information that CADI has available (including all tax
returns, financial statements given to any other person, contracts, payroll
schedules, financial books and records, and all other information regarding
CADI, its business, its customers, its management, and its financial condition
which MEDY may have requested (all such information being referred to herein as
the "CADI Information"). As of their respective dates, the CADI Information did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
3.9 Financial Statements and Records of CADI. CADI has made available to
MEDY and the Merger Subsidiary true, correct and complete copies of the
following financial statements (the "CADI Financial Statements"):
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Audited Financial Statements as of September 30, 1996 and the year then
ended; and
Unaudited Financial Statements as of June 30, 1997 and the nine months then
ended.
The CADI Financial Statements have been prepared from, and are in
accordance with, the books and records of CADI and its subsidiaries and present
fairly, in all material respects, the consolidated financial position of CADI as
of the dates thereof and the results of operations and cash flows thereof for
the periods then ended, in each case in conformity with generally accepted
accounting principles, consistently applied, except as noted therein. Adequate
reserves are set forth on the CADI Financial Statements and the amount of such
reserves are reasonable. Since September 30, 1996, there has been no change in
accounting principles applicable to, or methods of accounting utilized by, CADI
except as noted in the CADI Financial Statements. The books and records of CADI
have been and are being maintained in accordance with good business practice,
reflect only valid transactions, are complete and correct in all material
respects and present fairly in all material respects the basis for the financial
position and results of operations of CADI as set forth on the CADI Financial
Statements.
3.10 Absence of Certain Changes. Since September 30, 1996, CADI has not,
except as otherwise set forth in the CADI Information or the CADI Financial
Statements:
(a) suffered any adverse change in the business, operations, assets,
or financial condition, except for such changes that would not result in a CADI
Material Adverse Effect;
(b) suffered any material damage or destruction to or loss of the
assets of CADI, whether or not covered by insurance, which property or assets
are material to the operations or business of CADI;
(c) settled, forgiven, compromised, canceled, released, waived or
permitted to lapse any material rights or claims other than in the ordinary
course of business;
(d) entered into or terminated any material agreement, commitment or
transaction, or agreed or made any changes in material leases or agreements,
other than renewals or extensions thereof and leases, agreements, transactions
and commitments entered into or terminated in the ordinary course of business;
(e) written up, written down or written off the book value of any
material amount of assets other than in the ordinary course of business;
(f) declared, paid or set aside for payment any dividend or
distribution with respect to CADI's capital stock;
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(g) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of CADI's capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to changes in the terms and conditions of any such rights outstanding as of the
date of this Agreement except for the transaction between CADI, the CADI
shareholders, and James DeVico, Jr.;
(h) increased the compensation of or paid any bonuses to any employees
or contributed to any employee benefit plan, other than in accordance with
established policies, practices or requirements and as provided in Section 5.1
hereof;
(i) entered into any employment, consulting or compensation agreement
with any person or group;
(j) entered into any collective bargaining agreement with any person
or group;
(k) entered into, adopted or amended any employee benefit plan; or
(l) entered into any agreement to do any of the foregoing.
3.11 No Material Undisclosed Liabilities. There are no material liabilities
or obligations of CADI of any nature, whether absolute, accrued, contingent, or
otherwise, other than:
(a) the liabilities and obligations that are reflected, accrued or
reserved against on the CADI Financial Statements, or referred to in the
footnotes to the CADI Financial Statements or incurred in the ordinary course of
business and consistent with past practices since September 30, 1996; or
(b) liabilities and obligations which in the aggregate would not
result in a CADI Material Adverse Effect.
3.12 Tax Returns; Taxes. CADI has duly filed all U.S. federal and material
state, county, local and foreign tax returns and reports required to be filed by
it, including those with respect to income, payroll, property, withholding,
social security, unemployment, franchise, excise and sales taxes and all such
returns and reports are correct in all material respects; has either paid in
full all taxes that have become due as reflected on any return or report and any
interest and penalties with respect thereto or has fully accrued on its books or
have established adequate reserves for all taxes payable but not yet due; and
has made cash deposits with appropriate governmental authorities representing
estimated payments of taxes, including income taxes and employee withholding tax
obligations. No extension or waiver of any statute of limitations or time within
which to file any return has been granted to or requested by CADI with respect
to any tax. No unsatisfied deficiency, delinquency or default for any tax,
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assessment or governmental charge has been claimed, proposed or assessed against
CADI, nor has CADI received notice of any such deficiency, delinquency or
default. CADI has no material tax liabilities other than those reflected on the
CADI Financial Statements and those arising in the ordinary course of business
since the date thereof. CADI will make available to MEDY true, complete and
correct copies of CADI's consolidated U.S. federal tax returns for the last
three years and make available such other tax returns requested by MEDY. There
is no dispute or claim concerning any tax liability of CADI or any of its
subsidiaries either: (a) raised by any taxing authority in writing; (b) as to
which CADI has received notice concerning a potential audit of any return filed
by CADI; and (c) there is no outstanding audit or pending audit of any tax
return filed by CADI.
3.13 Material Contracts. CADI has furnished or made available to MEDY
accurate and complete copies of the Material Contracts (as defined herein)
applicable to CADI. Except as set forth on Schedule 3.13, there is not under any
of the Material Contracts any existing breach, default or event of default by
CADI nor event that with notice or lapse of time or both would constitute a
breach, default or event of default by CADI other than breaches, defaults or
events of default which would not have a CADI Material Adverse Effect nor does
CADI know of, and CADI has not received notice of, or made a claim with respect
to, any breach or default by any other party thereto which would, severally or
in the aggregate, have a CADI Material Adverse Effect. As used herein, the term
"Material Contracts" shall mean all contracts and agreements providing for
expenditures or commitments by CADI in excess of $10,000 over not more than a 12
month period.
3.14 Litigation and Government Claims. Except as disclosed in the CADI
Information, there is no pending suit, claim, action or litigation, or
administrative, arbitration or other proceeding or governmental investigation or
inquiry against CADI to which its businesses or assets are subject which would,
severally or in the aggregate, reasonably be expected to result in a CADI
Material Adverse Effect. To the knowledge of CADI, and except as disclosed in
the CADI Information, there are no such proceedings threatened or contemplated
which would, severally or in the aggregate, have a CADI Material Adverse Effect.
CADI is not subject to any judgment, decree, injunction, rule or order of any
court, or, to the knowledge of CADI, any governmental restriction applicable to
CADI which is reasonably likely (i) to have a CADI Material Adverse Effect or
(ii) to cause a material limitation on MEDY's ability to operate the business of
CADI (as it is currently operated) after the Closing.
3.15 Compliance With Laws. CADI has all material authorizations, approvals,
licenses and orders to carry on its business as it is now being conducted, to
own or hold under lease the properties and assets it owns or holds under lease
and to perform all of its obligations under the agreements to which its is a
party, except for instances which would not have a CADI Material Adverse Effect.
CADI has been and is, to the knowledge of CADI, in compliance with all
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applicable laws (including those referenced in the CADI Information),
regulations and administrative orders of any country, state or municipality or
of any subdivision of any thereof to which its business and its employment of
labor or its use or occupancy of properties or any part hereof are subject, the
violation of which would have a CADI Material Adverse Effect.
3.16 Employee Benefit Plans. Each employee benefit plan, as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), of CADI (collectively the "Employee Plans") complies in
all material respects with all applicable requirements of ERISA and the Internal
Revenue Code of 1986, as amended (the "Code"), and other applicable laws. None
of the Employee Plans is an employee pension benefit plan or a multiemployer
plan, as such terms are defined in ERISA. Neither CADI nor any of its directors,
officers, employees or agents has, with respect to any Employee Plan, engaged in
any "prohibited transaction," as such term is defined in the Code or ERISA, nor
has any Employee Plan engaged in such prohibited transaction which could result
in any taxes or penalties or other prohibited transactions, which in the
aggregate could have a CADI Material Adverse Effect. All Employee Plans are
described in Schedule 3.17.
3.17 Employment Agreements; Labor Relations.
(a) Schedule 3.17 sets forth a complete and accurate list of all
material employee benefit or compensation plans, agreements and arrangements to
which CADI is a party, including without limitation (i) all severance,
employment, consulting or similar contracts, (ii) all material agreements and
contracts with "change of control" provisions or similar provisions and (iii)
all indemnification agreements or arrangements with directors or officers.
(b) CADI is in compliance in all material respects with all laws
(including Federal and state laws) respecting employment and employment
practices, terms and conditions of employment, wages and hours, and is not
engaged in any unfair labor or unlawful employment practice. To CADI's
knowledge, there is no unlawful employment practice discrimination charge
pending before the EEOC or EEOC recognized state "referral agency." Except as
would not have a CADI Material Adverse Effect, there is no unfair labor practice
charge or complaint against CADI pending before the National Labor Review Board.
There is no labor strike, dispute, slowdown or stoppage actually pending or, to
the knowledge of CADI, threatened against or involving or affecting CADI and no
National Labor Review Board representation question exists respecting their
respective employees. Except as would not have a CADI Material Adverse Effect,
no grievances or arbitration proceeding is pending and no written claim therefor
exists. There is no collective bargaining agreement that is binding on CADI.
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3.18 Intellectual Property. CADI owns or has valid, binding and enforceable
rights to use all material patents, trademarks, trade names, service marks,
service names, copyrights, applications therefor and licenses or other rights in
respect thereof ("Intellectual Property") used or held for use in connection
with the business of CADI, without any known conflict with the rights of others,
except for such conflicts as do not have a CADI Material Adverse Effect. CADI
has not received any notice from any other person pertaining to or challenging
the right of CADI to use any Intellectual Property or any trade secrets,
proprietary information, inventions, know-how, processes and procedures owned or
used or licensed to CADI, except with respect to rights the loss of which,
individually or in the aggregate, would not have a CADI Material Adverse Effect.
3.19 Title to Properties and Related Matters.
(a) CADI has good and marketable title to or valid leasehold interests
in their respective properties (the "Real Estate") reflected on the CADI
Financial Statements or acquired after the date thereof (other than personal
properties sold or otherwise disposed of in the ordinary course of business),
and all of such properties and all assets purchased by CADI since the date of
the most recent CADI Financial Statements are free and clear of any lien, claim
or encumbrance, except as reflected in the CADI Financial Statements or notes
thereto and except for:
(i) liens for taxes, assessments or other governmental charges not
yet due and payable or the validity of which are being contested in good faith
by appropriate proceedings;
(ii) statutory liens incurred in the ordinary course of business
that are not yet due and payable or the validity of which are being contested in
good faith by appropriate proceedings;
(iii) landlord liens contained in leases entered in the ordinary
course of business; and
(iv) other liens, claims or encumbrances that, in the aggregate, do
not materially subtract from the value of, or materially interfere with, the
present use of, the Real Estate.
Except for those assets acquired since the date of the most recent CADI
Financial Statements, all properties and assets material to the present
operations of CADI are owned or leased by CADI and are reflected on the CADI
Financial Statements and notes thereto in the manner and to the extent required
by generally accepted accounting principles.
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(b)(i) Applicable zoning ordinances permit the operation of CADI's
business at the Real Estate; (ii) CADI has all easements and rights, including
easements for all utilities, services, roadways and other means of ingress and
egress, necessary to operate CADI's business at the Real Estate; and (iii)
neither the whole nor any portion of the Real Estate has been condemned,
requisitioned or otherwise taken by any public authority, and no notice of any
such condemnation, requisition or taking has been received; except in each case
where the failure of such provisions to be true and correct would not have a
CADI Material Adverse Effect. No such condemnation, requisition or taking is
threatened or contemplated to CADI's knowledge, and there are no pending public
improvements which may result in special assessments against or which may
otherwise materially and adversely affect the Real Estate. To the knowledge of
CADI, the Real Estate has not been used for deposit or disposal of hazardous
wastes or substances in violation of any past or current law in any material
respect and there is no material liability under past or current law with
respect to any hazardous wastes or substances which have been deposited or
disposed of on or in the Real Estate.
(c) CADI has received no notice of, and has no actual knowledge of,
any material violation of any zoning, building, health, fire, water use or
similar statute, ordinance, law, regulation or code in connection with the Real
Estate.
(d) To CADI's knowledge, no hazardous or toxic material (as
hereinafter defined) exists in any structure located on, or exists on or under
the surface of, the Real Estate which is, in any case, in material violation of
applicable environmental law. For purposes of this Agreement, "hazardous or
toxic material" shall mean waste, substance, materials, smoke, gas or
particulate matter designated as hazardous, toxic or dangerous under any
applicable environmental law. For purposes of this Agreement, "environmental
law" shall include the Comprehensive Environmental Response Compensation and
Liability Act, the Clean Air Act, the Clean Water Act and any other applicable
federal, state or local environmental, health or safety law, rule or regulation
relating to or imposing liability or standards concerning or in connection with
hazardous, toxic or dangerous waste, substance, materials, smoke, gas or
particulate matter.
3.20 Tax Representations.
(a) The fair market value of the MEDY Common Stock and other
consideration received by each CADI shareholder will be approximately equal to
the fair market value of the CADI Common Stock surrendered in the Merger.
(b) There is no plan or intention by any of the shareholders of CADI
to sell, exchange, or otherwise dispose of a number of shares of MEDY Common
Stock received in the transaction that would reduce the CADI shareholders'
ownership of MEDY Common Stock to a number of shares having a value, as of the
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date of the transaction, of less than 50% of the value of all of the formerly
outstanding stock of CADI as of the same date.
(c) Following the transaction, CADI will hold at least 90% of the fair
market value of its net assets and at least 70% of the fair market value of its
gross assets and at least 90% of the fair market value of Merger Subsidiary's
net assets and at least 70% of the fair market value of Merger Subsidiary's
gross assets held immediately prior to the transaction.
(d) CADI has no plan or intention to issue additional shares of its
stock that would result in MEDY losing control of CADI within the meaning of
ss.368(c) of the Code.
(e) Following the transaction, CADI will continue its historic
business or use a significant portion of its historic business assets in a
business.
(f) MEDY, Merger Subsidiary, CADI, and the shareholders of CADI will
pay their respective expenses, if any, incurred in connection with the
transaction.
(g) There is no intercorporate indebtedness existing between MEDY and
CADI or between Merger Subsidiary and CADI that was issued, acquired, or will be
settled at a discount.
(h) In the transaction, shares of CADI Common Stock representing
control of CADI, as defined in ss.368(c) of the Code, will be exchanged solely
for voting stock of MEDY and the other consideration described herein.
(i) At the time of the transaction, CADI will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in CADI that, if exercised or converted,
would affect MEDY's acquisition or retention of control of CADI, as defined in
ss.368(c) of the Code.
(j) Neither MEDY nor Merger Subsidiary is an investment company as
defined in ss.368(a)(2)(f)(iii) and (iv) of the Code
(k) On the date of the transaction, the fair market value of the
assets of CADI will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
(l) CADI is not under the jurisdiction of a court in a title 11 or
similar case within the meaning of ss.368(a)(3)(A) of the Code.
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3.21 No Brokers and Finders. None of CADI or, to CADI's knowledge, any of
its officers, directors and employees has employed any broker, finder or
investment bank or incurred any liability for any investment banking fees,
financial advisory fees, brokerage fees or finders' fees in connection with the
transactions contemplated hereby. CADI is not aware of any claim for payment of
any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the completion of
the transactions contemplated hereby.
ARTICLE 4
Representations and Warranties of MEDY
and the Merger Subsidiary
-------------------------
MEDY and the Merger Subsidiary represent and warrant to CADI that the
statements contained in Article 4 are true and correct in all material respects
and will be true and correct as of the Closing Date and the Effective Date,
except as set forth in the schedules attached hereto. As used in this Article 4
and elsewhere in this Agreement, the phrase "to MEDY's or the Merger
Subsidiary's knowledge" or "to MEDY's or the Merger Subsidiary's actual
knowledge" shall mean to the actual knowledge of Van A. Horsley.
4.1 Organization and Good Standing. Each of MEDY and the Merger Subsidiary
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization. All shares of capital stock
or other equity interests of each of the Merger Subsidiary are owned by MEDY,
free and clear of all material liens, encumbrances, equities or claims.
4.2 Foreign Qualification. MEDY and the Merger Subsidiary are duly
qualified or licensed to do business and are in good standing as a foreign
corporation in every jurisdiction where the failure so to qualify would have a
material adverse effect (a "MEDY Material Adverse Effect") on (a) the business,
operations, assets or financial condition of MEDY and the Merger Subsidiary
taken as a whole or (b) the validity or enforceability of, or the ability of
MEDY to perform its obligations under, this Agreement.
4.3 Corporate Power and Authority. MEDY and the Merger Subsidiary have the
corporate power and authority and all material licenses and permits to own,
lease and operate their respective properties and assets and to carry on their
respective businesses as currently being conducted. Each of MEDY and the Merger
Subsidiary has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement and to complete
the Merger. The execution, delivery and performance by MEDY and the Merger
Subsidiary of this Agreement has been duly authorized by all necessary corporate
action.
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4.4 Binding Effect. This Agreement has been duly executed and delivered by
MEDY and the Merger Subsidiary and is the legal, valid and binding obligations
of MEDY and the Merger Subsidiary, enforceable in accordance with its terms
except that:
(a) enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification may be limited by considerations of
public policy.
4.5 Absence of Restrictions and Conflicts. The execution, delivery and
performance of this Agreement and the completion of the Merger and the
fulfillment of and compliance with the terms and conditions of this Agreement do
not and will not, with the passing of time or the giving of notice or both,
violate or conflict with, constitute a breach of or default under, result in the
loss of any material benefit under, or permit the acceleration of any obligation
under, (i) any term or provision of the Articles of Incorporation or Bylaws of
MEDY or the Merger Subsidiary, (ii) any "MEDY Material Contract" (as defined in
Section 4.12), (iii) any judgment, decree or order of any court or governmental
authority or agency to which MEDY or the Merger Subsidiary is a party or by
which MEDY or the Merger Subsidiary or any of their respective properties is
bound, or (iv) any statute, law, regulation or rule applicable to MEDY or the
Merger Subsidiary other than such violations, conflicts, breaches or defaults as
would not have a MEDY Material Adverse Effect. Except for the filing of the
Articles of Merger with the Secretary of State of California, compliance with
the applicable requirements of the Securities Act, the Exchange Act and
applicable state securities laws, no consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental agency or
public or regulatory unit, agency, body or authority with respect to MEDY or the
Merger Subsidiary is required in connection with the execution, delivery or
performance of this Agreement by MEDY or the completion of the transactions
contemplated hereby.
4.6 Capitalization of MEDY.
(a) The authorized capital stock of MEDY consists of 15,000,000 shares
of MEDY Common Stock, and 5,000,000 shares of preferred stock. As of the date
hereof, there are (i) approximately 7,643,233 shares of MEDY Common Stock
outstanding, and no shares of preferred stock outstanding; and (ii) at June 30,
1997, 1,420,537 shares were reserved for issuance upon the exercise of
outstanding options under MEDY's Stock Option Plans (the "MEDY Options" and
"MEDY Option Plans," respectively). All of the issued and outstanding shares of
MEDY Common Stock have been duly authorized and validly issued and are fully
paid and nonassessable.
