As filed with the Securities and Exchange Commission on September __ , 1998
File No. 333-_________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MEDICAL DYNAMICS, INC.
----------------------
(Exact name of Registrant as specified in charter)
Colorado 84-0631765
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
99 Inverness Drive East
Englewood, Colorado 80112
(303) 790-2990
--------------
(Address, including zip code and telephone
number, including area
code, of registrant's principal executive
offices)
Van A. Horsley, President
99 Inverness Drive East
Englewood, Colorado 80112
(303) 790-2990
--------------
(Name, address, including zip code and
telephone number, including area
code, of agent for service)
It is requested that copies of all correspondence be sent to:
Herrick K. Lidstone, Jr., Esq.
Norton o Lidstone, LLC
5445 DTC Parkway, Suite 850
Englewood, Colorado 80111-3053
Telephone Number (303) 221-5552
Facsimile Number (303) 221-5553
-------------------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box:
_____
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [xx]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------
Title of Shares to Amount to be Proposed maximum Proposed maximum Amount of
be registered registered aggregate price aggregate Registration
per unit offering price Fee
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common (1) 1,125,000 $2.0625 $2,320,312 $684
- ----------------------------------------------------------------------------------------
Common (2) 630,000 $2.0625 $1,299,375 $383
- ----------------------------------------------------------------------------------------
Common (3) 150,000 $2.58 $387,000 $114
- ----------------------------------------------------------------------------------------
Total 1,905,000 $4,006,687 $1,181
- ----------------------------------------------------------------------------------------
</TABLE>
Pursuant to Rule 416 of the Securities Act of 1933 and as required by
Section 2(a) of the registration rights agreement between the Company and the
Selling Stockholder, this registration statement shall be deemed to cover such
additional shares as may be issued to the Selling Stockholder to prevent
dilution resulting from future dividends, stock distributions, stock splits or
similar transactions, and as provided in the Debentures and Warrants (as those
terms are defined herein).
Pursuant to Rule 429, the prospectus included herein combines the
prospectus previously included in the registrant's Registration Statement on
Form S-3, Commission file number 333-42631. The prospectus included in this
registration statement carries forward 544,532 shares included within the prior
registration statement as follows: 58,667 shares issued prior to the date hereof
upon conversion of the 1997 Debentures which have not, at the date hereof, been
sold by the Selling Shareholder; up to 330,000 shares, representing 150% of the
Shares estimated to be issuable to the Selling Shareholder upon conversion of on
its remaining 1997 Debentures (in a total principal amount of $440,000,
calculated at Market Price on September 10, 1998); up to 71,250 shares
representing 150% of the Shares estimated to be issuable to the Selling
Shareholder in payment of interest (in a total estimated amount of $95,000) its
remaining 1997 Debentures (assuming such Debentures are held to maturity); and
84,615 shares issuable upon exercise of the 1997 Warrants.
- ----------------
2
<PAGE>
1 The amount to be registered includes 825,000 shares (150% of the estimated
number of shares) to be issued upon conversion of the 1998 Debentures (as
defined under "Description of Securities" in the prospectus included in
this form)and 300,000 shares (150% of the estimated number of shares)
underlying the 1998 Debentures required to be purchased in December 1998,
assuming conversion at the "Market Price" (as defined in the 1998
Debentures) at September10, 1998. The maximum offering price is based on
the last sale price quoted on the Nasdaq SmallCap Market on September 10,
1998 pursuant to Rule 457(c).
2 The amount to be registered includes 462,000 shares (150% of the estimated
number of shares ) to be issued in payment of an estimated $616,000
interest on the 1998 Debentures and 168,000 shares to be issued in payment
of an estimated $224,000 interest on the 1998 Debentures required to be
purchased in December 1998, which could accrue through the term of the 1998
Debentures assuming the calculation is based on the "Market Price" at
September 10, 1998. The maximum offering price is based on the last sale
price quoted on the Nasdaq SmallCap Market on September 10, 1998 pursuant
to Rule 457(c).