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(b) All of the issued and outstanding shares of MEDY Common Stock have
been duly authorized and validly issued and are fully paid, nonassessable and
free of preemptive rights.
(c) The shares of MEDY Common Stock to be issued in the Merger will be
duly authorized and validly issued and will be fully paid, nonassessable shares
of MEDY Common Stock free of preemptive rights.
(d) To MEDY's knowledge, there are no voting trusts, stockholder
agreements or other voting arrangements by the stockholders of MEDY.
(e) Except as set forth in subsection (a) above, there is no
outstanding subscription, contract, convertible or exchangeable security,
option, warrant, call or other right obligating MEDY or its subsidiaries to
issue, sell, exchange, or otherwise dispose of, or to purchase, redeem or
otherwise acquire, shares of, or securities convertible into or exchangeable
for, capital stock of MEDY.
4.7 MEDY SEC Reports. MEDY has made available to CADI (i) MEDY's Annual
Reports on Form 10-KSB for the year ended September 30, 1996, including all
exhibits filed thereto and items incorporated therein by reference, (ii) MEDY's
Quarterly Reports on Form 10-QSB for the quarters ended December 31, 1996 and
March 31 and June 30, 1997, including all exhibits thereto and items
incorporated therein by reference, (iii) and all other reports or registration
statements (as amended or supplemented prior to the date hereof), filed by MEDY
with the SEC since October 1, 1996, including all exhibits thereto and items
incorporated therein by reference (items (i) through (iv) being referred to as
the "MEDY SEC Reports"). As of their respective dates, MEDY SEC Reports did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Since
October 1, 1994, MEDY has filed all material forms (and necessary amendments),
reports and documents with the SEC required to be filed by it pursuant to the
federal securities laws and the SEC rules and regulations thereunder, each of
which complied as to form, at the time such form, report or document was filed,
in all material respects with the applicable requirements of the Securities Act
and the Exchange Act and the applicable rules and regulations thereunder.
4.8 Financial Statements and Records of MEDY. MEDY has made available to
CADI true, correct and complete copies of the following financial statements
(the "MEDY Financial Statements"):
(a) the consolidated balance sheets of MEDY and its consolidated
subsidiaries as of September 30, 1996, and the consolidated statements of
income, stockholders' equity and cash flows for the fiscal years then ended,
including the notes thereto, in each case examined by and accompanied by the
report of MEDY's independent certified public accountants as of the date of such
financial statements; and
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(b) the unaudited balance sheet of MEDY as of June 30, 1997 (the "MEDY
Balance Sheet"), with any notes thereto, and the related unaudited statement of
income for the fiscal quarter then ended (collectively, the "MEDY Quarterly
Statements").
The MEDY Financial Statements present fairly, in all material respects, the
financial position of MEDY as of the dates thereof and the results of operations
and changes in financial position thereof for the periods then ended, in each
case in conformity with generally accepted accounting principles, consistently
applied, except as noted therein. Since September 30, 1996, there has been no
change in accounting principles applicable to, or methods of accounting utilized
by, MEDY, except as noted in the MEDY Financial Statements. The books and
records of MEDY have been and are being maintained in accordance with good
business practice, reflect only valid transactions, are complete and correct in
all material respects, and present fairly in all material respects the basis for
the financial position and results of operations of MEDY set forth in the MEDY
Financial Statements.
4.9 Absence of Certain Changes. Since the date of the MEDY Balance Sheet,
MEDY has not, except as otherwise set forth in the MEDY SEC Reports or on
Schedule 4.9:
(a) suffered any adverse change in the business, operations, assets,
or financial condition except for such changes that would not have a MEDY
Material Adverse Effect;
(b) suffered any material damage or destruction to or loss of the
assets of MEDY or the Merger Subsidiary, whether or not covered by insurance,
which property or assets are material to the operations or business of MEDY and
its subsidiaries taken as a whole;
(c) settled, forgiven, compromised, canceled, released, waived or
permitted to lapse any material rights or claims other than in the ordinary
course of business;
(d) entered into or terminated any material agreement, commitment or
transaction, or agreed or made any changes in material leases or agreements,
other than renewals or extensions thereof and leases, agreements, transactions
and commitments entered into or terminated in the ordinary course of business;
(e) written up, written down or written off the book value of any
material amount of assets other than in the ordinary course of business;
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(f) declared, paid or set aside for payment any dividend or
distribution with respect to MEDY's capital stock;
(g) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of MEDY's capital stock or
securities (other than shares issued upon exercise of the MEDY Options) or any
rights to acquire such capital stock or securities, or agreed to changes in the
terms and conditions of any such rights outstanding as of the date of this
Agreement provided, however, nothing herein is intended or shall prevent MEDY
from issuing MEDY Options to its employees or in lieu of royalty payments or
license fees substantially in accordance with MEDY's past practices or which are
currently under contract;
(h) increased the compensation of or paid any bonuses to any employees
or contributed to any employee benefit plan, other than in accordance with
established policies, practices or requirements and as provided in Section 5.2
hereof;
(i) entered into any employment, consulting or compensation agreement
with any person or group, except for agreements which would not have a MEDY
Material Adverse Effect;
(j) entered into any collective bargaining agreement with any person
or group;
(k) entered into, adopted or amended any employee benefit plan; or
(l) entered into any agreement to do any of the foregoing.
4.10 No Material Undisclosed Liabilities. There are no material liabilities
or obligations of MEDY and its consolidated subsidiaries of any nature, whether
absolute, accrued, contingent, or otherwise, other than:
(a) liabilities and obligations that are reflected, accrued or
reserved against on the MEDY Balance Sheet or referred to in the footnotes to
the MEDY Balance Sheet, or incurred in the ordinary course of business and
consistent with past practices since the date of the MEDY Balance Sheet; or
(b) liabilities and obligations which in the aggregate would not
result in a MEDY Material Effect.
4.11 Tax Returns; Taxes. Each of MEDY and the Merger Subsidiary have duly
filed all U.S. federal and material state, county, local and foreign tax returns
and reports required to be filed by it, including those with respect to income,
payroll, property, withholding, social security, unemployment, franchise, excise
and sales taxes and all such returns and reports are correct in all material
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respects; have either paid in full all taxes that have become due as reflected
on any return or report and any interest and penalties with respect thereto or
have fully accrued on its books or have established adequate reserves for all
taxes payable but not yet due; and have made cash deposits with appropriate
governmental authorities representing estimated payments of taxes, including
income taxes and employee withholding tax obligations. No extension or waiver of
any statute of limitations or time within which to file any return has been
granted to or requested by MEDY or the Merger Subsidiary with respect to any
tax. No unsatisfied deficiency, delinquency or default for any tax, assessment
or governmental charge has been claimed, proposed or assessed against MEDY or
the Merger Subsidiary, nor has MEDY or the Merger Subsidiary received notice of
any such deficiency, delinquency or default. MEDY and the Merger Subsidiary have
no material tax liabilities other than those reflected on the MEDY Balance Sheet
and those arising in the ordinary course of business since the date thereof.
MEDY will make available to CADI true, complete and correct copies of MEDY's
consolidated U.S. federal tax returns for the last five years and make available
such other tax returns requested by CADI. There is no dispute or claim
concerning any material tax liability of MEDY or any of its subsidiaries either:
(a) raised by any taxing authority in writing; (b) as to which MEDY or any of
its subsidiaries has received notice concerning a potential audit of any return
filed by MEDY; and (c) there is no outstanding audit or pending audit of any tax
return filed by MEDY.
4.12 Material Contracts. MEDY has furnished or made available to CADI
accurate and complete copies of the MEDY Material Contracts (as defined herein)
applicable to MEDY or the Merger Subsidiary. There is not under any of the MEDY
Material Contracts any existing breach, default or event of default by MEDY or
the Merger Subsidiary nor event that with notice or lapse of time or both would
constitute a breach, default or event of default by MEDY or the Merger
Subsidiary other than breaches, defaults or events of default which would not
have a MEDY Material Adverse Effect nor does MEDY know of, and MEDY has not
received notice of, or made a claim with respect to, any breach or default by
any other party thereto which would, severally or in the aggregate, have a MEDY
Material Adverse Effect. As used herein, the term "MEDY Material Contracts"
shall mean all contracts and agreements filed, or required to be filed, as
exhibits to MEDY's Annual Report on Form 10-KSB for the year ended September 30,
1996 and any contracts and agreements entered into since September 30, 1996
which would be required to be filed or incorporated by reference therein as an
exhibit to MEDY's Annual Report on Form 10-KSB for the year ending September 30,
1997, and all contracts entered into in the ordinary course of business
providing for financial obligations of MEDY of more than $10,000 over a 12 month
period (excluding purchase orders entered into in the ordinary course of
business).
4.13 Litigation and Government Claims. Except as disclosed in the MEDY SEC
Reports, there is no pending suit, claim, action or litigation, or
administrative, arbitration or other proceeding or governmental investigation or
inquiry against MEDY or the Merger Subsidiary to which their businesses or
assets are subject which would, severally or in the aggregate, reasonably be
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expected to result in a MEDY Material Adverse Effect. To the knowledge of MEDY,
there are no such proceedings threatened or contemplated which would, severally
or in the aggregate, have a MEDY Material Adverse Effect. Neither MEDY nor the
Merger Subsidiary is subject to any judgment, decree, injunction, rule or order
of any court, or, to the knowledge of MEDY, any governmental restriction
applicable to MEDY or the Merger Subsidiary which is reasonably likely to have a
MEDY Material Adverse Effect.
4.14 Compliance with Laws. MEDY and the Merger Subsidiary each have all
material authorizations, approvals, licenses and orders to carry on their
respective businesses as they are now being conducted, to own or hold under
lease the properties or assets they own or hold under lease and to perform all
of their obligations under the agreements to which they are a party, except for
instances which would not have a MEDY Material Adverse Effect. MEDY and the
Merger Subsidiary have been and are, to the knowledge of MEDY, in compliance
with all applicable laws (including those referenced in the MEDY SEC Reports),
regulations and administrative orders of any country, state or municipality or
any subdivision of any thereof to which their respective businesses and their
employment of labor or their use or occupancy of properties or any part hereof
are subject, the violation of which would have a MEDY Material Adverse Effect.
4.15 MEDY Employee Benefit Plans. Each employee benefit plan, as such term
is defined in Section 3(3) of ERISA, of MEDY and the Merger Subsidiary
(collectively the "MEDY Employee Plans") complies in all material respects with
all applicable requirements of ERISA, the Code and other applicable laws. None
of the MEDY Employee Plans is an employee pension benefit plan or a
multiemployer plan, as such terms are defined in ERISA. Neither MEDY nor the
Merger Subsidiary nor any of their respective directors, officers, employees or
agents has, with respect to any MEDY Employee Plan, engaged in any "prohibited
transaction," as such term is defined in the Code or ERISA, nor has any MEDY
Employee Plan engaged in such prohibited transaction which could result in any
taxes or penalties or other prohibited transactions, which in the aggregate
could have a MEDY Material Adverse Effect.
4.16 Employment Agreements; Labor Relations. Each of MEDY and the Merger
Subsidiary is in compliance in all material respects with all laws (including
Federal and state laws) respecting employment and employment practices, terms
and conditions of employment, wages and hours, and is not engaged in any unfair
labor or unlawful employment practice. There is no unlawful employment practice
discrimination charge pending before the EEOC or EEOC recognized state "referral
agency." Except as would not have a MEDY Material Adverse Effect, there is no
unfair labor practice charge or complaint against MEDY or the Merger Subsidiary
pending before the National Labor Review Board. There is no labor strike,
dispute, slowdown or stoppage actually pending or, to the knowledge of MEDY,
threatened against or involving or affecting MEDY or the Merger Subsidiary and
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no National Labor Review Board representation question exists respecting their
respective employees. Except as would not have a MEDY Material Adverse Effect,
no grievances or arbitration proceeding is pending and no written claim therefor
exists. There is no collective bargaining agreement that is binding on MEDY or
the Merger Subsidiary.
4.17 Intellectual Property. MEDY and the Merger Subsidiary own or have
valid, binding and enforceable rights to use all material patents, trademarks,
trade names, service marks, service names, copyrights, applications therefor and
licenses or other rights in respect thereof ("MEDY Intellectual Property") used
or held for use in connection with the business of MEDY or the Merger
Subsidiary, without any known conflict with the rights of others, except for
such conflicts as do not have a MEDY Material Adverse Effect. Neither MEDY nor
the Merger Subsidiary has received any notice from any other person pertaining
to or challenging the right of MEDY or the Merger Subsidiary to use any MEDY
Intellectual Property or any trade secrets, proprietary information, inventions,
know-how, processes and procedures owned or used or licensed to MEDY or the
Merger Subsidiary, except with respect to rights the loss of which, individually
or in the aggregate, would not have a MEDY Material Adverse Effect.
4.18 Nasdaq Fees. MEDY has paid all fees due and owing to Nasdaq with
respect to MEDY Common Stock on the SmallCap Market, and MEDY will pay all such
fees arising out of the issuance of any shares of MEDY common stock in
connection with transactions contemplated hereby.
4.19 Tax Representations.
(a) Following the transaction, CADI will hold at least 90% of the fair
market value of its net assets and at least 70% of the fair market value of its
gross assets and at least 90% of the fair market value of Merger Subsidiary's
net assets and at least 70% of the fair market value of Merger Subsidiary's
gross assets held immediately prior to the transaction.
(b) Prior to the transaction, MEDY will be in control of Merger
Subsidiary within the meaning of ss.368(c) of the Code.
(c) MEDY has no plan or intention to reacquire any of its stock issued
in the transaction.
(d) MEDY has no plan or intention to liquidate CADI; to merge CADI
with or into another corporation; to sell or otherwise dispose of the stock of
CADI except for transfers of stock to corporations controlled by MEDY; or to
cause CADI to sell or otherwise dispose of any of its assets or of any of the
assets acquired from Merger Subsidiary, except for dispositions made in the
ordinary course of business or transfers of assets to a corporation controlled
by CADI.
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(e) Merger Subsidiary will have no liabilities assumed by CADI, and
will not transfer to CADI any assets subject to liabilities, in the transaction.
(f) Following the transaction, CADI will continue its historic
business or use a significant portion of its historic business assets in a
business.
(g) MEDY, Merger Subsidiary, CADI, and the shareholders of CADI will
pay their respective expenses, if any, incurred in connection with the
transaction.
(h) There is no intercorporate indebtedness existing between MEDY and
CADI or between Merger Subsidiary and CADI that was issued, acquired, or will be
settled at a discount.
(i) In the transaction, shares of CADI Common Stock representing
control of CADI, as defined in ss.368(c) of the Code, will be exchanged solely
for voting stock of MEDY except as otherwise described herein.
(j) MEDY does not own, nor has it owned during the past five years,
any shares of the stock of CADI.
(k) Neither MEDY nor Merger Subsidiary is an investment company as
defined in ss.368(a)(2)(f)(iii) and (iv) of the Code.
4.20 Title to Properties and Related Matters.
(a) MEDY has good and marketable title to or valid leasehold interests
in their respective properties (the "Real Estate") reflected on the MEDY
Financial Statements or acquired after the date thereof (other than personal
properties sold or otherwise disposed of in the ordinary course of business),
and all of such properties and all assets purchased by MEDY since the date of
the most recent MEDY Financial Statements are free and clear of any lien, claim
or encumbrance, except as reflected in the MEDY Financial Statements or notes
thereto and except for:
(i) liens for taxes, assessments or other governmental charges not
yet due and payable or the validity of which are being contested in good faith
by appropriate proceedings;
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(ii) statutory liens incurred in the ordinary course of business
that are not yet due and payable or the validity of which are being contested in
good faith by appropriate proceedings;
(iii) landlord liens contained in leases entered in the ordinary
course of business; and
(iv) other liens, claims or encumbrances that, in the aggregate, do
not materially subtract from the value of, or materially interfere with, the
present use of, the Real Estate.
Except for those assets acquired since the date of the MEDY Balance Sheet, all
properties and assets material to the present operations of MEDY are owned or
leased by MEDY and are reflected on the MEDY Financial Statements and notes
thereto in the manner and to the extent required by generally accepted
accounting principles.
(b) (i) Applicable zoning ordinances permit the operation of MEDY's
business at the Real Estate; (ii) MEDY has all easements and rights, including
easements for all utilities, services, roadways and other means of ingress and
egress, necessary to operate MEDY's business at the Real Estate; (iii) the Real
Estate is not located within a flood plain or lakeshore erosion hazard area; and
(iv) neither the whole nor any portion of the Real Estate has been condemned,
requisitioned or otherwise taken by any public authority, and no notice of any
such condemnation, requisition or taking has been received; except in each case
where the failure of such provisions to be true and correct would not have a
MEDY Material Adverse Effect. No such condemnation, requisition or taking is
threatened or contemplated to MEDY's knowledge, and there are no pending public
improvements which may result in special assessments against or which may
otherwise materially and adversely affect the Real Estate. To the knowledge of
MEDY, the Real Estate has not been used for deposit or disposal of hazardous
wastes or substances in violation of any past or current law in any material
respect and there is no material liability under past or current law with
respect to any hazardous wastes or substances which have been deposited or
disposed of on or in the Real Estate.
(c) MEDY has received no notice of, and has no actual knowledge of,
any material violation of any zoning, building, health, fire, water use or
similar statute, ordinance, law, regulation or code in connection with the Real
Estate.
(d) To MEDY's knowledge, no hazardous or toxic material (as
hereinafter defined) exists in any structure located on, or exists on or under
the surface of, the Real Estate which is, in any case, in material violation of
applicable environmental law. For purposes of this Agreement, "hazardous or
toxic material" shall mean waste, substance, materials, smoke, gas or
particulate matter designated as hazardous, toxic or dangerous under any
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applicable environmental law. For purposes of this Agreement, "environmental
law" shall include the Comprehensive Environmental Response Compensation and
Liability Act, the Clean Air Act, the Clean Water Act and any other applicable
federal, state or local environmental, health or safety law, rule or regulation
relating to or imposing liability or standards concerning or in connection with
hazardous, toxic or dangerous waste, substance, materials, smoke, gas or
particulate matter.
4.21 No Brokers and Finders. None of MEDY or, to MEDY's knowledge, any of
its officers, directors and employees has employed any broker, finder or
investment bank or incurred any liability for any investment banking fees,
financial advisory fees, brokerage fees or finders' fees in connection with the
transactions contemplated hereby. MEDY is not aware of any claim for payment of
any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the completion of
the transactions contemplated hereby.
ARTICLE 5
Certain Covenants and Agreements
--------------------------------
5.1 Conduct of Business by CADI. From the date hereof to the Effective
Date, CADI will, except as required in connection with the Merger and the other
transactions contemplated by this Agreement and except as otherwise disclosed on
the schedules hereto or consented to in writing by MEDY:
(a) carry on its business in the ordinary and regular course in
substantially the same manner as heretofore conducted and not engage in any new
line of business or enter into any material agreement, transaction or activity
or make any material commitment except those in the ordinary and regular course
of business and not otherwise prohibited under this Section 5.1;
(b) neither change nor amend its Articles of Incorporation or Bylaws;
(c) not issue or sell shares of capital stock of CADI or issue, sell
or grant options, warrants or rights to purchase or subscribe to, or enter into
any arrangement or contract with respect to the issuance or sale of any of the
capital stock of CADI or rights or obligations convertible into or exchangeable
for any shares of the capital stock of CADI or make any changes (by split-up,
combination, reorganization or otherwise) in the capital structure of CADI;
(d) not declare, pay or set aside for payment any dividend or other
distribution in respect of the capital stock or other equity securities of CADI
and not redeem, purchase or otherwise acquire any shares of the capital stock or
other securities of CADI or rights or obligations convertible into or
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exchangeable for any shares of the capital stock or other securities of CADI or
obligations convertible into such, or any options, warrants or other rights to
purchase or subscribe to any of the foregoing;
(e) not acquire or enter into any agreement to acquire, by merger,
consolidation or purchase of stock or assets, any business or entity;
(f) use its reasonable efforts to preserve intact the corporate
existence, goodwill and business organization of CADI, to keep the officers and
employees of CADI available to CADI and to preserve the relationships of CADI
with suppliers, customers and others having business relations with any of them,
except for such instances which would not have a CADI Material Adverse Effect;
(g) [intentionally omitted.];
(h) Not (i) enter into, modify or extend in any manner the terms of
any employment, severance or similar agreements with officers and directors,
(ii) grant any increase in the compensation of officers or directors, whether
now or hereafter payable or (iii) grant any increase in the compensation of any
other employees except for compensation increases in the ordinary course of
business and consistent with past practice (it being understood by the parties
hereto that for the purposes of (ii) and (iii) above increases in compensation
shall include any increase pursuant to any option, bonus, stock purchase,
pension, profit-sharing, deferred compensation, retirement or other plan,
arrangement, contract or commitment);
(i) [intentionally omitted];
(j) except in instances which would not have a CADI Material Adverse
Effect, perform all of its obligations under all Material Contracts (except
those being contested in good faith) and not enter into, assume or amend any
contract or commitment that would be a Material Contract other than contracts to
provide services entered into in the ordinary course of business; and
(k) except in instances which would not have a CADI Material Adverse
Effect, prepare and file all federal, state, local and foreign returns for taxes
and other tax reports, filings and amendments thereto required to be filed by
it, and allow MEDY, at its request, to review all such returns, reports, filings
and amendments at CADI's offices prior to the filing thereof, which review shall
not interfere with the timely filing of such returns.
In connection with the continued operation of the business of CADI between
the date of this Agreement and the Effective Date, CADI shall confer in good
faith and on a regular and frequent basis with one or more representatives of
MEDY designated in writing to report operational matters of materiality and the
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general status of ongoing operations. In addition, during regular business
hours, CADI will allow MEDY employees and agents to be present at CADI's
business locations to observe the business and operations of CADI. CADI
acknowledges that MEDY does not and will not waive any rights it may have under
this Agreement as a result of such consultations nor shall MEDY be responsible
for any decisions made by CADI's officers and directors with respect to matters
which are the subject of such consultation.
5.2 Conduct of Business by MEDY. From the date hereof to the Effective
Date, MEDY will, and will cause the Merger Subsidiary and each of the Merger
Subsidiary to, except as required in connection with the Merger and the other
transactions contemplated by this Agreement and except as otherwise disclosed in
the schedules hereto or consented to in writing by CADI:
(a) Carry on its businesses in the ordinary and regular course in
substantially the same manner as heretofore conducted and not engage in any new
line of business or enter into any agreement, transaction or activity or make
any commitment except in the ordinary and regular course of business and not
otherwise prohibited under this Section 5.2;
(b) Neither change nor amend its Articles of Incorporation or Bylaws;
(c) Not make any changes (by split-up, combination, reorganization or
otherwise) in the capital structure of MEDY, Merger Subsidiary or the Merger
Subsidiary;
(d) Not declare, pay or set aside for payment any dividend or other
distribution in respect of the capital stock or other equity securities of MEDY
and not redeem, purchase or otherwise acquire any shares of the capital stock or
other securities of MEDY or the Merger Subsidiary, or rights or obligations
convertible into or exchangeable for any shares of the capital stock or other
securities of MEDY, Merger Subsidiary or the Merger Subsidiary or obligations
convertible into such, or any options, warrants or other rights to purchase or
subscribe to any of the foregoing;
(e) Not acquire or enter into any agreement to acquire, by merger,
consolidation or purchase of stock or assets, any business or entity which would
have a MEDY Material Adverse Effect; and
(f) Use its reasonable efforts to preserve intact the corporate
existence, goodwill and business organization of MEDY and the Merger Subsidiary,
to keep the officers and employees of MEDY and the Merger Subsidiary available
to MEDY and to preserve the relationships of MEDY and the Merger Subsidiary with
suppliers, customers and others having business relations with any of them,
except for such instances which would not have a MEDY Material Adverse Effect;
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5.3 Notice of any Material Change. Each of CADI and MEDY shall, promptly
after the first notice or occurrence thereof but not later than the Closing
Date, advise the other in writing of any event or the existence of any state of
facts that (i) would make any of its representations and warranties in this
Agreement untrue in any material respect, or (ii) would otherwise constitute
either a CADI Material Adverse Effect or a MEDY Material Adverse Effect.
5.4 Inspection and Access to Information.
(a) Between the date of this Agreement and the Effective Date, CADI
will provide to the Merger Subsidiary and MEDY and their accountants, counsel
and other authorized representatives reasonable access, during normal business
hours to its premises, properties, contracts, commitments, books, records and
other information (including tax returns filed and those in preparation) and
will cause its officers to furnish to MEDY and the Merger Subsidiary and their
authorized representatives such financial, technical and operating data and
other information pertaining to its business, as the Merger Subsidiary and MEDY
shall from time to time reasonably request.
(b) Between the date of this Agreement and the Effective Date, MEDY
will, and will cause the Merger Subsidiary to, provide to CADI, the CADI
Shareholders, and their respective accountants, counsel and other authorized
representatives reasonable access, during normal business hours to its premises,
properties, contracts, commitments, books, records and other information
(including tax returns filed and those in preparation) and will cause its
officers to furnish to CADI and the CADI Shareholders and their authorized
representatives such financial, technical and operating data and other
information pertaining to its business, as CADI or any CADI Shareholder may from
time to time reasonably request.
(c) Each of the parties hereto and their respective representatives
shall maintain the confidentiality of all information (other than information
which is generally available to the public) concerning the other parties hereto
acquired pursuant to the transactions contemplated hereby in the event that the
Merger is not completed. Each of the parties hereto and their representatives
shall not use such information so obtained. All files, records, documents,
information, data and similar items relating to the confidential information of
CADI, whether prepared by MEDY or otherwise coming into MEDY's possession, shall
remain the exclusive property of CADI and shall be promptly delivered to CADI,
together with all copies thereof, upon termination of this Agreement. All files,
records, documents, information, data and similar items relating to the
confidential information of MEDY, whether prepared by CADI or otherwise coming
into CADI's possession, shall remain the exclusive property of MEDY and shall be
promptly delivered to MEDY, together with all copies thereof, upon termination
of this Agreement.
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5.5 MEDY Exchange Act Reports. CADI acknowledges that MEDY will be required
to reports its acquisition of CADI promptly following the Effective Date. CADI
agrees to provide as promptly as practicable to MEDY such information concerning
its business and financial statements and affairs as, in the reasonable judgment
of MEDY, may be required or appropriate for inclusion in the required report, or
in any amendments or supplements thereto, and to cause its counsel and auditors
to cooperate with MEDY's counsel and auditors in the preparation of such report.
5.6 Nasdaq Notification. MEDY will file a notification with the Nasdaq
SmallCap Market for the issuance of the shares of MEDY Common Stock to be issued
in the Merger.
5.7 Reasonable Efforts; Further Assurances; Cooperation. Subject to the
other provisions of this Agreement, the parties hereby shall each use their
reasonable efforts to perform their obligations herein and to take, or cause to
be taken or do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable law to obtain all regulatory approvals and satisfy
all conditions to the obligations of the parties under this Agreement and to
cause the Merger and the other transactions contemplated herein to be carried
out promptly in accordance with the terms hereof. The parties agree to use their
reasonable best efforts to complete the transactions contemplated hereby by the
date specified in Section 9.1(b) hereof. The parties shall cooperate fully with
each other and their respective officers, directors, employees, agents, counsel,
accountants and other designees in connection with any steps required to be
taken as a part of their respective obligations under this Agreement, including
without limitation:
(a) In the event any claim, action, suit, investigation or other
proceeding by any governmental body or other person is commenced which questions
the validity or legality of the Merger or any of the other transactions
contemplated hereby or seeks damages in connection therewith, the parties agree
to cooperate and use all reasonable efforts to defend against such claim,
action, suit, investigation or other proceeding and, if an injunction or other
order is issued in any such action, suit or other proceeding, to use all
reasonable efforts to have such injunction or other order lifted, and to
cooperate reasonably regarding any other impediment to the completion of the
transactions contemplated by this Agreement.
(b) Each party shall give prompt written notice to the other of (i)
the occurrence, or failure to occur, of any event which occurrence or failure
would be likely to cause any representation or warranty of CADI or MEDY, as the
case may be, contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date hereof to the Effective Date or that
will or may result in the failure to satisfy the conditions specified in Article
6 or 7 and (ii) any failure of CADI or MEDY, as the case may be, to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder.
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5.8 Public Announcements. The timing and content of all announcements
regarding any aspect of this Agreement or the Merger to the financial community,
government agencies, employees or the general public shall be mutually agreed
upon in advance (unless MEDY or CADI is advised by counsel that any such
announcement or other disclosure not mutually agreed upon in advance is required
to be made by law or applicable SmallCap Market rule and then only after making
a reasonable attempt to comply with the provisions of this Section).
5.9 No Solicitations. From the date hereof until the Effective Date or
until this Agreement is terminated or abandoned as provided in this Agreement,
CADI shall not directly or indirectly (i) solicit or initiate discussion with or
(ii) enter into negotiations or agreements with, or furnish any information to,
any corporation, partnership, person or other entity or group (other than MEDY,
an affiliate of MEDY or their authorized representatives pursuant to this
Agreement) concerning any proposal for a merger, sale of substantial assets,
sale of shares of stock or securities or other takeover or business combination
transaction (the "Acquisition Proposal") involving CADI, and CADI will instruct
its officers, directors, advisors and its financial and legal representatives
and consultants not to take any action contrary to the foregoing provisions of
this sentence; provided, however, that CADI, its officers, directors, advisors
and its financial and legal representatives and consultants will not be
prohibited from taking any action described in (ii) above to the extent such
action is taken by, or upon the authority of, the Board of Directors of CADI in
the exercise of good faith judgment as to its fiduciary duties to the
shareholders of CADI, which judgment is based upon the advice of independent,
outside legal counsel that a failure of the Board of Directors of CADI to take
such action would be likely to constitute a breach of its fiduciary duties to
such shareholders. CADI will notify MEDY promptly if CADI becomes aware that any
inquiries or proposals are received by, any information is requested from or any
negotiations or discussions are sought to be initiated with, CADI with respect
to an Acquisition Proposal, and CADI shall promptly deliver to MEDY any written
inquiries or proposals received by CADI relating to an Acquisition Proposal.
5.10 MEDY Board of Directors. MEDY's Board of Directors shall following the
Effective Date take all action necessary to cause the Board of Directors of MEDY
to be increased by one director and shall take all such action necessary to
cause Daniel Richmond and Chae Uk Kim to be elected as a director of MEDY for a
term expiring at the first annual meeting of stockholders of MEDY following the
Effective Date.
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ARTICLE 6
Conditions Precedent to Obligations of CADI
-------------------------------------------
Except as may be waived by CADI, the obligations of CADI to complete the
transactions contemplated by this Agreement shall be subject to the satisfaction
on or before the Closing Date of each of the following conditions:
6.1 Compliance. MEDY shall have, or shall have caused to be, satisfied or
complied with and performed in all material respects all terms, covenants and
conditions of this Agreement to be complied with or performed by MEDY on or
before the Closing Date.
6.2 Representations and Warranties. All of the representations and
warranties made by MEDY in this Agreement shall be true and correct in all
material respects at and as of the Closing Date with the same force and effect
as if such representations and warranties had been made at and as of the Closing
Date, except for changes permitted or contemplated by this Agreement.
6.3 Material Adverse Changes. Subsequent to June 30, 1997, there shall have
occurred no MEDY Material Adverse Effect other than any such change that affects
both MEDY and CADI in a substantially similar manner.
6.4 Certificates. CADI shall have received a certificate or certificates,
executed on behalf of MEDY by an executive officer of MEDY, to the effect that
the conditions contained in Sections 6.1, 6.2 and 6.3 hereof have been
satisfied.
6.5 Stockholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of all of the
outstanding shares of CADI Common Stock.
6.6 Consents; Litigation. Other than the filing of Articles of Merger as
described in Article 1, all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations or terminations of waiting periods
imposed by any governmental entity, and all required third-party consents, the
failure to obtain which would have a MEDY Material Adverse Effect, shall have
been obtained. In addition, no preliminary or permanent injunction or other
order shall have been issued by any court or by any governmental or regulatory
agency, body or authority which prohibits the completion of the Merger and the
transactions contemplated by this Agreement and which is in effect at the
Effective Date.
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6.7 Employment and Non-Competition Agreements. The Employment Agreements,
in the forms of Schedules 6.7a and 6.7b hereto, between CADI and each of Dan
Richmond and Chae Uk Kim shall be executed and delivered by the parties thereto.
6.8 Stock Option Agreements. In connection with the Employment Agreements
described in Section 6.7 hereof, MEDY shall issue to each of Messrs. Richmond
and Kim options to purchase 600,000 shares of MEDY Common Stock, such options to
be represented by Agreements in the form of Schedule 6.8.
6.9 Employee Stock Options. Prior to the Effective Date, MEDY shall have
approved an employee stock option plan for employees of CADI in the form of
Schedule 6.9.
6.10 Registration Rights Agreement. The Registration Rights Agreement, in
the form of Schedule 6.10 hereto, by and among Dan Richmond, Chae Uk Kim, and
MEDY, will be in full force and effect as of the Closing Date.
6.11 Legal Opinion. CADI shall have received a legal opinion from counsel
to MEDY in the form of Schedule 6.11 hereto.
ARTICLE 7
Conditions Precedent to Obligations of MEDY
and the Merger Subsidiary
-------------------------
Except as may be waived by MEDY and the Merger Subsidiary, the obligations
of MEDY and the Merger Subsidiary to complete the transactions contemplated by
this Agreement shall be subject to the satisfaction, on or before the Closing
Date, of each of the following conditions:
7.1 Compliance. CADI shall have, or shall have caused to be, satisfied or
complied with and performed in all material respects all terms, covenants, and
conditions of this Agreement to be complied with or performed by it on or before
the Closing Date.
7.2 Representations and Warranties. All of the representations and
warranties made by CADI in this Agreement shall be true and correct in all
material respects at and as of the Closing Date with the same force and effect
as if such representations and warranties had been made at and as of the Closing
Date.
7.3 Material Adverse Changes. Since June 30, 1997, except as set forth in
this Agreement or on the schedules hereto, there shall have occurred no CADI
Material Adverse Effect other than any such change that affects both MEDY and
CADI in a substantially similar manner.
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7.4 Certificates. MEDY shall have received a certificate or certificates,
executed on behalf of CADI by an executive officer of CADI, to the effect that
the conditions in Sections 7.1, 7.2 and 7.3 hereof have been satisfied.
7.5 Consents; Litigation. Other than the filing of the Articles of Merger
as described in Article 1, all authorizations, consents, orders or approvals of,
or declarations or filings with, or expirations or terminations of waiting
periods imposed by, any governmental entity, and all required third-party
consents, the failure to obtain which would have a CADI Material Adverse Effect
or a MEDY Material Effect, shall have been obtained. In addition, no preliminary
or permanent injunction or other order shall have been issued by any court or by
any governmental or regulatory agency, body or authority which prohibits the
completion of the Merger and the transactions contemplated by this Agreement and
which is in effect at the Effective Date.
7.6 Release by James DeVico, Jr. Effective the Effective Date and receipt
by Mr. DeVico of the requisite consideration, James DeVico, Jr., formerly a
shareholder of CADI, will execute a mutual general release satisfactory to MEDY
for the benefit of CADI, its officers, directors, employees, shareholders,
agents, and parents in substantially the form of Schedule 7.6 hereto. In
connection with obtaining the release from Mr. DeVico, and provided Mr. DeVico
enters into an the investment letter in the form of Schedule 7.9 here and an
exemption exists for the transaction (which must be established to the
reasonable satisfaction of MEDY), MEDY will pay Mr. DeVico:
(a) 304,480 shares of MEDY Common Stock;
(b) $45,303 in cash; and
(c) An unsecured promissory note for $100,000 in the form of Schedule
1.1.
7.7 Employment and Non-Competition Agreements. The Employment and
Non-Competition Agreements, in the form of Schedules 6.7a and 6.7b hereto,
between CADI and each of Dan Richmond and Chae Uk Kim shall be executed and
delivered by the parties thereto.
7.8 Legal Opinion. MEDY shall have received a legal opinion from counsel to
CADI in the form of Schedule 7.8 hereto.
7.9 Investment Representations. Each of the CADI Shareholders and each
person entitled to receive MEDY Common Stock or a Promissory Note from MEDY as a
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part of the Merger Consideration shall have conducted such investigation into
MEDY as such person may have desired and shall, on or before the Effective Date,
execute and deliver to MEDY an Investment Letter in the form of Schedule 7.9
hereto.
ARTICLE 8
8.1 Indemnification. In the event of any threatened or actual claim,
action, suit, proceeding or investigation (including any claims regarding
securities law matters), whether civil, criminal or administrative, including,
without limitation, any such claim, action, suit, proceeding or investigation in
which any of the present or former officers or directors (the "Managers") of
CADI is, or is threatened to be, made a party by reason of the fact that he or
she is or was a stockholder, director, officer, employee or agent of CADI, or is
or was serving at the request of CADI as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
whether before or after the Effective Date,
CADI shall indemnify and hold harmless, and from and after the Effective
Date each of the Surviving Corporation and
MEDY shall indemnify and hold harmless, as and to the full extent permitted
by applicable law (including by advancing expenses promptly as statements
therefor are received),
each such Manager against any losses, claims, damages, liabilities, costs,
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with any such claim, action, suit, proceeding or
investigation, and in the event of any such claim, action, suit proceeding or
investigation (whether arising before or after the Effective Date),
(i) if CADI (prior to the Effective Date) or MEDY or the Surviving
Corporation (after the Effective Date) have not promptly assumed the defense of
such matter, the Managers may retain counsel satisfactory to them, and CADI, or
the Surviving Corporation and MEDY after the Effective Date, shall pay all fees
and expenses of such counsel for the Managers promptly, as statements therefor
are received, and
(ii) CADI, or the Surviving Corporation and MEDY after the
Effective Date, will use their respective best efforts to assist in the vigorous
defense of any such matter; provided that neither CADI nor the Surviving
Corporation or MEDY shall be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably withheld);
and provided further that the Surviving Corporation and MEDY shall have no
obligation under the foregoing provisions of this Section 8.1 to any Manager if
(x) the indemnification
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of such Manager in the manner contemplated hereby is prohibited by applicable
law, and (y) CADI has breached a representation or warranty hereunder with
respect to the same matters for which indemnification is being sought by such
Manager and such Manager fails to prove that such Manager had no actual
knowledge of such breach at the Effective Date.