3 The amount to be registered includes 150,000 shares underlying the 1998
Warrants (as defined under "Description of Securities" in the prospectus
included in this form), including the 40,000 1998 Warrants to be issued in
connection with the purchase by the Selling Shareholder of an additional
$400,000 1998 Debentures as required in December 1998. Registration fee is
based on the exercise price of the 1998 Warrants pursuant to Rules 457(a)
and (g).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
3
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to Completion, Dated _____________, 1998
PROSPECTUS
- ----------
MEDICAL DYNAMICS, INC.
Up to 2,449,532 Shares of Common Stock
Offered for Resale by the Selling Shareholder
This Prospectus relates to up to 2,449,532 shares of common stock of
Medical Dynamics, Inc., a Colorado corporation (the "Company" or "MEDY") which
are being offered and sold by The Tail Wind Fund, Inc., referred to herein as
the "Selling Shareholder." The shares being offered by this Prospectus will be
received by the Selling Shareholder upon conversion of convertible securities
described in "The 1997 Debentures and the 1997 Warrants" and "The 1998
Debentures and the 1998 Warrants" under the caption "Description of Securities"
beginning on page 18 of this Prospectus. The number of shares available for sale
by the Selling Shareholder has been estimated because the conversion of the
convertible securities will be based in part on the market price of the Common
Stock on the date of conversion.
MEDY's common stock is traded in the over-the-counter market and is quoted
on the Nasdaq SmallCap Market under the symbol "MEDY." On September 10, 1998,
Nasdaq reported that the last sale price of the Common Stock was $2.0625 per
share.
The Company will not receive any proceeds from the sale of the Shares by
the Selling Shareholder, but will receive the exercise prices payable upon
exercise of the 1997 Warrants and the 1998 Warrants (if exercised for cash).
There can be no assurance that all or any part of the Warrants will be exercised
or that they will be exercised for cash. All expenses incurred in connection
with this offering (not including, however, commissions or discounts paid or
allowed by the Selling Shareholder to underwriters, dealers, brokers or agents)
are being borne by the Company.
The Selling Shareholder has not advised the Company of any specific plans
for the distribution of the Shares, but it is anticipated that the Shares may be
sold from time to time in transactions (which may include block transactions) on
the Nasdaq SmallCap market at the market prices then prevailing. Sales of the
Shares also may be made through negotiated transactions or otherwise. The
Selling Shareholder and the brokers and dealers though which the sales of the
Shares may be made may be deemed to be "underwriters" within the meaning set
forth in the Securities Act of 1933, as amended, and their commissions and
discounts and other compensation may be regarded as underwriters' compensation.
See "Plan of Distribution" commencing at page 17, below.
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<PAGE>
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND THEIR
PURCHASE SHOULD BE CONSIDERED ONLY BY PERSONS ABLE TO SUSTAIN A TOTAL LOSS OF
THEIR INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS.
These Securities have not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this Prospectus. Any representation to the contrary is a criminal
offense.
This Prospectus does not constitute an offer or a solicitation by anyone to
any person in any state, territory, or possession of the United States in which
such offer or solicitation is not authorized by the laws thereof, or to any
person to whom it is unlawful to make such offer or solicitation.
The date of this prospectus is ______________
5
<PAGE>
AVAILABLE INFORMATION
---------------------
Medical Dynamics, Inc. (referred to in this Prospectus as either the
"Company" or "MEDY") is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "1934 Act") and in accordance therewith
files reports, proxy statements and other information with the Securities
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street N.W., Washington
D.C. 20549, and at the Regional Offices of the Commission: The World Trade
Center, Suite 1300, New York, NY 10048; 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can also be obtained from the
Public Reference Section of the Commission at its principal office at 450 Fifth
Street N.W., Washington, D.C. 20549. In addition, MEDY files its information
with the Commission electronically through EDGAR and the Commission maintains a
Web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The Common Stock is traded on the Nasdaq SmallCap Market
under the symbol "MEDY," and copies of reports and other information are also
available for inspection at The Nasdaq Stock Market, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
MEDY has filed with the Commission a Registration Statement on Form S-3
(the "Registration Statement") under the Securities Act of 1933 (the "1933 Act")
with respect to the Shares offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information and exhibits set forth in the Registration Statement, of which this
Prospectus is a part. Statements contained herein concerning the provisions of
documents are necessarily summaries of such documents, and each statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the Commission. Copies of the Registration Statement and its exhibits
are on file at the offices of the Commission and may be obtained, upon payment
of the fee prescribed by the Commission, or may be examined without charge at
the public reference facilities maintained by the Commission described above.