(b) Reimbursement. Upon the determination that the Surviving
Corporation or MEDY is not liable for any such indemnification claims, the
Manager will reimburse MEDY and the Surviving Corporation for any fees, expenses
and costs incurred by MEDY or the Surviving Corporation in connection with the
defense of such claims.
(c) Notification. Any Manager wishing to claim indemnification under
this Section 8.1, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify CADI and, after the Effective Date, the Surviving
Corporation and MEDY, thereof (provided that the failure to give such notice
shall not affect any obligations hereunder, except to the extent that the
indemnifying party is actually and materially prejudiced thereby). MEDY and CADI
agree that all rights to indemnification existing in favor of the Managers as
provided in CADI's Articles of Incorporation or Bylaws as in effect as of the
date hereof, and in any agreement between CADI and any Manager with respect to
matters occurring prior to the Effective Date, shall survive the Merger. MEDY
further covenants not to amend or repeal any provisions of the Articles of
Incorporation or Bylaws of CADI in any manner which would adversely affect the
indemnification or exculpatory provisions contained therein.
(d) Inurement. The provisions of this Section 8.1 are intended to be
for the benefit of, and shall be enforceable by, each indemnified party and his
or her heirs and representatives.
ARTICLE 9
Miscellaneous
-------------
9.1 Termination. In addition to the provisions regarding termination set
forth elsewhere herein, this Agreement and the transactions contemplated hereby
may be terminated at any time on or before the Closing Date:
(a) by mutual consent of CADI and MEDY;
(b) by either MEDY or CADI if the transactions contemplated by this
Agreement have not been completed by October 25, 1997, unless such failure of
completion is due to the failure of the terminating party to perform or observe
the covenants, agreements, and conditions hereof to be performed or observed by
it at or before the Closing Date;
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(c) by either CADI or MEDY if the transactions contemplated hereby
violate any nonappealable final order, decree, or judgment of any court or
governmental body or agency having competent jurisdiction; or
(d) by MEDY if the CADI Board of Directors withdraws or materially
modifies or changes its recommendation to the stockholders of CADI to approve
this Agreement and the Merger if there exists at such time an Acquisition
Proposal.
9.2 Expenses.
(a) Except as provided in (b) below, if the transactions contemplated
by this Agreement are not completed, each party hereto shall pay its own
expenses incurred in connection with this Agreement and the transactions
contemplated hereby.
(b) If, (i) this Agreement is terminated by MEDY pursuant to Section
9.1(d) hereof on or before the date set forth in Section 9.1(b) and while this
Agreement remains in effect, CADI enters into a definitive agreement with
respect to an Acquisition Proposal with any corporation, partnership, person or
other entity or group (other than MEDY or any affiliate of MEDY), and such
transaction (including any revised transaction based upon the Acquisition
Proposal) is thereafter completed (whether before or after such date) then CADI
shall pay to MEDY a fee equal to the sum of the documented fees, costs and
expenses, including legal and accounting fees incurred by MEDY in connection
with the transactions contemplated by this Agreement, which such amounts shall
be payable in same day funds to an account specified by MEDY.
9.3 Entire Agreement. This Agreement and the schedules hereto contain the
complete agreement among the parties with respect to the transactions
contemplated hereby and supersede all prior agreements and understandings among
the parties with respect to such transactions. Section and other headings are
for reference purposes only and shall not affect the interpretation or
construction of this Agreement. The parties hereto have not made any
representation or warranty except as expressly set forth in this Agreement or in
any certificate or schedule delivered pursuant hereto. The obligations of any
party under any agreement executed pursuant to this Agreement shall not be
affected by this section.
9.4 Survival of Representations and Warranties. The representations and
warranties of each party contained herein or in any schedule, certificate,
document or instrument delivered pursuant to this Agreement shall survive the
Closing for three years following the Effective Date.
9.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
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9.6 Notices. All notices, demands, requests, or other communications that
may be or are required to be given, served, or sent by any party to any other
party pursuant to this Agreement shall be in writing and shall be sent by
facsimile transmission, next-day courier or mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or transmitted by
hand delivery, addressed as follows:
(i) If to CADI:
Computer Age Dentist, Inc.
2525 Ocean Park Blvd., Suite 100
Santa Monica, CA 90405
Attention: Dan Richmond, CEO
Tel: 310-392-9177
Fax: 310-392-6198
with a copy (which shall not constitute notice) to:
Kessler & Kessler
2029 Century Park East, Suite 1520
Los Angeles, CA 90067
Attn: Warren J. Kessler, Esq.
Tel: 310-552-9800
Fax: 310-552-0442
(ii) If to MEDY or Merger Subsidiary:
Medical Dynamics, Inc.
99 Inverness Drive East
Englewood, Colorado 80112
Attention: Van A. Horsley, President
Tel: 303-790-2990
Fax: 303-708-8557
-36-
<PAGE>
with a copy (which shall not constitute notice) to:
Friedlob Sanderson Raskin Paulson & Tourtillott, LLC
1400 Glenarm Place
Third Floor
Denver, Colorado 80202
Attention: Herrick K. Lidstone, Jr., Esq.
Tel: (303) 571-1400
Fax: (303) 595-3159
Each party may designate by notice in writing a new address to which any
notice, demand, request, or communication may thereafter be so given, served, or
sent. Each notice, demand, request, or communication that is mailed, delivered,
or transmitted in the manner described above shall be deemed sufficiently given,
served, sent, and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt or the affidavit of
messenger being deemed conclusive evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
9.7 Successors; Assignments. This Agreement and the rights, interests, and
obligations hereunder shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned, by operation of law or otherwise, by any of the parties hereto without
the prior written consent of the other.
9.8 Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Colorado (except the choice of law
rules thereof).
9.9 Waiver and Other Action. This Agreement may be amended, modified, or
supplemented only by a written instrument executed by the parties against which
enforcement of the amendment, modification or supplement is sought.
9.10 Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully severable, and
this Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision were never a part hereof; the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance; and in lieu of
such illegal, invalid, or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable.
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<PAGE>
9.11 No Third Party Beneficiaries. Article 8 is intended for the benefit of
each "Manager" (as defined in Article 8) and may be enforced by such persons,
their heirs and representatives. Other than as expressly set forth in this
Section 9.11, nothing expressed or implied in this Agreement is intended, or
shall be construed, to confer upon or give any person, firm or corporation other
than the parties hereto and their stockholders, any rights, remedies,
obligations or liabilities under or by reason of this Agreement or result in
such person, firm or corporation being deemed a third party beneficiary of this
Agreement, even if such person is specifically named herein.
9.12 Mutual Contribution. The parties to this Agreement and their counsel
have mutually contributed to its drafting. Consequently, no provision of this
Agreement shall be construed against any party on the ground that such party
drafted the provision or caused it to be drafted or the provision contains a
covenant of such party.
9.13 Arbitration. Any controversy or dispute among the parties arising in
connection with this Agreement shall be submitted to a panel of three
arbitrators and finally settled by arbitration in accordance with the commercial
arbitration rules of the American Arbitration Association. Each of the disputing
parties shall appoint one arbitrator, and these two arbitrators shall
independently select a third arbitrator. Arbitration shall take place in Denver,
Colorado. The prevailing party in such arbitration shall be entitled to the
award of all costs and attorneys' fees in connection with such action. Any award
for monetary damages resulting from nonpayment of sums due hereunder shall bear
interest from the date on which such sums were originally due and payable.
Judgment upon the award rendered may be entered in any court having jurisdiction
or application may be made to such court for judicial acceptance of the award
and an order of enforcement, as the case may be.
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<PAGE>
9.14 Schedules. The following Schedules constitute a part of, and
incorporated into, this Agreement.
Schedule Description
-------- -----------
1.1 Promissory Note
3.2 CADI Subsidiaries and Investments
3.13 Material Contracts
3.17 Employment Agreements and Plans
4.9 Changes
6.7a Employment Agreement - Richmond
6.7b Employment Agreement - Kim
6.8 Form of Stock Option Agreement
6.9 Employee Stock Option Plan
6.10 Registration Rights Agreement
6.11 Opinion of Counsel to MEDY
7.6 Release of James DeVico, Jr.
7.8 Opinion of Counsel to CADI
7.9 Investment Letter
-39-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MEDICAL DYNAMICS, INC.
By:
---------------------------------------------------
Van A. Horsley, President
CADI ACQUISITION CORP.
By:
---------------------------------------------------
Van A. Horsley, President
COMPUTER AGE DENTIST, INC.
By:
---------------------------------------------------
Daniel L. Richmond, Chief Executive Officer
-40-
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "Agreement") is made and entered as
of this 31st day of October, 1997 by and between Medical Dynamics, Inc., a
Colorado corporation (the "Company") and The Tail Wind Fund, Ltd. (the
"Investor") pursuant to the Purchase Agreement of even date herewith by and
between the Company and the Investor (the "Purchase Agreement").
The parties hereby agree as follows:
1. Certain Definitions
As used in this Agreement, the following terms shall have the
following meanings:
"Common Stock" shall mean the Common Stock, par value $.001 per share,
of the Company.
"Debenture" means the Debentures in the aggregate principal amount of
$1,100,000 issued to the Investor pursuant to the Purchase Agreement.
"Prospectus" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
"Register," "registered" and "registration" refer to a registration
made by preparing and filing a registration statement or similar document in
compliance with the 1933 Act (as defined below), and the declaration or ordering
of effectiveness of such registration statement or document.
"Registrable Securities" shall mean (i) the Common Stock acquired upon
the conversion of the Debenture, (ii) the Common Stock issued as payment of
principal or accrued and unpaid interest on the Debentures (the number of shares
to be estimated for purposes of registration), (iii) the Common Stock acquired
upon the exercise of the Warrants, and (iv) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, such Common Stock, excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which its rights under this Agreement are not assigned.
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"Registration Statement" shall mean any registration statement of the
Company that covers any of the Registrable Securities pursuant to the provisions
of this Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.
"SEC" means the U.S. Securities and Exchange Commission.
"1933 Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Warrant" means the Warrant to purchase shares of Common Stock issued
to the Investor pursuant to the Purchase Agreement.
2. Registration.
(a) Registration Statement. Promptly following the closing of the
transactions contemplated by the Purchase Agreement (the "Closing Date") (but no
later than thirty days after the Closing Date), the Company shall prepare and
file with the SEC a registration statement on Form S-3 (or, if Form S-3 is not
then available to the Company, on such form of registration statement as is then
available to effect such a registration of the Registrable Securities, subject
to the Investor's consent) covering the resale of the Registrable Securities.
Such Registration Statement, to the extent allowable under the 1933 Act and the
Rules promulgated thereunder (including rule 416), shall state that such
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Debentures
to prevent dilution resulting from stock splits, stock dividends or similar
transactions or by reason of changes in the Conversion Price of the Debentures
in accordance with the terms thereof. No securities other than Registrable
Securities shall be included in the Registration Statement without the consent
of the Investor. The Registration Statement (and each amendment or supplement
thereto, and each request for acceleration of effectiveness thereof) shall be
provided to (and subject to the approval of) the Investor and its counsel prior
to its filing or other submission.
(b) Expenses. The Company will pay all expenses associated with the
registration, excluding discounts, commissions, fees of underwriters, selling
brokers, dealer managers or similar securities industry professionals relating
to the distribution of the Registrable Securities, and reasonable fees and
expenses of counsel to the Investor.
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<PAGE>
(c) Effectiveness.
(i) The Company shall use its best efforts to obtain the
effectiveness of the Registration Statement as soon as practicable. If (A) the
Registration Statement is not declared effective by the SEC within 90 days
following the Closing Date (the "Registration Date"), (B) after the Registration
Statement has been declared effective by the SEC, sales cannot be made pursuant
to the Registration Statement (by reason of a stop order, or the Company's
failure to update the Registration Statement), or (C) the Common Stock is not
listed or included for quotation on the Nasdaq SmallCap Market System, The
Nasdaq National Market System, the New York Stock Exchange or the American Stock
Exchange, then the Company will make payments to the Investor, as liquidated
damages and not as a penalty, in an amount equal to 2% of the aggregate
principal amount of the Debenture for each month or portion thereof following
the Registration Date during which the registration is not effective (which
remedy shall not be exclusive of any other remedies available at law or in
equity); provided, however, that such damages shall not accrue for an additional
period of twenty (20) days if the Registration Statement is reviewed by the SEC.
The Company shall bear all reasonable fees or costs incurred by the Investor for
legal counsel as a result of the filing of any post-effective amendments to the
Registration Statement. The amounts payable as liquidated damages pursuant to
this paragraph shall be payable in lawful money of the United States on the last
day of each month following the Registration Date or the date on which a
post-effective amendment is filed, as applicable.
(ii) The Company may terminate or suspend effectiveness of any
registration contemplated by this Section one time for a period of not more than
30 days if the Company shall deliver to the Investor a certificate signed by the
President of the Company stating that, in the good faith judgment of the Board
of Directors of the Company, it would (A) be seriously detrimental to the
business of the Company for such registration to be effected or remain effective
at such time, (B) interfere with any proposed or pending material corporate
transaction involving the Company or any of its subsidiaries, or (C) result in
any premature disclosure thereof.
(d) Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investor shall have the right to select one legal counsel and an investment
banker and manager to administer the offering, which investment banker or
manager shall be reasonably satisfactory to the Company.
3. Company Obligations. The Company will use its best efforts to effect the
registration and the resale of the Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will,
as expeditiously as possible:
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<PAGE>
(a) use its reasonable best efforts to cause such Registration
Statement to become effective and to remain continuously effective for a period
which will terminate when all Registrable Securities covered by such
Registration Statement, as amended from time to time, have been sold;
(b) prepare and file with the SEC such amendments and post- effective
amendments to the Registration Statement and the Prospectus as may be necessary
to keep the Registration Statement effective for the period specified in Section
3(a) and to comply with the provisions of the 1933 Act and the 1934 Act with
respect to the distribution of all Registrable Securities; provided that, at a
time reasonably prior to the filing of a Registration Statement or Prospectus,
or any amendments or supplements thereto, the Company will furnish to the
Investor copies of all documents proposed to be filed, which documents will be
subject to the comments of the Investor and its counsel;
(c) permit a single firm of counsel designated by the Investor to
review the Registration Statement and all amendments and supplements thereto a
reasonable period of time prior to their filing with the SEC, and not file any
document in a form to which such counsel reasonably objects;
(d) furnish to the Investor and its legal counsel (i) promptly after
the same is prepared and publicly distributed, filed with the SEC, or received
by the Company, one copy of the Registration Statement and any amendment
thereto, each preliminary prospectus and Prospectus and each amendment or
supplement thereto, and each letter written by or on behalf of the Company to
the SEC or the staff of the SEC, and each item of correspondence from the SEC or
the staff of the SEC, in each case relating to such Registration Statement
(other than any portion of any thereof which contains information for which the
Company has sought confidential treatment), and (ii) such number of copies of a
Prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
(e) in the event the Investor selects underwriters for the offering,
the Company shall enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of such
offering;
(f) at the request of the Investor, the Company shall furnish, on the
date that Registrable Securities are delivered to an underwriter, if any, for
sale in connection with the Registration Statement or, if such securities are
not being sold by an underwriter, on the date of effectiveness thereof (i) an
opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriter, if any, and the Investor and (ii) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
28366_1
<PAGE>
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
the Investors;
(g) make reasonable effort to prevent the issuance of any stop order
or other suspension of effectiveness and, if such order is issued, obtain the
withdrawal of any such order at the earliest possible moment;
(h) furnish to the Investor at least five copies of the Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits (including those incorporated by reference);
(i) deliver to the Investor as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as the Investor may reasonably request in order to facilitate the disposition of
the Registrable Securities;
(j) prior to any public offering of Registrable Securities, use its
reasonable best efforts to register or qualify or cooperate with the Investor
and its counsel in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue sky laws
of such jurisdictions as the Investor reasonably requests in writing and do any
and all other reasonable acts or things necessary or advisable to enable the
distribution in such jurisdictions of the Registrable Securities covered by the
Registration Statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any such jurisdiction where it is not then so subject;
(k) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange, interdealer quotation system
or other market on which similar securities issued by the Company are then
listed;
(l) immediately notify the Investor at any time when a Prospectus
relating thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of which, the
Prospectus included in such Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and at the request
of any such holder, promptly prepare and furnish to such holder a reasonable
number of copies of a supplement to or an amendment of such Prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such Registrable
Securities, such Prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the circumstances
then existing; and
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<PAGE>
(m) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC under the 1933 Act and the 1934 Act, take such other
actions as may be reasonably necessary to facilitate the registration or the
disposition of the Registrable Securities hereunder; and make available to its
security holders, as soon as reasonably practicable, but not later than the
Availability Date (as defined below), an earnings statement covering a period of
at least twelve months, beginning after the effective date of the applicable
Registration Statement, which earnings statement shall satisfy the provisions of
subsection 11(a) of the 1933 Act (for the purpose of this subsection 3(m),
"Availability Date" means the 45th day following the end of the fourth fiscal
quarter that includes the effective date of such Registration Statement, except
that, if such fourth fiscal quarter is the last quarter of the Company's fiscal
year, "Availability Date" means the 90th day after the end of such fourth fiscal
quarter).
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<PAGE>
4. Obligations of the Investor.
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities that the Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of such Registrable Securities
and shall execute such documents in connection with such registration as the
Company may reasonably request. At least three (3) business days prior to the
first anticipated filing date of the Registration Statement, the Company shall
notify the Investor of the information the Company requires from the Investor if
the Investor elects to have any of the Registrable Securities included in the
Registration Statement.
(b) The Investor, by its acceptance of the Registrable Securities,
agrees to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of the Registration Statement
hereunder, unless the Investor has notified the Company in writing of its
election to exclude all of the Registrable Securities from the Registration
Statement.
(c) In the event the Investor determines to engage the services of an
underwriter, the Investor agrees to enter into and perform its obligations under
an underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the dispositions of the
Registrable Securities.
(d) The Investor agrees that, upon receipt of any notice from the
Company of the happening of any event rendering the Registration Statement no
longer effective, the Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until the Investor's receipt of the copies of the
supplemented or amended prospectus filed with the SEC and declared effective
and, if so directed by the Company, the Investor shall deliver to the Company
(at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in the Investor's possession of the
prospectus covering the Registrable Securities current at the time of receipt of
such notice.