For further information, reference is made to the Registration Statement and its
exhibits.
The Company furnishes Annual Reports to the holders of its securities which
contain financial information which have been examined and reported upon, with
an opinion expressed by, its independent certified public accountants.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
The following documents filed with the Commission are incorporated into
this Prospectus by reference:
(1) The Company's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1997.
6
<PAGE>
(2) The Company's Quarterly Reports on Form 10-QSB for the quarters ended
December 31, 1997, March 31, 1998, and June 30, 1998.
(3) The Company's Current Report on Form 8-K reporting an event of July
31, 1998, describing the Company's sale of the 1998 Debentures and the
1998 Warrants to the Selling Shareholder.
(4) The Company's Current Report on Form 8-K reporting an event of April
9, 1998, describing the Company's acquisition of Command Dental
Systems of Farmington Hills, Michigan.
(5) The Company's Current Report on Form 8-K reporting an event of
February 6, 1998, describing the Company's acquisition of Information
Presentation Systems, Inc.
(6) The Company's Current Report on Form 8-K reporting an event of January
5, 1998, describing the Company's letter of intent to acquire
Information Presentation Systems, Inc.
(7) The Company's Current Report on Form 8-K reporting an event of October
23, 1997, describing the Company's acquisition of Computer Age
Dentist, Inc. and sale of the 1997 Debentures and the 1997 Warrants to
the Selling Shareholder, including the amendment to this report
incorporating the required financial statements.
(8) The Company's proxy statement used in connection with its annual
meeting of shareholders held June 11, 1998.
All documents filed by MEDY pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the 1934 Act after the date hereof and prior to the termination of the
offering covered by this Prospectus shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing such documents.
Any statement contained herein or in any documents incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that statements contained herein,
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
Any person receiving a copy of this Prospectus may obtain without charge,
upon written or oral request, a copy of any and all of the documents
incorporated by reference herein (not including exhibits to those documents,
unless such exhibits are specifically incorporated by reference into the
information that the Prospectus incorporates). Requests for such documents
should be directed to Medical Dynamics, Inc., 99 Inverness Drive East,
Englewood, Colorado 80112, attn: Van A. Horsley, President; telephone (303) 790-
2990, ext. 13.
7
<PAGE>
No person has been authorized in connection with this offering to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by MEDY, the
Selling Shareholder or any other person. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to purchase, any securities other
than those to which it relates, nor does it constitute an offer to sell or a
solicitation of an offer to purchase by any person in any jurisdiction in which
it is unlawful for such person to make such an offer or solicitation. Neither
the delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create any implication that the information contained herein is
correct as of any time subsequent to the date hereof.
CAUTIONARY STATEMENT
THIS PROSPECTUS, INCLUDING THE INFORMATION INCORPORATED BY REFERENCE
HEREIN, CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS INCLUDE,
BUT ARE NOT LIMITED TO, THOSE STATEMENTS RELATING TO DEVELOPMENT OF NEW
PRODUCTS, THE FINANCIAL CONDITION OF MEDY, THE ABILITY TO INCREASE DISTRIBUTION
OF MEDY'S PRODUCTS, INTEGRATION OF NEW BUSINESSES MEDY HAS ACQUIRED DURING THE
CURRENT FISCAL YEAR, APPROVAL OF MEDY'S PRODUCTS AS AND WHEN REQUIRED BY THE
FOOD AND DRUG ADMINISTRATION ("FDA") IN THE UNITED STATES AND SIMILAR REGULATORY
BODIES IN OTHER COUNTRIES. THE BUSINESS AND ECONOMIC RISKS FACED BY MEDY AND
MEDY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS AS DESCRIBED ABOVE AND
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" BELOW, AND UNDER "ITEM 1 -
BUSINESS" AND "ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS" IN MEDY'S ANNUAL
REPORT ON FORM 10- KSB FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997, AND IN THE
SUBSEQUENT FILINGS PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934.