(e) The Investor may not participate in any underwritten registration
hereunder unless it (i) agrees to sell the Registrable Securities on the basis
provided in any underwriting arrangements in usual and customary form entered
into by the Company, (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements, and (iii) agrees to
pay its pro rata share of all underwriting discounts and commissions and any
expenses in excess of those payable by the Company pursuant to the terms of this
Agreement.
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<PAGE>
5. Indemnification.
(a) Indemnification by Company. The Company agrees to indemnify and
hold harmless, to the fullest extent permitted by law the Investor, its
officers, directors, partners and employees and each person who controls the
Investor (within the meaning of the 1933 Act) against all losses, claims,
damages, liabilities, costs (including, without limitation, reasonable
attorney's fees) and expenses caused by (i) any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, Prospectus
or any preliminary prospectus or any amendment or supplement thereto or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same are based upon any information furnished in writing
to the Company by the Investor, expressly for use therein, or (ii) any violation
by the Company of any federal, state or common law, rule or regulation
applicable to the Company in connection with any Registration Statement,
Prospectus or any preliminary prospectus, or any amendment or supplement
thereto, and shall reimburse, as incurred, each of the foregoing persons for any
legal and any other expenses reasonably incurred in connection with
investigating or defending any such claims. The foregoing is subject to the
condition that, insofar as the foregoing indemnities relate to any untrue
statement, alleged untrue statement, omission or alleged omission made in any
preliminary prospectus or Prospectus which is eliminated or remedied in any
Prospectus or amendment or supplement thereto, the above indemnity obligations
of the Company shall not inure to the benefit of any indemnified party if a copy
of such final Prospectus or amendment or supplement thereto had been made
available to such indemnified party and was not sent or given by such
indemnified party at or prior to the time such action is required of such
indemnified party by the 1933 Act and if delivery of such Prospectus or
amendment or supplement thereto would have eliminated (or been a sufficient
defense to) any liability of such indemnified party with respect to such
statement or omission. Indemnity under this Section 5(a) shall remain in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the permitted transfer of the Registrable
Securities.
(b) Indemnification by Holder of Registrable Securities. In connection
with any registration pursuant to the terms of this Agreement, the Investor will
furnish to the Company in writing such information as the Company reasonably
requests concerning the Investor or the proposed manner of distribution for use
in connection with any Registration Statement or Prospectus and agrees to
indemnify and hold harmless, to the fullest extent permitted by law, the
Company, its directors and officers and each person who controls the Company
(within the meaning of the 1933 Act) against any losses, claims, damages,
liabilities and expense resulting from any untrue statement of a material fact
or any omission of a material fact required to be stated in the Registration
Statement or Prospectus or preliminary prospectus or necessary to make the
statements therein not misleading, to the extent, but only to the extent, that
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<PAGE>
such untrue statement or omission is contained in any information furnished in
writing by the holder of Registrable Securities to the Company specifically for
inclusion in such Registration Statement or Prospectus and that such information
was substantially relied upon by the Company in preparation of the Registration
Statement or Prospectus or any amendment or supplement thereto. In no event
shall the liability of the Investor be greater in amount than the dollar amount
of the proceeds (net of all expense paid by such holder and the amount of any
damages such holder has otherwise been required to pay by reason of such untrue
statement or omission) received by the Investor upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any person entitled to
indemnification hereunder shall (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided that any person entitled to
indemnification hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such person unless (a) the indemnifying party
has agreed to pay such fees or expenses, or (b) the indemnifying party shall
have failed to assume the defense of such claim and employ counsel reasonably
satisfactory to such person or (c) in the reasonable judgment of any such
person, based upon written advice of its counsel, a conflict of interest may
exist between such person and the indemnifying party with respect to such claims
(in which case, if the person notifies the indemnifying party in writing that
such person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such person); and provided, further, that the failure of
any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations hereunder, except to the extent that such
failure to give notice shall materially adversely affect the indemnifying party
in the defense of any such claim or litigation. It is understood that the
indemnifying party shall not, in connection with any proceeding in the same
jurisdiction, be liable for fees or expenses of more than one separate firm of
attorneys (in addition to local counsel) at any time for all such indemnified
parties. No indemnifying party will, except with the consent of the indemnified
party, consent to entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.
(d) Contribution. If for any reason the indemnification provided for
in the preceding clauses (a) and (b) is unavailable to an indemnified party or
insufficient to hold it harmless, other than as expressly specified therein,
then the indemnifying party shall contribute to the amount paid or payable by
the indemnified party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault of the
indemnified party and the indemnifying party, as well as any other relevant
equitable considerations. No person guilty of fraudulent misrepresentation
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within the meaning of Section 11(f) of the 1933 Act shall be entitled to
contribution from any person not guilty of such fraudulent misrepresentation. In
no event shall the contribution obligation of a holder of Registrable Securities
be greater in amount than the dollar amount of the proceeds (net of all expenses
paid by such holder and the amount of any damages such holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission) received by it upon the sale of the Registrable Securities
giving rise to such contribution obligation.
6. Miscellaneous.
(a) Amendments and Waivers. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the Investor.
Notwithstanding the foregoing, this Agreement shall automatically be amended in
accordance with the provisions of this Section 6.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made as set forth in Section 9.4 of the Purchase
Agreement.
(c) Assignments and Transfers by Investor. This Agreement and all the
rights and obligations of the Investor hereunder may not be assigned or
transferred to any transferee or assignee except as set forth herein. The
Investor may make such assignment or transfer to any transferee or assignee of
any Registrable Securities, provided, that (i) such transfer is made expressly
subject to this Agreement and the transferee agrees in writing to be bound by
the terms and conditions hereof, and (ii) the Company is provided with written
notice of such assignment.
(d) Assignments and Transfers by the Company. This Agreement may not
be assigned by the Company without the prior written consent of Investor, except
that without the prior written consent of the Investor, but after notice duly
given, the Company shall assign its rights and delegate its duties hereunder to
any successor-in-interest corporation, and such successor-in-interest shall
assume such rights and duties, in the event of a merger or consolidation of the
Company with or into another corporation, or any merger or consolidation of
another corporation with or into the Company which results directly or
indirectly in an aggregate change in the ownership or control of more than 50%
of the voting rights of the equity securities of the Company, or the sale of all
or substantially all of the Company's assets.
(e) Benefits of the Agreement. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
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(f) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(g) Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(h) Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
(i) Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
(j) Further Assurances. The Parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
(l) Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Colorado without regard to
principles of conflicts of law.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
The Company: MEDICAL DYNAMICS, INC.
By:
-----------------------------------------
Name:
Title:
The Investor: THE TAIL WIND FUND, LTD.
By:
-----------------------------------------
Name:
Title:
28366_1
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made as of the 31st day of
October, 1997 by and between Medical Dynamics, Inc., a Colorado corporation (the
"Company"), and The Tail Wind Fund, Ltd., a British Virgin Islands limited
liability company (the "Investor").
In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. The following terms, as used herein, have the following
meanings:
1.1 "Affiliate" means, with respect to any person, any other person
which directly or indirectly controls, is controlled by, or is under common
control with, such person.
1.2 "Agreements" means this Agreement, the Registration Rights
Agreement and the Escrow Agreement.
1.3 "Closing" means the consummation of the transactions contemplated
by this Agreement, which shall occur simultaneously with the execution hereof.
1.4 "Common Stock" means the Common Stock, par value $.001 per share,
of the Company.
1.5 "Control" means the possession , direct or indirect, of the power
to direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract or otherwise.
1.6 "Debenture" means the Convertible Debenture issued to the Investor
in the aggregate principal amount of $1,100,000, the form of which is attached
hereto as Exhibit A.
1.7 "Escrow Agreement" means the Escrow Agreement dated as of October
1, 1997, as supplemented by a letter agreement dated October 21, 1997, by and
among the Company, Rochon Capital Group, Ltd. and LaSalle National Bank, the
form of which is attached hereto as Exhibit B.
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1.8 "Material Adverse Effect" means a material adverse effect on the
(i) condition (financial or otherwise), business, assets, results of operations
or prospects of the Company and its subsidiaries, taken as a whole; (ii) ability
of the Company to perform any of its material obligations under the terms of
this Agreement; or (iii) rights and remedies of the Investor under the terms of
this Agreement.
1.9 "Person" means an individual, corporation, partnership, trust,
business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
1.10 "Registration Rights Agreement" means the Registration Rights
Agreement relating to the Common Stock issuable pursuant to the conversion of
the Debentures and the exercise of the Warrants, in the form attached hereto as
Exhibit C, to be entered into as of the date hereof.
1.11 "SEC" means the Securities and Exchange Commission.
1.12 "SEC Filings" has the meaning set forth in Section 4.5.
1.13 "Securities" means the Debentures, the Common Stock issuable upon
the conversion of, or payable as accrued interest on, the Debentures, the
Warrants and the Common Stock issuable upon the exercise of Warrants.
1.14 "1933 Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
1.15 "1934 Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
1.16 "Warrant" means the Warrant issued to the Investor to purchase up
to an aggregate of 84,615 shares of Common Stock at the exercise price stated
therein, the form of which is attached hereto as Exhibit D.
2. Purchase and Sale of Debenture and Issuance of Warrant. Subject to the
terms and conditions of this Agreement, and in reliance on the representations
and warranties contained herein, the Investor hereby purchases and the Company
hereby sells and issues to the Investor (a) the Debenture at an aggregate
purchase price of $1,100,000, issued and delivered concurrently herewith to
LaSalle National Bank (the "Escrow Agent") in accordance with the terms of the
Escrow Agreement, in ten equal Debenture forms of $110,000 face amount each and
(b) the Warrant issued and delivered concurrently herewith to the Escrow Agent
in accordance with the terms of the Escrow Agreement. The Debentures and Warrant
will be released from escrow pursuant to the terms of the Escrow Agreement.
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3. Payment of Purchase Price. The Investor shall cause the purchase price
to be paid in full by wire transfer to the Escrow Agent in accordance with the
terms of the Escrow Agreement. The purchase price shall be released from escrow
pursuant to the terms of the Escrow Agreement.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investor that:
4.1 Organization, Good Standing and Qualification. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Colorado and has all requisite power and authority to carry
on its business and own its properties as now conducted and owned. The Company
and each of its subsidiaries is duly qualified or licensed to do business as a
foreign corporation in good standing in each jurisdiction in which the conduct
of its business or its ownership or leasing of property makes such qualification
or licensing necessary unless the failure to so qualify or be licensed would not
have a Material Adverse Effect.
4.2 Authorization. The Company has full power and authority and has
taken all requisite action on the part of the Company, its officers, directors
and stockholders necessary for (i) the authorization, execution and delivery of
the Agreements, (ii) the performance of all obligations of the Company hereunder
or thereunder, and (iii) the authorization, issuance (or reservation for
issuance) and delivery of the Securities. The Agreements constitute the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms.
4.3 Valid Issuance.
(a) The Company has reserved a sufficient number of shares of
Common Stock for issuance upon conversion of the Debenture and exercise of the
Warrant, and such shares, when issued in accordance with the respective terms of
the Debenture and the Warrant, will be duly authorized, validly issued, fully
paid, non-assessable and free and clear of all encumbrances and restrictions,
except for restrictions on transfer imposed by applicable securities laws.
(b) The authorized capital stock of the Company consists, solely of
15,000,000 shares of Common Stock and 5,000,000 shares of preferred stock. The
Company currently has 9,255,736 shares of Common Stock and no shares of
preferred stock issued and outstanding and there are no other outstanding shares
of capital stock of the Company. All of the issued and outstanding shares of the
Company's Common Stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights. Except as set forth on
Schedule 4.3, no one is entitled to preemptive or similar statutory or
contractual rights with respect to any securities of the Company. Except as
disclosed on Schedule 4.3 to this Agreement, there are no outstanding warrants,
options, convertible securities or other rights, agreements or arrangements of
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any character under which the Company is or may be obligated to issue any equity
securities of any kind, or to transfer any equity securities of any kind, and
the Company and its subsidiaries do not have any present plan or intention to
issue any equity securities of any kind, or to transfer any equity securities of
any kind owned by them. Except as disclosed on Schedule 4.3, the Company does
not know of any voting agreements, buy-sell agreements, option or right of first
purchase agreements or other agreements of any kind among any of the
securityholders of the Company relating to the securities held by them. Except
as disclosed on Schedule 4.3, the Company has not granted any Person the right
to require the Company to register any securities of the Company under the 1933
Act, whether on a demand basis or in connection with the registration of
securities of the Company for its own account or for the account of any other
Person.
(c) There are currently 1,443,037 shares of Common Stock issuable
pursuant to outstanding options granted by the Company to employees and
consultants; 1,200,000 shares of Common Stock issuable to Daniel Richmond and
Chae Uk Kim pursuant to the exercise of certain options contemplated by that
Agreement and Plan of Merger dated as of October 23, 1997 (the "Merger
Agreement") relating to the merger with Computer Age Dentist, Inc. ("CADI"); and
up to 250,000 shares of Common Stock issuable upon the exercise of certain
options to be issued to certain employees of CADI. The number of outstanding
shares of Common Stock, as indicated above, plus the number of shares of Common
Stock issuable pursuant to outstanding rights and agreements on a fully diluted
basis, assuming the complete exercise or conversion of all rights to acquire
capital stock of the Company until such rights and subsequent rights incident to
exercise or conversion are fully exercised or converted for Common Stock,
together represent 12,148,773 shares of Common Stock immediately prior to the
Closing.
4.4 Consents. The execution, delivery and performance by the Company
of the Agreements and the offer, issue and sale of the Securities require no
consent of, action by or in respect of, or filing with, any Person, governmental
body, agency, or official other than filings that have been made pursuant to
applicable state securities laws and post-sale filings pursuant to applicable
state and federal securities laws and the requirements of Nasdaq, which the
Company undertakes to file within the applicable time periods.
4.5 Delivery of SEC Filings; Business. The Company has delivered or
made available to the Investor true and correct copies of (i) its most recent
Annual Report on Form 10-KSB, (ii) its quarterly reports on Form 10-QSB for each
fiscal quarter subsequent to that fiscal year end, and (iii) any other documents
filed with the Securities and Exchange Commission (the "SEC") since the filing
of its most recent Annual Report on Form 10-KSB (collectively, the "SEC
Filings"). The Company and its subsidiaries are engaged only in the business
described in the SEC Filings and the SEC Filings contain a complete and accurate
description of the business of the Company and its subsidiaries.
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<PAGE>
4.6 Use of Proceeds. The proceeds of the sale of the Securities
hereunder shall be used by the Company for working capital, operating capital
and, to the extent available, costs associated with the acquisition by the
Company of Computer Age Dentist, Inc. pursuant to the agreement described fully
on Schedule 4.3 hereto.
4.7 No Material Adverse Change. Except as set forth in Schedule 4.7,
since the filing of the Company's most recent Annual Report on Form 10-KSB or as
otherwise identified and described in subsequent reports filed by the Company
pursuant to the 1934 Act, there has not been:
(i) any change in the consolidated assets, liabilities, financial
condition or operating results of the Company from that reflected in the
financial statements included in the Company's most recent Quarterly Report on
Form 10-QSB, except changes in the ordinary course of business which have not
had, in the aggregate, a Material Adverse Effect;
(ii) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of the
Company, or any redemption or repurchase of any securities of the Company;
(iii) any material damage, destruction or loss, whether or not
covered by insurance to any assets or properties of the Company or any of its
subsidiaries;
(iv) any waiver by the Company or any of its subsidiaries of a
valuable right or of a material debt owed to it;
(v) any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company or any of its subsidiaries, except
in the ordinary course of business and which is not material to the assets,
properties, financial condition, operating results or business of the Company
and its subsidiaries taken as a whole (as such business is presently conducted
and as it is proposed to be conducted);
(vi) any material change or amendment to a material contract or
arrangement by which the Company or any of their subsidiaries or any of its
assets or properties is bound or subject;
(vii) any material change in any compensation arrangement or
agreement with any employee of the Company or any of its subsidiaries who now
earns, or who would earn as a result of such change, in excess of $100,000 per
annum or any other officer of the Company or any of its subsidiaries;
(viii) any labor difficulties or labor union organizing activities
with respect to employees of the Company or any of its subsidiaries;
28368_1
<PAGE>
(ix) any transaction entered into by the Company or any of its
subsidiaries other than in the ordinary course of business; or
(x) any other event or condition of any character which might have
a Material Adverse Effect that is not reflected in the SEC Filings.
4.8 SEC Filings; Material Contracts.
(a) As of its filing date, each report filed by the Company with
the SEC pursuant to the 1934 Act, complied as to form in all material respects
with the requirements of the 1934 Act and did not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.
(b) Each registration statement and any amendment thereto filed by
the Company pursuant to the 1933 Act and the rules and regulations thereunder,
as of the date such statement or amendment became effective, complied as to form
in all material respects with the 1933 Act and did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading; and
each prospectus filed pursuant to Rule 424(b) under the 1933 Act, as of its
issue date and as of the closing of any sale or securities pursuant thereto did
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
(c) Except as listed in Schedule 4.8 hereto, there are no
agreements or instruments currently in force and effect that constitute a
"material contract" (as such term is defined in Item 601(b)(10) of Regulation
S-K) of the Company or that constitute a warrant, option, convertible security
or other right, agreement or arrangement of any character under which the
Company is or may be obligated to issue any equity security of any kind, or to
transfer any equity security of any kind. The Company has delivered to the
Investor prior to the Closing full and complete copies of all agreements
indicated in Schedule 4.8 hereto.
4.9 Disclosures. No representation or warranty made under any Section
hereof and no information furnished by the Company pursuant hereto, or in any
other document, certificate or statement furnished by the Company to the
Investor or any authorized representative of the Investor, pursuant to the
Agreements or in connection therewith, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the respective
statements contained herein or therein, in light of the circumstances under
which the statements were made, not misleading.
4.10 Registration Rights. The registration rights granted to the
Investor pursuant to the Registration Rights Agreement are at least as favorable
to the Investor as those granted to any holder of any securities of the Company
are to such holder.
28368_1
<PAGE>
4.11 No Breach, Violation or Default. The execution, delivery and
performance of the Agreements and the issuance and sale of the Securities will
not result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company or any subsidiary of the Company or any of their
properties, or any agreement or instrument to which the Company or any such
subsidiary is a party or by which the Company or any such subsidiary is bound or
to which any of the properties of the Company or any such subsidiary is subject,
or the Certificate of Incorporation or By-Laws of the Company or any such
subsidiary.
4.12 Tax Returns and Payments. The Company and its subsidiaries have
correctly and timely prepared and filed all tax returns required to have been
filed by it with all appropriate federal, state and local governmental agencies
and timely paid all taxes owed by them. The charges, accruals and reserves on
the books of the Company and its subsidiaries in respect of taxes for all fiscal
periods are adequate in all material respects, and there are no material unpaid
assessments of the Company or any subsidiary nor, to the knowledge of the
Company, any basis for the assessment of any additional taxes, penalties or
interest for any fiscal period or audits by any federal, states or local taxing
authority except such as which are not material. All material taxes and other
assessments and levies which the Company or any subsidiary is required to
withhold or to collect for payment have been duly withheld and collected and
paid to the proper governmental entity or third party. There are no tax liens or
claims pending or threatened against the Company or any subsidiary or any of
their respective assets or property. There are no outstanding tax sharing
agreements or other such arrangements between the Company or any subsidiary and
any other corporation or entity.