8
<PAGE>
PROSPECTUS SUMMARY
------------------
The following summary is qualified in its entirety by the information,
including the financial statements, referred to elsewhere in this Prospectus.
The Company
Medical Dynamics, Inc., a Colorado corporation incorporated in March 1971
("MEDY" or the "Company"), is engaged in the design, development, manufacture
and marketing of medical and dental video cameras and related disposable
products for a variety of professional specialties. MEDY's principal products
are small, color, medical and dental video camera systems for use in patient
diagnosis and various surgical procedures. MEDY has been manufacturing such
cameras since August of 1981. In October 1997 MEDY acquired Computer Age
Dentist, Inc. (CADI), a California corporation based in Los Angeles, California.
CADI operates as a wholly-owned subsidiary of the Company which develops and
sells practice management software and related electronic services to the dental
profession. In February 1998, through CADI the Company acquired Information
Presentation Systems, Inc. of Marietta, Georgia, one of the nation's largest
suppliers of customized multimedia systems for use in a variety of dental
operatory environments. In April 1998, through CADI the Company acquired Command
Dental Systems of Farmington Hills, Michigan, which develops and markets
turn-key computer systems for the efficient management of dental practices.
The Company's principal executive offices and manufacturing facilities are
at 99 Inverness Drive East, Englewood, Colorado, 80112. Its telephone number at
that address is (303) 790-2990.
The Securities
Currently the only class of securities of MEDY for which there is a public
market is its Common Stock. As of August 31, 1998, there were 9,991,739 shares
of its Common Stock outstanding. See "Description of Securities" commencing on
page 18, of this Prospectus.
The Offering
Up to 2,449,532 shares of Common Stock (the "Shares") are being offered
hereby by the Selling Shareholder. These Shares will be received by the Selling
Shareholder upon conversion and exercise of convertible securities described in
"The 1997 Debentures and the 1997 Warrants" and "The 1998 Debentures and the
1998 Warrants" under the caption "Description of Securities" beginning on page
18 of this Prospectus. The number of shares available for sale by the Selling
Shareholder has been estimated because the conversion of the convertible
securities will be based in part on the market price of the Common Stock on the
date of conversion. The Selling Shareholder will receive all of the proceeds
from the offer and sale of the Shares.
9
<PAGE>
The Company will pay the costs related to the filing of the registration
statement in which this Prospectus is included. The Selling Shareholder will pay
its own expenses related to the offer and sale of the Shares, including any
underwriter discounts or commissions.
RISK FACTORS
------------
The securities offered hereby are speculative and involve a high degree of
risk, including, but not limited to, the risk factors described below. Each
prospective investor should carefully consider the following risk factors
inherent in and affecting the business of MEDY and this offering before making
an investment decision.
(1) Losses from Operations. MEDY has a history of net operating losses, which,
when accumulated, total $18,117,100 through June 30, 1998. This has
resulted in working capital shortages from time to time. MEDY can give no
assurance that it will be able to operate profitably in the future. The
likelihood of the success of MEDY must be considered in light of the
problems, expenses, difficulties, complications and delays frequently
encountered in connection with the regulatory environments in which MEDY
operates, the problems related to research and development of new products
subject to Food and Drug Administration ("FDA") and other government
approvals and regulations, and substantial competition from other companies
as to those products. (See the Financial Statements and related notes
included in MEDY's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1997,and in subsequent quarterly reports on Form 10-QSB, all
of which reports are incorporated by reference.)
(2) Product Liability. MEDY could be subject to claims for personal injuries
resulting from the use of its products. Although MEDY carries product
liability insurance coverage in amounts it believes to be commercially
reasonable within its industry, there can be no assurance that the amount
of coverage would be sufficient to cover any proven claims. Claims proven
and damages awarded in excess of the coverage limits would have a material
adverse effect on MEDY. (See "Item 1 - Business" in MEDY's Annual Report on
Form 10-KSB for the fiscal year ended September 30, 1997, which report is
incorporated by reference.)