4.13 Title to Properties. Except as disclosed in the SEC Filings, the
Company and its subsidiaries have good and marketable title to all real
properties and all other properties and assets owned by them, in each case free
from liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or currently planned to be
made thereof by them; and except as disclosed in the SEC Filings, the Company
and its subsidiaries hold any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.
4.14 Certificates, Authorities and Permits. The Company and its
subsidiaries possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by them and have not received any notice of proceedings relating to
the revocation or modification of any such certificate, authority or permit
that, if determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect.
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4.15 No Labor Disputes. No labor dispute with the employees of the
Company or any subsidiary exists or, to the knowledge of the Company, is
imminent that might have a Material Adverse Effect.
4.16 Intellectual Property. The Company and its subsidiaries own or
possess adequate trademarks and trade names and have all other rights to
inventions, know-how, patents, copyrights, confidential information and other
intellectual property (collectively, "Intellectual Property Rights"), free and
clear of all liens, security interests, charges, encumbrances, equities and
other adverse claims, necessary to conduct the business now operated by them, or
presently employed by them, and presently contemplated to be operated by them,
and have not received any notice of infringement of or conflict with asserted
rights of others with respect to any Intellectual Property Rights that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect. No proprietary
technology of any Person was used in the design or development by the Company of
(or otherwise with respect to) any of the Intellectual Property Rights which
technology was not properly acquired by the Company from such Person.
4.17 Environmental Matters. Neither the Company nor any of its
subsidiaries is in violation of any statute, rule, regulation, decision or order
of any governmental agency or body or any court, domestic or foreign, relating
to the use, disposal or release of hazardous or toxic substances or relating to
the protection or restoration of the environment or human exposure to hazardous
or toxic substances (collectively, "Environmental Laws"), owns or operates any
real property contaminated with any substance that is subject to any
Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim would
individually or in the aggregate have a Material Adverse Effect; and the Company
is not aware of any pending investigation which might lead to such a claim.
4.18 Litigation. Except as disclosed in the SEC Filings, there are no
pending actions, suits or proceedings against or affecting the Company, any of
its subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or in
the aggregate have a Material Adverse Effect or would materially and adversely
affect the ability of the Company to perform its obligations under this
Agreement, or which are otherwise material in the context of the sale of the
Securities; and to the Company's knowledge, no such actions, suits or
proceedings are threatened or contemplated.
4.19 Financial Statements. The financial statements included in each
SEC Filing present fairly the consolidated financial position of the Company and
its subsidiaries as of the dates shown and their consolidated results of
operations and cash flows for the periods shown, and such financial statements
have been prepared in conformity with the generally accepted accounting
principles applied on a consistent basis.
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4.20 Insurance Coverage. The Company and its subsidiaries maintain in
full force and effect insurance coverage that is customary for comparably
situated companies for the business being conducted, and properties owned or
leased, by the Company and its subsidiaries, and the Company reasonably believes
such insurance coverage to be adequate against all liabilities, claims and risks
against which it is customary for comparably situated companies to insure.
4.21 Compliance with Nasdaq Continued Listing Requirements. The
Company is in compliance with all applicable Nasdaq Small Cap Market continued
listing requirements.
5. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Company that:
5.1 Organization and Existence. The Investor is a validly existing
limited liability company and has all requisite corporate power and authority to
invest in the Securities pursuant to this Agreement. The Investor is not a
resident of the United States or any state, district or territory thereof.
5.2 Authorization. The execution, delivery and performance by the
Investor of the Agreements have been duly authorized and the Agreements will
each constitute the valid and legally binding obligation of the Investor,
enforceable against the Investor in accordance with their terms.
5.3 Purchase Entirely for Own Account. The Securities to be received
by such Investor hereunder will be acquired for investment for the Investor's
own account, not as nominee or agent, and not with a view to the resale or
distribution of any part thereof, and the Investor has no present intention of
selling, granting any participation in, or otherwise distributing the same.
5.4 Investment Experience. The Investor acknowledges that it can bear
the economic risk and complete loss of its investment in the Securities and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment contemplated
hereby.
5.5 Disclosure of Information. The Investor has had an opportunity to
ask questions and receive answers from the Company regarding the Company, its
business and the terms and conditions of the offering of the Securities. Neither
such inquiries nor any other due diligence investigation conducted by the
Investor shall modify, amend or affect the Investor's right to rely on the
Company's representations and warranties contained in this Agreement or made
pursuant to this Agreement.
5.6 Restricted Securities. The Investor understands that the
Securities are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
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transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.
5.7 Legends. It is understood that, until registration for resale
pursuant to the Registration Rights Agreement, certificates evidencing the
Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the Securities
Act of 1933 (the "Act"). They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under the Act or an exemption from the registration
requirements of the Act."
(b) If required by the authorities of any state in connection with
the issuance of sale of the Securities, the legend required by such state
authority.
Upon registration for resale pursuant to the Registration Rights
Agreement, all certificates evidencing the Common Stock shall be issued free of
such restrictive legends.
5.8 Accredited Investor. The Investor is an accredited investor as
defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.
5.9 No General Solicitation. The Investor did not learn of the
investment in the Securities as a result of any public advertising or general
solicitation.
6. Registration Rights Agreement. The parties acknowledge and agree that
part of the inducement for the Investor to enter into this Agreement is the
Company's execution and delivery of the Registration Rights Agreement. The
parties acknowledge and agree that simultaneously with the execution hereof, the
Registration Rights Agreement is being duly executed and delivered by the
parties thereto.
7. Covenants and Agreements of the Company.
7.1 Rights of Investor upon Certain Sales. The Company agrees that for
so long as the Debenture is outstanding, it shall give thirty days advance
written notice to the Investor prior to any offer or sale of any of its equity
securities or any securities convertible into or exchangeable or exercisable for
such securities. In addition, prior to the closing of any such sale for cash,
the Investor shall have the following rights, which must be exercised in writing
by the Investor within ten business days following the receipt of notice from
the Company:
(a) With respect to any sale which is to take place from the date
hereof through the 90-day period following the effective date of the
registration contemplated by the Registration Rights Agreement, the Investor
shall have the right to require the Company to redeem the Debenture at a
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purchase price equal to 115% of the outstanding principal amount of the
Debenture, plus unpaid accrued interest thereon. Funds for such redemption must
be paid directly to the Investor upon closing by the Company of such sale out of
the proceeds from such sale.
(b) With respect to any sale which is to take place from the date
hereof through the period of one year following the effective date of any
registration contemplated by the Registration Rights Agreement, the Investor
shall have the right to participate in such offering and purchase such equity
securities for the same consideration and on the same terms and conditions as
contemplated for such third-party sale.
The provisions of subparagraphs (a) and (b) of this Section 7.1 shall not apply
in the event of the non-public offer and sale by the Company of shares of its
Common Stock for other than cash, so long as the Common Stock so issued is
restricted from further transfer or sale for a period of one year from the date
of such issuance. The foregoing notwithstanding, there shall be excepted from
the operation of this provision up to 240,000 shares of the Company to be issued
by the Company in connection with the Company's acquisition of Computer Age
Dentist, Inc., which shares shall be registered for resale by the Company within
the twelve months following the date of this Agreement.
7.2 Limitation on Acquisitions by Company. Commencing on the date
hereof and continuing for a period of one year following the effective date of
the registration contemplated by the Registration Rights Agreement, the Company
agrees that it shall not, directly or indirectly, in one or a series of
transactions, purchase all or substantially all of the assets of, or greater
than a majority of the outstanding securities of any entity having an after-tax
loss in excess of $100,000 for the most recent four fiscal quarters from the
closing date of any such acquisition by the Company (or the earlier date on
which the Company makes any payment, in cash, stock or kind, in connection
therewith), without obtaining the prior written consent of the Investor.
7.3 Opinion of Counsel. The Company has delivered, simultaneously with
the execution and delivery of this Agreement, the opinion of Friedlob Sanderson,
its counsel, in the form attached hereto as Exhibit E.
7.4 Reservation of Common Stock Pursuant to Conversion of Debenture
and Exercise of Warrants. The Company hereby agrees to at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of permitting conversion of the Debenture and exercise of the
Warrant, such number of shares of Common Stock as shall from time to time equal
1.5 times the number of shares sufficient to permit the complete conversion of
the Debenture plus the number of shares of Common Stock as shall be necessary to
permit the exercise of the Warrant in accordance with the respective terms of
the Debenture and the Warrant.
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7.5 Reports. The Company will furnish to the Investor the following
reports:
(a) Quarterly Reports. As soon as available and in any event within
45 days after the end of each fiscal quarter of the Company, the Company's Form
10-QSB or, in the absence of a Form 10-QSB, consolidated balance sheets of the
Company and its subsidiaries as at the end of such period and the related
consolidated statements of operations, stockholders' equity and cash flows for
such period and for the portion of the Company's fiscal year ended on the last
day of such quarter, all in reasonable detail and certified by a principal
financial officer of the Company to have been prepared in accordance with
generally accepted accounting principles, subject to year-end and audit
adjustments.
(b) Annual Reports. As soon as available and in any event within 90
days after the end of each fiscal year of the Company, the Company's Form 10-KSB
or, in the absence of a Form 10-KSB, consolidated balance sheets of the Company
and its subsidiaries as at the end of such year and the related consolidated
statements of earnings, stockholders' equity and cash flows for such year, all
in reasonable detail and accompanied by the report on such consolidated
financial statements of an independent certified public accountant selected by
the Company and reasonably satisfactory to the Investor.
(c) Securities Filings. As promptly as practicable and in any event
within five days after the same are issued or filed, copies of (i) all press
releases issued by the Company or any subsidiary, and all notices, proxy
statements, financial statements, reports and documents as the Company or any
subsidiary shall send or make available generally to its stockholders or to
financial analysts, and (ii) all periodic and special reports, documents and
registration statements (other than on Form S-8) which the Company or any
subsidiary furnishes or files, or any officer or director of the Company or any
of its subsidiaries (in such person's capacity as such) furnishes or files with
the SEC.
(d) Material Adverse Effects. As promptly as practicable and in any
event within five days after any executive officer of the Company obtains
knowledge of the existence of any condition or event (including, without
limitation, the filing of any litigation against or the commencement of any
proceeding or investigation involving the Company or any subsidiary), which has
resulted in, or could reasonably be expected to result in, a Material Adverse
Effect, written notice specifying in reasonable detail the nature of such
condition or event and what action the Company proposes to take with respect
thereto.
(e) Other Information. Such other information relating to the
Company or its subsidiaries as from time to time may reasonably be requested by
the Investor provided the Company produces such information in its ordinary
course of business.
28368_1
<PAGE>
7.6 No Conflicting Agreements. The Company will not, and will not
permit its subsidiaries to, take any action, enter into any agreement or make
any commitment which would conflict or interfere in any material respect with
the obligations to the Investor under the Agreements.
7.7 Insurance. The Company shall, and shall cause each subsidiary to,
have in full force and effect (a) insurance reasonably believed to be adequate
on all assets and activities of a type customarily insured, covering property
damage and loss of income by fire or other casualty, and (b) insurance
reasonably believed to be adequate protection against all liabilities, claims
and risks against which it is customary for companies similarly situated as the
Company and the subsidiaries to insure.
7.8 Compliance with Laws. The Company will use reasonable efforts, and
will cause each of its subsidiaries to use reasonable efforts, to comply in all
material respects with all applicable laws, rules, regulations, orders and
decrees of all governmental authorities, except to the extent non-compliance (in
one instance or in the aggregate) would not have a Material Adverse Effect.
7.9 Corporate Governance. For so long as the Convertible Debenture, or
any portion thereof, is outstanding and/or the Investor is the beneficial owner
of the Company's Common Stock, the Company:
(a) Shall distribute to its shareholders copies of an annual report
containing audited financial statements of the Company and its subsidiaries a
reasonable period of time prior to the Company's annual meeting of shareholders;
(b) Shall maintain a minimum of two independent directors on its
board of directors;
(c) Shall hold an annual meeting of shareholders each and every
year;
(d) Shall solicit proxies and provide proxy statements for all
meetings of shareholders;
(e) From and after February 22, 1998, shall obtain shareholder
approval of (i) a plan or arrangement pursuant to which stock may be acquired by
officers or directors of the Company (except for warrants or rights issued
generally to shareholders of the Company or broadly based plans or arrangements
including other employees of the Company); (ii) an issuance of the Company's
securities when the issuance will result in a change of control; (iii) an
issuance of the Company's securities in connection with the acquisition of
another company if shareholder approval of such issuance is required under
applicable Nasdaq rules; and (iv) any other issuance of the Company's securities
if shareholder approval of such issuance is required under applicable Nasdaq
rules.
28368_1
<PAGE>
7.10 Additional Authorized Capital. The Company hereby agrees that it
shall recommend to its shareholders, and seek to obtain from its shareholders,
approval of an increase in the authorized capital stock of the Company to at
least 20,000,000 shares of Common Stock, which approval shall be sought no later
than the 1998 annual meeting of shareholders of the Company to be held before
July 1, 1998.
8. Survival. All representations, warranties, covenants and agreements
contained in this Agreement shall be deemed to be representations, warranties,
covenants and agreements as of the date hereof and shall survive the execution
and delivery of this Agreement for a period of five years and six months from
the date of this Agreement; provided, however, that the provisions contained in
Section 7 hereof shall survive in accordance therewith.
9. Miscellaneous.
9.1 Successors and Assigns. This Agreement may not be assigned by
either party without the prior written consent of the other party hereto, except
that without the prior written consent of the Company, but after notice duly
given, the Investor may assign its rights and delegate its duties hereunder to
an Affiliate, and without the prior written consent of Investor, but after
notice duly given, the Company may assign its rights and delegate its duties
hereunder to any successor-in-interest corporation in the event of a merger or
consolidation of the Company with or into another corporation, or any merger or
consolidation of another corporation with or into the Company which results
directly or indirectly in an aggregate change in the ownership or control of
more than 50% of the voting rights of the equity securities of the Company, or
the sale of all or substantially all of the Company's assets. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective permitted successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
9.2 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.3 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.4 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified, or if sent
by telex or telecopier, upon receipt of the correct answer back, or upon deposit
with the United States Post Office, by registered or certified mail, or upon
28368_1
<PAGE>
deposit with an overnight air courier, in each case postage prepaid and
addressed to the party to be notified at the address as follows, or at such
other address as such party may designate by ten days' advance written notice to
the other party:
If to the Company:
Medical Dynamics, Inc.
99 Inverness Drive East
Englewood, CO 80112
Attn: Van A. Horsley
Telephone: 303/790-2990
Facsimile: 303/799-1378
with a copy to:
Friedlob Sanderson et al.
1400 Genarm Place
Denver, CO 80202
Attn: Herrick Lidstone, Jr.
Telephone: 303/571-1400
Facsimile: 303/595-3159
If to the Investor:
The Tail Wind Fund, Ltd.
Windermere House
404 East Bay Street
P.O. Box SS-5539
Nassau, Bahamas
Telephone:
Facsimile:
with a copy to:
The Tail Wind Fund, Ltd.
c/o European American Securities, Inc.
One Regent Street, 4th Floor
London SW1Y 4NS
England
Attn: David Crook
Telephone: 44-171-468-7660
Facsimile: 44-171-468-7657
28368_1
<PAGE>
and with a copy to:
Bryan Cave LLP
700 Thirteenth Street, N.W.
Washington, D.C. 20005
Attn: LaDawn Naegle
Telephone: 202/508-6046
Facsimile: 202/508-6200
9.5 Expenses. The Company shall pay all costs and expenses incurred
with respect to the negotiation, execution, delivery and performance of the
Agreements, including, without limitation, the fees of Bryan Cave LLP, counsel
to the Investor, in an amount up to $10,000.
9.6 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Investor. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Securities purchased under this Agreement at the time outstanding,
each future holder of all such securities, and the Company.
9.7 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
9.8 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto, and the Registration Rights Agreement constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.
9.9 Further Assurances. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
9.10 Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Colorado without regard
to principles of conflicts of laws.
28368_1
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
The Company:
MEDICAL DYNAMICS, INC.
By:
--------------------------------
Name: Van A. Horsley
Title: President
The Investor: THE TAIL WIND FUND, LTD.
By:
--------------------------------
Name:
Title:
28368_1
FORM OF CONVERTIBLE DEBENTURE 1997CD -
-----------------------------
001
$110,000 October 31, 1997
FOR VALUE RECEIVED, the undersigned, Medical Dynamics, Inc., a Colorado
corporation (the "Company"), promises to pay to the order of The Tail Wind Fund,
Ltd., or the holder hereof, on October 31, 2000 ("Due Date"), the principal sum
of One Hundred Ten Thousand Dollars ($110,000), or, if less, the unpaid
principal amount outstanding at such time, in either case together with all
accrued and unpaid interest thereon.
The Company also promises to pay interest semi-annually from the date
hereof on the unpaid principal amount hereof at a rate of eight percent (8%) per
annum. Interest on this Debenture shall be computed on the basis of a 360-day
year. Interest through the last day of the preceding calendar semi-annual period
shall be payable on or before the fifth day of each April and October,
commencing in April 1998.
1. Payments
All payments by the Company hereunder shall be payable in lawful money of
the United States in immediately available funds by wire transfer to an account
designated in writing by the Investor, or in the case of conversion of principal
and, at the option of the Company, payment of interest, in shares of common
stock of the Company, par value $.001 per share (the "Common Stock"), valued at
the Conversion Price (for the conversion of principal) and at the Market Price
(for the payment of interest), not later than 5:00 p.m., Mountain time on the
day when due to the holder at the following address:
The Tail Wind Fund, Ltd.
c/o Mees Pierson Fund Services
Fourth Floor Russell House
Dublin 2 IRELAND 1M14LE
United Kingdom
or at such other place as the holder hereof may from time to time designate in
writing to the Company. Whenever any payment to be made pursuant to this
Debenture shall be stated to be due on a public holiday, Saturday or Sunday,
such payment may be made on the next succeeding business day. Such extension of
time shall not in such case be included in computing interest, if any, in
connection with such payment.
28364_1
<PAGE>
2. Conversion of Debenture
(a) From time to time, until all unpaid principal and accrued and
unpaid interest under this Debenture is paid, the holder of this Debenture shall
have the right to convert (i) at any time from and after January 29, 1998, up to
one-third of the principal amount of this Debenture, (ii) at any time from and
after February 28, 1998, up to an aggregate of two-thirds of the principal
amount of this Debenture, and (iii) at any time from and after March 30, 1998,
all of the principal amount of this Debenture, in whole or in part, into an
amount of duly authorized, fully-paid and non-assessable shares of Common Stock
determined by dividing such principal amount to be so converted by the
Conversion Price (as hereinafter defined), and upon the terms and subject to the
conditions hereinafter specified in this Section 2. Any unpaid principal amount
of this Debenture outstanding on October 31, 2000, together with any accrued and
unpaid interest thereon, shall automatically convert to Common Stock at the
Conversion Price (defined below).
(b) In order to convert this Debenture into shares of Common Stock,
the holder shall: (i) fax a copy of the fully executed notice of conversion in
the form attached hereto ("Notice of Conversion") to the Company at the office
of the Company or its designated transfer agent, if any, for the Debentures,
which notice shall specify the amount of the Debenture to be converted, the
applicable Conversion Price, and a calculation of the number of shares of Common
Stock issuable upon such conversion (together with a copy of the first page of
this Debenture) prior to 5:00 p.m., Mountain time (the "Conversion Notice
Deadline") on the date of conversion specified on the Notice of Conversion; and
(ii) surrender the original Debenture being converted, along with a copy of the
Notice of Conversion as soon as practicable thereafter to the office of the
Company or the transfer agent, if any, for the Debentures; provided, however,
that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless either the Debenture
is delivered to the Company or its transfer agent as provided above, or the
holder notifies the Company or its transfer agent that such original Debenture
has been lost, stolen or destroyed. In the case of a dispute as to the
calculation of the Conversion Price, the Company shall promptly issue such
number of shares of Common Stock that are not disputed in accordance with
subparagraph (c) below. The Company shall submit the disputed calculations to
its outside accountant via facsimile within two (2) business days of receipt of
the Notice of Conversion. The accountant shall audit the calculations and notify
the Company and the holder of the results no later than 48 hours from the time
it receives the disputed calculations. The accountant's calculation shall be
deemed conclusive absent manifest error.
(c) Upon the surrender of the Debenture as described above accompanied
by the Notice of Conversion, the Company shall issue and, within two (2)
business days (the "Delivery Period") after such surrender (or, in the case of
lost, stolen or destroyed Debenture, after provision of an agreement and
indemnification by the holder to the Company), direct its transfer agent to
deliver to or upon the order of the holder (i) that number of shares of Common
28364_1
<PAGE>
Stock for the portion of the Debenture converted as shall be determined in
accordance herewith and (ii) a new Debenture representing the balance of the
principal amount of the Debenture surrendered but not converted, if any. In
addition to any other remedies available to the holder, including actual damages
and/or equitable relief, the Company shall pay to the holder $250 in cash for
the third day beyond such Delivery Period that the Company fails to deliver
Common Stock issuable upon surrender of the Debenture with a Notice of
Conversion, and $500 per day in cash for each day thereafter, until such time as
the earlier of the date that the Company has delivered all such Common Stock and
the tenth day beyond such Delivery Period. Such cash amount shall be paid to
such holder by the fifth day of the month following the month in which it has
accrued. In the event the Company fails to deliver such Common Stock prior to
the expiration of the ten (10) business day period after the Delivery Period for
any reason (whether due to a requirement of law or a stock exchange or
otherwise), such holder shall be entitled to (in addition to any other remedies
available to the holder) Conversion Default Payments in accordance with Section
2(h) hereof beginning on the expiration of such ten (10) business day period.
(d) If any conversion of this Debenture would result in a fractional
share of Common Stock or the right to acquire a fractional share of Common
Stock, such fractional share shall be disregarded and Company shall pay in cash
to the holder the value of such fractional share based on the Market Price on
the Conversion Date.
(e) The "Conversion Date" shall be the date specified in the Notice of
Conversion, provided (i) that the advance copy of the Notice of Conversion is
faxed to the Company before 5:00 p.m., Mountain time, on the Conversion Date,
and (ii) that the original Debenture is surrendered along with a copy of the
Notice of Conversion as soon as practicable thereafter to the office of the
Company or the transfer agent for the Debentures. The person or persons entitled
to received the shares of Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such securities as of the
Conversion Date and all rights with respect to the Debenture fully surrendered
shall forthwith terminate except the right to receive the shares of Common Stock
or other securities or property issuable on such conversion.
(f) The Conversion Price per share ( "Conversion Price") at which
shares of Common Stock shall be issuable upon conversion of this Debenture shall
be equal to 100% of the Market Price on the business day immediately preceding
the Conversion Date; provided, however, that the Conversion Price shall not
exceed $3.45. "Market Price" shall mean the average of the two lowest closing
bid prices of the Common Stock as reported by The Nasdaq Stock Market over the
sixty trading day period ending on the date in question.
(g) In order to prevent dilution of the conversion rights granted
under this Section 2, the Conversion Price shall be subject to adjustment from
time to time as follows:
28364_1
<PAGE>
(i) If the Common Stock shall be changed into the same or a
different number of shares of any class or classes of capital stock, whether by
capital reorganization, recapitalization, reclassification or otherwise or in
the event of a merger or consolidation of the Company with or into another
corporation or the sale of substantially all of the Company's assets to any
other person, then and in each such event the holder of this Debenture shall
have the right thereafter to convert this Debenture or any portion thereof into
the kind and amount of shares of capital stock and other securities and property
receivable upon such reorganization, recapitalization, reclassification, merger,
consolidation, sale or other change by a holder of the number of shares of
Common Stock into which this Debenture might have been converted immediately
prior to such reorganization, recapitalization, reclassification, merger,
consolidation, sale or change.
(ii) If any event occurs of the type contemplated by the provisions
of this Section 2(g) but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
board of directors shall make an appropriate adjustment in the Conversion Price
so as to protect the rights of the holder of this Debenture; provided that no
such adjustment shall increase the Conversion Price as otherwise determined
pursuant to this Section 2(g) or decrease the number of shares of Common Stock
issuable upon conversion of this Debenture.
(iii) Immediately upon any adjustment of the Conversion Price, the
Company shall give written notice thereof to the holder of this Debenture,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
(h) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of
effecting the conversion of this Debenture, such number of shares of Common
Stock as shall from time to time be issuable upon the conversion of this
Debenture; and if at any time the number of authorized but unissued and issued
but not outstanding shares of the Common Stock, on a fully diluted basis, shall
not be sufficient to effect the conversion of this Debenture at the Conversion
Price then in effect, the Company will take such corporate action as may be
necessary to increase its authorized but unissued or issued but not outstanding
shares of the Common Stock to such number of shares as shall be sufficient for
such purpose. The Company covenants that all shares of Common Stock which shall
be so issuable, when issued upon conversion of this Debenture, shall be duly and
validly issued, fully-paid and non-assessable. If at any time a holder submits a
Conversion Notice, the Company does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of this Section 2 (a "Conversion Default"), the Company shall
issue to the holder all of the shares of Common Stock which are available to
effect such conversion. The number of shares included in the Notice of
Conversion which exceeds the amount which is then convertible into available
shares of Common Stock (the "Excess Amount") shall, notwithstanding anything to
the contrary contained herein, not be convertible into Common Stock in
28364_1
<PAGE>
accordance with the terms hereof until (and at the holder's option at any time
after) the date additional shares of Common Stock are authorized by the Company
to permit such conversion, at which time the Conversion Price in respect thereof
shall be the lesser of (i) the Conversion Price on the Conversion Default Date
(as defined below) and (ii) the Conversion Price on the Conversion Date elected
by the holder in respect thereof. The Company shall pay to the holder payments
("Conversion Default Payments") for a Conversion Default in the amount of
(N/365), multiplied by the sum of the principal amount of the Debenture sought
to be converted, multiplied by the Excess Amount on the first day of the
Conversion Default (the "Conversion Default Date"), multiplied by .36, where N =
the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Company authorizes a sufficient number of shares
of Common Stock to effect conversion of the full amount of the Debenture. The
Company shall send notice to the holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of holder's
accrued Conversion Default Payments. The accrued Conversion Default Payments for
each calendar month shall be paid in cash or shall be convertible into Common
Stock at the Conversion Price, at the holder's option, as follows:
(i) In the event holder elects to take such payment in cash, cash
payment shall be made to holder by the fifth day of the month following the
month in which it has accrued; and
(ii) In the event holder elects to take such payment in Common
Stock, the holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of Conversion) at any time after the
fifth day of the month following the month in which it has accrued in accordance
with the terms of this Section 2.
Nothing herein shall limit the holder's right to pursue actual damages for the
Company's failure to maintain a sufficient number of authorized shares of Common
Stock, and each holder shall have the right to pursue all remedies available at
law or in equity (including a decree of specific performance and/or injunctive
relief).
(i) Notwithstanding anything to the contrary herein, conversion of
this Debenture shall not be permitted, and the Company shall not pay any amounts
due to the holder of this Debenture in the form of shares of Common Stock, if
such conversion or payments would result in the holder of this Debenture owning
more than 4.99% of the issued and outstanding shares of Common Stock following
conversion or payment (such percentage to be calculated in accordance with Rule
13d-3 promulgated under the Securities Exchange Act of 1934).
(j) The issuance of certificates for shares of the Common Stock upon
the conversion of this Debenture shall be made without charge to the holder
hereof for any issuance tax in respect of the issuance of such certificates or
other cost incurred by the Company in connection with such conversion and the
related issuance of shares of Common Stock.
28364_1
<PAGE>
3. Covenant. The Company agrees at all times that it will not, by any
amendment of the Company's Articles of Incorporation, or through any
consolidation, merger, reorganization, transfer of assets, dissolution, issue or
sale of securities or any other voluntary action, seek to avoid the observance
or performance hereof, but will at all times take such actions as are necessary
or appropriate in order to protect the rights of the holder of this Debenture.
4. Events of Default
(a) In addition to the Default provisions provided above in respect of
Conversion, an "Event of Default" shall exist if any of the following occurs and
is continuing:
(i) Failure to make any payment of principal or interest on the
Debenture when such payment is due, other than the final payment due on the Due
Date;
(ii) Failure to make payment of all outstanding principal and
interest on the Debenture on the Due Date;
(iii) Failure to comply with any other provision of this Debenture
and such failure continues for more than five (5) business days after the holder
hereof has given written notice of such failure to the Company;
(iv) The Common Stock is not listed or included for quotation on
The Nasdaq SmallCap Market System, The Nasdaq National Market System, the New
York Stock Exchange or the American Stock Exchange;
(v) Any levy, seizure, attachment, execution or similar process
shall be levied on a material portion of the Company's property; or
(vi) A receiver, custodian, liquidator or trustee of the Company,
or of any of the property of the Company, is appointed by court order; or the
Company is adjudicated bankrupt or insolvent; or any of the property of the
Company is sequestered by court order; or a petition to reorganize the Company
under any bankruptcy, reorganization or insolvency law is filed against the
Company and is not dismissed within sixty (60) days after such filing; or the
Company files a voluntary bankruptcy petition or requesting reorganization or
arrangement under any provision of any bankruptcy, reorganization or insolvency
law, or consents to the filing of any petition against it under any such law; or
the Company makes a general assignment for the benefit of its creditors, or
admits in writing its inability to pay its debts generally as they become due,
or consents to the appointment of a receiver, trustee or liquidator of the
Company or of all or any part of the property of the Company.
28364_1
<PAGE>
(b) If an Event of Default specified in Section 4(a)(i) exists, then
this Debenture shall accrue additional interest on all unpaid amounts of
principal and interest from the date of the Event of Default at a rate equal to
the greater of (i) fifteen percent (15%) per annum or (ii) the highest amount
allowable by law.
(c) If an Event of Default other than an Event of Default specified in
Section 4(a)(i) exists, then the holder of this Debenture may exercise any
right, power or remedy conferred upon it by law, and shall have the right to
declare by written notice the entire principal and all interest accrued on such
Debenture to be, and such Debenture shall thereupon become, forthwith due and
payable without any declaration, presentment, demand, protest or notice of any
kind. The Company shall forthwith pay to the holder of this Debenture the entire
principal and interest accrued on such Debenture.
5. Registration. The initial holder of this Debenture is entitled to the
benefit of certain registration rights in respect of the shares of Common Stock
into which this Debenture may be coverted pursuant to that Registration Rights
Agreement dated effective October 31, 1997.
6. Miscellaneous
(a) Every maker, endorser and guarantor of this Debenture or the
obligation represented by this Debenture waives presentment, demand, notice,
protest and all other demands or notices, in connection with the delivery,
acceptance, endorsement, performance, default or enforcement of this Debenture,
assents to any and all extensions or postponements of the time of payment or any
other indulgences, including without limitation, the release or substitution of
collateral, and agrees to be bound by all of the terms contained in the
Debenture.
(b) No delay or omission by the holder hereof in exercising any right
or remedy hereunder shall constitute a waiver of any such right or remedy. A
waiver on one occasion shall not operate as a bar to or waiver of any such right
or remedy on any future occasion.
(c) The Company shall pay all reasonable costs and expenses of
collection, including attorney's fees, incurred or paid by the holder hereof in
enforcing this Debenture and the obligations evidenced hereby.
(d) This Debenture may be amended only by written agreement of the
Company and the holder hereof.
(e) This Debenture is governed by the laws of the State of Colorado
and is executed as a sealed instrument as of the date first above written.
IN WITNESS WHEREOF, the Company has caused this Debenture to be executed
and delivered by its duly authorized officer as of the day and year first
written above.
MEDICAL DYNAMICS, INC.
By:
----------------------------------------
Title:
-------------------------------------
[Corporate Seal]
28364_1
<PAGE>
MEDICAL DYNAMICS, INC.
CONVERTIBLE DEBENTURE
NOTICE OF CONVERSION
MEDICAL DYNAMICS, INC.
99 Inverness Drive East
Englewood, CO 80112
The undersigned hereby elects to convert $_______________ of the
Convertible Debenture represented by the within Convertible Debenture for, and
to acquire thereunder _______________ shares of Common Stock ("Conversion
Shares") as provided for therein, and requests that certificates for the
Conversion Shares be issued as follows:
-------------------------------
Name
--------------------------------
Address
--------------------------------
--------------------------------
--------------------------------
Federal Tax Identification No.
or Social Security No.
and, if the amount of the principal of the Convertible Debenture being converted
hereby shall not be all of the principal amount of such Convertible Debenture,
that a new Convertible Debenture
28364_1
<PAGE>
for the balance of such Convertible Debenture be issued forthwith to the holder
or the undersigned's Assignee as below indicated and delivered to the address
stated below.
Dated:
---------------------------
Signature:
------------------------------
------------------------------
Name (please print)
------------------------------
Address
------------------------------
------------------------------
Federal Identification or
Social Security No.
Note: The above signature must correspond
with the name of the registered holder
as written on the first page of the
Convertible Debenture in every
particular, without alteration or
enlargement or any change whatever,
unless the Convertible Debenture has
been assigned.
28364_1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of October 1, 1997 (this
"Agreement"), is made by and between MEDICAL DYNAMICS, INC., a Colorado
corporation (the "Company"), and the persons named on the signature page hereto
(the "Shareholders").
W I T N E S E T H:
WHEREAS, upon the terms and subject to the conditions of the Agreement and
Plan of Merger dated as of October 1, 1997 between Computer Age Dentist, Inc., a
California corporation ("CADI"), and the Company (the "Merger Agreement"), the
Company has agreed to issue to the undersigned (the "Shareholders"), as the sole
holders of outstanding common stock of CADI, shares ("Merger Shares") of the
Company's common stock; and
WHEREAS, to induce the Shareholders to approve the Merger Agreement as a
holder of CADI common stock, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Merger Shares.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Shareholders
hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Shareholders and any transferee or assignee
who agrees to become bound by the provisions of this Agreement.
(ii) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "Registrable Securities" means 240,000 of the Merger Shares.
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(iv) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as defined above) and (ii) each person who is a permitted transferee
or assignee of the Registrable Securities.
(c) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Merger Agreement.
2. Registration.
(a) Mandatory Registration. Within 12 months following the date
hereof, the Company shall prepare and file with the SEC and use its best efforts
to obtain effectiveness of, a Registration Statement on Form S-3 covering not
fewer than the Registrable Securities.
3. Obligations of the Company. In connection with the registration of
the Registrable Securities, the Company shall do each of the following.
(a) Prepare and file with the SEC a Registration Statement with
respect to not less than Registrable Securities as provided in Section 2(a),
above, and thereafter use its best efforts to cause such Registration Statement
to become effective;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) Furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel identified to the Company,
(i) promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents,
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor;
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<PAGE>
(d) Use reasonable efforts, at the Investors' expense, to (i) register
and qualify the Registrable Securities covered by the Registration Statement
under such other securities or blue sky laws of such jurisdictions as the
Investors being offered reasonably request and in which significant volumes of
shares of Common Stock are traded, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof at all times during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (A) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (B) subject itself
to general taxation in any such jurisdiction, (C) file a general consent to
service of process in any such jurisdiction, (D) provide any undertakings that
cause more than nominal expense or burden to the Company or (E) make any change
in its articles of incorporation or by-laws, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of the
Company and its stockholders;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to each Investor as such Investor may reasonably
request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold of the issuance
by the SEC of a Notice of Effectiveness or any notice of effectiveness or any
stop order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request and registered in such names as the Investors may request; and, within
three (3) business days after a Registration Statement which includes
Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel selected by the Company to deliver, to
the transfer agent for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement) an
appropriate instruction and opinion of such counsel; and
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(j) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Investors of the Registrable Securities pursuant
to the Registration Statement.
4. Obligations of the Investors. In connection with the registration
of the Registrable Securities, the Investors shall have the following
obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. At
least five days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor (the "Requested Information") if such Investor
elects to have any of such Investor's Registrable Securities included in the
Registration Statement. If at least two (2) business days prior to the filing
date the Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e) or
3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. Expenses of Registration. The Company will be required to pay all
reasonable expenses incurred pursuant to this agreement not including, however:
(i) underwriting discounts and commissions incurred in connection with
registrations, filings, qualifications or sale of the Registrable Securities
4
<PAGE>
pursuant to Section 3; (ii) the expenses of blue sky qualification; and (iii)
the expenses of any attorney, accountant, investment advisor or other consultant
retained by the Shareholders, or either of them, in connection with this the
Registration Statement or this agreement.
6. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person"), against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus if
used prior to the effective date of such Registration Statement, or contained in
the final prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or alleged
omission to state therein any material fact necessary to make the statements
made therein, in light of the circumstances under which the statements therein
were made, not misleading or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). The Company shall reimburse the Investors, promptly
as such expenses are incurred and are due and payable, for any legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a) shall not
(I) apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(b) hereof; (II) with respect to
any preliminary prospectus, inure to the benefit of any such person from whom
the person asserting any such Claim purchased the Registrable Securities that
are the subject thereof (or to the benefit of any person controlling such
5
<PAGE>
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(b) hereof; (III) be available to the extent such Claim is
based on a failure of the Investor to deliver or cause to be delivered the
prospectus made available by the Company; or (IV) apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Each
Investor will indemnify the Company and its officers, directors and agents
against any claims arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company, by or on behalf of such Investor, expressly for use in connection with
the preparation of the Registration Statement, subject to such limitations and
conditions as are applicable to the Indemnification provided by the Company to
this Section 6. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors.
(b) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the reasonable fees and
expenses to be paid by the indemnifying party, if, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such counsel
of the Indemnified Person or Indemnified Party and the indemnifying party would
be inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In such event, the Company shall pay for only one
separate legal counsel for the Investors; such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person or Indemnified Party under this Section
6, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
6
<PAGE>
7. Contribution. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company, in addition to its other agreements contained herein,
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. No Assignment. The rights under this agreement are not assignable
except by will or the laws of descent and distribution.
10. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold a majority in interest of
the Registrable Securities. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company.
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<PAGE>
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail, return receipt requested,
properly addressed and with proper postage pre-paid (i) if to the Company, at 99
Inverness Drive East, Englewood, CO 80110, Attn: Van A. Horsley, President, with
a copy to Herrick K. Lidstone, Jr., Esq., Friedlob Sanderson Raskin Paulson &
Tourtillott, LLC, 1400 Glenarm Place, Suite 300, Denver, Colorado 80202 (ii) if
to the Investors, at the address set forth under their names, below, with a copy
to Warren J. Kessler, Esq., Kessler & Kessler, 2029 Century Park East, Suite
1520, Los Angeles, California 90067, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b), and shall be
effective, when personally delivered, upon receipt and, when so sent by
certified mail, four calendar days after deposit with the United States Postal
Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Colorado. In any litigation brought to enforce the
provisions hereof, each party shall bear its own attorneys fees and expenses
unless a court, in the exercise of its discretion, awards such costs and fees to
the prevailing party. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto. This Agreement may be signed in one or
more counterparts, each of which shall be deemed an original. The headings of
this Agreement are for convenience of reference and shall not form part of, or
affect the interpretation of, this Agreement. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
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<PAGE>
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) This Agreement shall inure to the benefit of and be binding upon
the permitted successors and assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
MEDICAL DYNAMICS, INC.
October 23, 1997 By:
---------------------------------------
Van A. Horsley, President
[Shareholders]
October 23, 1997 ------------------------------------------
Dan Richmond
6500 Barid Avenue
Reseda, California 91335
Number of Registrable Securities: 60,000 shares
October 23, 1997 ------------------------------------------
Chae Uk Kim
3231 Cheviot Vista Place
#205
Los Angeles, California 90034
Number of Registrable Securities: 60,000 shares
October 23, 1997 ------------------------------------------
James DeVico, Jr.
2546 Westwood Boulevard
Los Angeles, California 90064
Number of Registrable Securities: 120,000 shares
10
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT COVERING THIS WARRANT UNDER SAID ACT OR AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT.
VOID AFTER 5:00 P.M. MOUNTAIN TIME ON OCTOBER 31, 2002 ("EXPIRATION DATE").
MEDICAL DYNAMICS, INC.
WARRANT TO PURCHASE 84,615 SHARES OF
COMMON STOCK, PAR VALUE $.001 PER SHARE
This is to certify that, for VALUE RECEIVED, The Tail Wind Fund, Ltd.
("Warrantholder"), is entitled to purchase, subject to the provisions of this
Warrant, from Medical Dynamics, Inc., a Colorado corporation ("Company"), at any
time not later than 5:00 P.M., Mountain time, on the Expiration Date, at an
exercise price per share equal to 120% of the Market Price (defined below),
provided that in no event shall such amount be greater than $3.375 nor less than
the closing price of the Company's Common Stock, par value $.001 per share (the
"Common Stock") on the Closing Date (defined below) (the exercise price in
effect being herein called the "Warrant Price"), 84,615 shares ("Warrant
Shares") of Common Stock. The number of Warrant Shares purchasable upon exercise
of this Warrant and the Warrant Price shall be subject to adjustment from time
to time as described herein. The "Market Price" shall mean the average of the
two lowest closing bid prices of the Common Stock as reported by The Nasdaq
Stock Market over the 60 calendar day period immediately preceding the Closing
Date. The "Closing Date" shall be that date on which the Company and the
Warrantholder close the transactions contemplated by that Purchase Agreement
dated as of October 31, 1997.
Section 1. Registration. The Company shall maintain books for the transfer
and registration of the Warrant. Upon the initial issuance of the Warrant, the
Company shall issue and register the Warrant in the name of the Warrantholder.
Section 2. Transfers. As provided herein, the Warrant may be transferred
only pursuant to a registration statement filed under the Securities Act of
1933, as amended ("Securities Act") or an exemption from registration
thereunder. Subject to such restrictions, the Company shall transfer from time
to time, the Warrant, upon the books to be maintained by the Company for that
purpose, upon surrender thereof for transfer properly endorsed or accompanied by
appropriate instructions for transfer upon any such transfer, and a new Warrant
shall be issued to the transferee and the surrendered Warrant shall be canceled
by the Company.
28367_1
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Section 3. Exercise of Warrant. Subject to the provisions hereof, the
Warrantholder may exercise the Warrant in whole or in part at any time upon
surrender of the Warrant, together with delivery of the duly executed Warrant
exercise form attached hereto (the "Exercise Agreement"), to the Company during
normal business hours on any business day at the Company's principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), and upon (i) payment to the Company in cash, by
certified or official bank check or by wire transfer for the account of the
Company of the Warrant Price for the Warrant Shares specified in the Exercise
Agreement or (ii) delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined below) for the Warrant Shares specified
in the Exercise Agreement. The Warrant Shares so purchased shall be deemed to be
issued to the holder hereof or such holder's designee, as the record owner of
such shares, as of the close of business on the date on which this Warrant shall
have been surrendered (or evidence of loss, theft or destruction thereof), the
completed Exercise Agreement shall have been delivered, and payment shall have
been made for such shares as set forth above. Certificates for the Warrant
Shares so purchased, representing the aggregate number of shares specified in
the Exercise Agreement, shall be delivered to the holder hereof within a
reasonable time, not exceeding two (2) business days, after this Warrant shall
have been so exercised. The certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall be registered
in the name of such holder or such other name as shall be designated by such
holder. If this Warrant shall have been exercised only in part, then, unless
this Warrant has expired, the Company shall, at its expense, at the time of
delivery of such certificates, deliver to the holder a new Warrant representing
the number of shares with respect to which this Warrant shall not then have been
exercised.
To effect a Cashless Exercise, the holder shall submit to the Company with
the Exercise Agreement, written notice of the holder's intention to do so,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof. In the event of a
Cashless Exercise, in lieu of paying the Warrant Price in cash, the holder shall
surrender this Warrant for that number of shares of Common Stock determined by
multiplying the number of Warrant Shares to which it would otherwise be entitled
by a fraction, the numerator of which shall be the difference between the then
current Market Price per share of the Common Stock and the Exercise Price, and
the denominator of which shall be the then current Market Price per share of the
Common Stock. For this purpose, the "Market Price" of the Common Stock shall be
the closing price of the Common Stock on the trading day first preceding the
date of the Exercise Agreement.
To the extent that any Warrant Shares remain outstanding at 5:01 P.M.,
Mountain time on October 31, 2002, such outstanding Warrant Shares shall
automatically expire and be of no further force and effect, and the holders
thereof shall have no further right to exercise or transfer the same.
28367_1
<PAGE>
Section 4. Compliance with the Securities Act of 1933. Neither this Warrant
nor the Common Stock issued upon exercise hereof nor any other security issued
or issuable upon exercise of this Warrant may be offered or sold except as
provided in this agreement and in conformity with the Securities Act of 1933, as
amended, and then only against receipt of an agreement of such person to whom
such offer of sale is made to comply with the provisions of this Section 4 with
respect to any resale or other disposition of such security. The Company may
cause the legend set forth on the first page of this Warrant to be set forth on
each Warrant or similar legend on any security issued or issuable upon exercise
of this Warrant, unless counsel for the Company is of the opinion as to any such
security that such legend is unnecessary.
Section 5. Payment of Taxes. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Warrant Shares issuable upon the
exercise of the Warrant; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issue or delivery of any certificates for Warrant Shares in a
name other than that of the registered holder of the Warrant in respect of which
such shares are issued, and in such case, the Company shall not be required to
issue or deliver any certificate for Warrant Shares or any Warrant until the
person requesting the same has paid to the Company the amount of such tax or has
established to the Company's satisfaction that such tax has been paid. The
holder shall be responsible for income taxes due under federal or state law, if
any such tax is due.
Section 6. Mutilated or Missing Warrants. In case the Warrant shall be
mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and
substitution of and upon cancellation of the mutilated Warrant, or in lieu of
and substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and for the purchase of a like number of Warrant Shares, but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction of the Warrant, and with respect to a lost, stolen or
destroyed Warrant, reasonable indemnity or bond, if requested by the Company.
Section 7. Reservation of Common Stock. The Company hereby represents
and warrants that there have been reserved, and the Company shall at all
applicable times keep reserved, out of the authorized and unissued Common Stock,
a number of shares sufficient to provide for the exercise of the rights of
purchase represented by the Warrant, and the Continental Stock Transfer & Trust
Company, the transfer agent for the Common Stock ("Transfer Agent"), and every
subsequent transfer agent for the Common Stock or other shares of the Company's
capital stock issuable upon the exercise of any of the right of purchase
aforesaid shall be irrevocably authorized and directed at all times to reserve
such number of authorized and unissued shares of Common Stock as shall be
requisite for such purpose. The Company agrees that all Warrant Shares issued
upon exercise of the Warrant shall be, at the time of delivery of the
certificates for such Warrant Shares, duly authorized, validly issued, fully
paid and non-assessable shares of Common Stock of the Company. The Company will
keep a conformed copy of this Warrant on file with the Transfer Agent and with
every subsequent transfer agent
28367_1
<PAGE>
for the Common Stock or other shares of the Company's capital stock issuable
upon the exercise of the rights of purchase represented by the Warrant. The
Company will supply from time to time the Transfer Agent with duly executed
stock certificates required to honor the outstanding Warrant.
Section 8. Warrant Price. The Warrant Price, subject to adjustment as
provided in Section 9, shall, if payment is made in cash or by certified check,
be payable in lawful money of the United States of America.
Section 9. Adjustments. Subject and pursuant to the provisions of this
Section 9, the Warrant Price and number of Warrant Shares subject to this
Warrant shall be subject to adjustment from time to time as set forth
hereinafter. If the adjustment provisions contained in this Section 9 are less
favorable to the holders of this Warrant than adjustment provisions available to
any other holder (the "Other Holder") of convertible securities of the Company
or warrants, options or similar rights exercisable for Common Stock of the
Company with respect to such securities ("Other Rights") are to any such Other
Holder, this Warrant shall be immediately and automatically amended, without the
requirement of any action by the holder or the Company, to provide the holder of
this Warrant with adjustment rights at least as favorable as such Other Rights.
(a) If the Company shall at any time or from time to time while the
Warrant is outstanding, pay a dividend or make a distribution on its Common
Stock in shares of Common Stock, subdivide its outstanding shares of Common
Stock into a greater number of shares or combine its outstanding shares into a
smaller number of shares or issue by reclassification of its outstanding shares
of Common Stock any shares of its capital stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then the number of Warrant Shares
purchasable upon exercise of the Warrant and the Warrant Price in effect
immediately prior to the date upon which such change shall become effective,
shall be adjusted by the Company so that the Warrantholder thereafter exercising
the Warrant shall be entitled to receive the number of shares of Common Stock or
other capital stock which the Warrantholder would have received if the Warrant
had been exercised immediately prior to such event. Such adjustment shall be
made successively whenever any event listed above shall occur.
(b) If any capital reorganization, reclassification of the capital
stock of the Company, consolidation or merger of the Company with another
corporation, or sale, transfer or other disposition of all or substantially all
of the Company's properties to another corporation shall be effected, then, as a
condition of such reorganization, reclassification, consolidation, merger, sale,
transfer or other disposition, lawful and adequate provision shall be made
whereby each Warrantholder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions herein specified and in
lieu of the Warrant Shares immediately theretofore issuable upon exercise of the
Warrant, such shares of stock, securities or properties as may be issuable or
payable with respect to or in exchange for a number of outstanding Warrant
Shares equal to the number of Warrant Shares immediately theretofore issuable
28367_1
<PAGE>
upon exercise of the Warrant, had such reorganization, reclassification,
consolidation, merger, sale, transfer or other disposition not taken place, and
in any such case appropriate provision shall be made with respect to the rights
and interests of each Warrantholder to the end that the provisions hereof
(including, without limitations, provision for adjustment of the Warrant Price)
shall thereafter be applicable, as nearly equivalent as may be practicable in
relation to any shares of stock, securities or properties thereafter deliverable
upon the exercise thereof. The Company shall not effect any such consolidation,
merger, sale, transfer or other disposition unless prior to or simultaneously
with the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger, or the corporation
purchasing or otherwise acquiring such assets or other appropriate corporation
or entity shall assume, by written instrument executed and delivered to the
Company, the obligation to deliver to the holder of the Warrant such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to purchase and the other obligations under this
Warrant.
The above provisions of this paragraph (b) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales,
transfers or other dispositions.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends or distributions referred to in Section 9(a)), or
subscription rights or warrants, the Warrant Price to be in effect after such
record date shall be determined by multiplying the Warrant Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the total number of shares of Common Stock outstanding multiplied by
the Market Price per share of Common Stock (as determined pursuant to Section
3), less the fair market value (as determined by the Company's Board of
Directors in good faith) of said assets or evidences of indebtedness so
distributed, or of such subscription rights or warrants, and the denominator of
which shall be the total number of shares of Common Stock outstanding multiplied
by such current Market Price per share of Common Stock. Such adjustment shall be
made successively whenever such a record date is fixed.
(d) An adjustment shall become effective immediately after the record
date in the case of each dividend or distribution and immediately after the
effective date of each other event which requires an adjustment.
(e) In the event that, as a result of an adjustment made pursuant to
Section 9(a), the holder of the Warrant shall become entitled to receive any
shares of capital stock of the Company other than shares of Common Stock, the
number of such other shares so receivable upon exercise of the Warrant shall be
28367_1
<PAGE>
subject thereafter to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Warrant
Shares contained in this Warrant.
(f) Shares of Common Stock owned by or held for the account of the
Company or any majority-owned subsidiary shall not be deemed outstanding for the
purpose of any computation under this Agreement.
Section 10. Fractional Interest. The Company shall not be required to issue
fractions of Warrant Shares upon the exercise of the Warrant. If any fraction of
a Warrant Share would, except for the provisions of this Section, be issuable
upon the exercise of the Warrant (or specified portions thereof), the Company
shall purchase such fraction for an amount in cash equal to the current market
value of such fraction based upon the current Market Price (determined pursuant
to Section 3) of a Warrant Share. All calculations under this Section 10 shall
be made to the nearest cent or to the nearest one-hundredth of a share, as the
case may be.
Section 11. Benefits. Nothing in this Warrant shall be construed to give
any person, firm or corporation (other than the Company and the Warrantholder)
any legal or equitable right, remedy or claim, it being agreed that this Warrant
shall be for the sole and exclusive benefit of the Company and the
Warrantholder.
Section 12. Notices to Warrantholder. Upon the happening of any event
requiring an adjustment of the Warrant Price, the Company shall forthwith give
written notice thereof to the Warrantholder at the address appearing in the
records of the Company, stating the adjusted Warrant Price and the adjusted
number of Warrant Shares resulting from such event and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based. The certificate of the Company's independent certified
public accountants shall be conclusive evidence of the correctness of any
computation made, absent manifest error. Failure to give such notice to the
Warrantholder or any defect therein shall not affect the legality or validity of
the subject adjustment.
Section 13. Identity of Transfer Agent. The Transfer Agent for the Common
Stock is Continental Stock Transfer & Trust Company, 2 Broadway, New York, New
York 10004. Forthwith upon the appointment of any subsequent transfer agent for
the Common Stock or other shares of the Company's capital stock issuable upon
the exercise of the rights of purchase represented by the Warrant, the Company
will mail to the Warrantholder a statement setting forth the name and address of
such transfer agent.
Section 14. Notices. Any notice pursuant hereto to be given or made by the
Warrantholder to or on the Company shall be sufficiently given or made if sent
by certified mail, return receipt requested, postage prepaid, addressed as
follows:
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<PAGE>
Medical Dynamics, Inc.
99 Inverness Drive East
Englewood, CO 80112
Attn: Van A. Horsley
Telephone: 303/790-2990
Facsimile: 303/799-1378
or such other address as the Company may specify in writing by notice to the
Warrantholder complying as to delivery with the terms of this Section 14.
Any notice pursuant hereto to be given or made by the Company to or on the
Warrantholder shall be sufficiently given or made if sent by certified mail,
return receipt requested, postage prepaid, to the address set forth on the books
of the Company or, as to each of the Company and the Warrantholder, at such
other address as shall be designated by such party by written notice to the
other party complying as to delivery with the terms of this Section 14. All such
notices, requests, demands, directions and other communications shall, when
mailed be effective when deposited in the mails addressed as aforesaid.
Section 15. Registration Rights. The initial holder of this Warrant is
entitled to the benefit of certain registration rights in respect of the Warrant
Shares as provided in the Registration Rights Agreement dated effective October
31, 1997.
Section 16. Successors. All the covenants and provisions hereof by or for
the benefit of the Investor shall bind and inure to the benefit of its
respective successors and assigns hereunder.
Section 17. Governing Law. This Warrant shall be deemed to be a contract
made under the laws of the State of Colorado and for all purposes shall be
construed in accordance with the laws of said State.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be duly
executed, as of the day and year first above written.
MEDICAL DYNAMICS, INC.
By:
-----------------------------------
Name:
Title:
Attest:
- ------------------------------
<PAGE>
MEDICAL DYNAMICS, INC.
WARRANT EXERCISE FORM
MEDICAL DYNAMICS, INC.
99 Iverness Drive East
Englewood, CO 80112
This undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant ("Warrant") for, and to purchase
thereunder by (CHECK AS APPLICABLE) [] payment by cash or certified check; []
conversion of the within Warrant by surrender of the Warrant, _______________
shares of Common Stock* ("Warrant Shares") provided for therein, and requests
that certificates for the Warrant Shares be issued as follows:
-------------------------------
Name
--------------------------------
Address
--------------------------------
--------------------------------
--------------------------------
Federal Tax Identification No.
or Social Security No.
and, if the number of Warrant Shares shall not be all the Warrant Shares
purchasable upon exercise of the Warrant, that a new Warrant for the balance of
the Warrant Shares
*NOTE: If conversion of the Warrant is made by surrender of the
Warrant and the number of shares indicated exceeds the
maximum number of shares to which a holder is entitled, the
Company will issue such maximum number of shares.
<PAGE>
purchasable upon exercise of the Warrant be registered in the name of the
undersigned Warrantholder or the undersigned's Assignee as below indicated and
delivered to the address stated below.
Dated:
---------------------------
Signature:
------------------------------
------------------------------
Name (please print)
------------------------------
Address
------------------------------
------------------------------
Federal Identification or
Social Security No.
Note: The above signature must
correspond with the name of the
registered holder as written on the
first page of the Warrant in every
particular, without alteration or
enlargement or any change
whatever, unless the Warrant has
been assigned.