(3) Acquisition of New Businesses. During the current fiscal year MEDY has
acquired three new businesses. The Company is in the process of integrating
its accounting, financial management, personnel, and business functions
with those of its new businesses. There can be no assurance that MEDY will
be able to do so successfully, or that it will be able to do so on a cost
effective basis. (See "Item 1 Business" in MEDY's Annual Report on Form
10-KSB for the fiscal year ended September 30, 1997 and the reports filed
subsequently thereto, which reports are incorporated by reference.)
10
<PAGE>
(4) Need for Additional Financing. The Company has not generated earnings in
the past several years and there can be no assurance that MEDY will be able
to do so in the future. Although management believes that the capital
available to MEDY is sufficient to fund its short-term operations, it is
unable to predict what additional expenses will be incurred beyond those
contemplated since research, development, and marketing programs frequently
involve unanticipated expenditures. To the extent additional capital is
needed, MEDY may seek financing through additional offerings of equity or
debt securities. Sales of additional equity securities could dilute the
ownership interest of existing shareholders, including investors in this
Offering. Sales of debt securities would necessarily result in interest
expense and would risk the loss of the Company's assets if MEDY were to
become unable to pay the interest. Offerings of debt securities also could
include conversion features requiring the issuance of additional debt or
equity securities which, ultimately, also could dilute the ownership of
prior shareholders, including purchasers of the shares being offered by the
Selling Shareholder in this Offering.
(5) Technological Change and Risk of Technological Obsolescence. The medical
and dental camera industry and the dental practice management industry, the
Company's two principal lines of business, are subject to rapid and
significant technological change. Accordingly, MEDY's viability will be
dependent on its ability to introduce competitive products to the
marketplace in a timely manner and enhance and improve such products to its
customers' satisfaction. There can be no assurance that MEDY will be able
to keep pace with technological developments or that its products will not
become obsolete. (See "Item 1 Business" in MEDY's annual report on Form
10-KSB for the fiscal year ended September 30, 1997, which report is
incorporated by reference.)
(6) Competition. MEDY's operations and product lines are subject to a high
level of competition from foreign, as well as domestic, manufacturers of
color medical and dental video cameras and other medical devices which are
currently manufactured and sold by MEDY, or which MEDY may develop in the
future. Some competitors are affiliated with large companies with
substantial economic and personnel resources which greatly exceed those of
MEDY. There can be no assurance that MEDY will be able to compete
successfully with other companies. (See "Item 1 - Business" in MEDY's
annual report on Form 10-KSB for the fiscal year ended September 30, 1997,
which report is incorporated by reference.)
(7) Potential Conflicts of Interest. There have been significant conflicts of
interest in the operation and management of MEDY, including the purchase by
MEDY of certain equipment and patents from its directors and executive
officers, granting of royalties, loans made available to MEDY through its
Chairman, and the employment by MEDY of sons of two of MEDY's directors.
These transactions were not negotiated at arms' length, although the Board
of Directors believes that all of these transactions were fair to and in
the best interests of MEDY. (See "Item 1 - Business" and "Item 13 - Certain
Relationships and Related Transactions" in MEDY's Annual Report on Form
10-KSB for the fiscal year ended September 30, 1997, which report is
incorporated by reference.)
11
<PAGE>
(8) Dependence on Management. At present, the success of MEDY is dependent upon
the active participation of its management, MEDY's Chairman and principal
shareholder, Dr. Adair, and its Chief Executive Officer, Van Horsley, Dr.
Adair's step-son. CADI's operations are significantly dependent on the
continued availability of the services of Daniel L. Richmond and Chae U.
Kim. The loss of the services of any of these persons would have a material
adverse effect on the Company. In the event of such a loss, MEDY can give
no assurance that it could replace either person without incurring
substantial additional expense. MEDY does not have employment contracts
with either Mr. Horsley or Dr. Adair. Both Messrs. Richmond and Kim are
subject to five year employment agreements.
(9) Government Regulation. Because certain of the products that MEDY
manufactures are used in surgery and other medical applications, the
products are subject to regulations of and close scrutiny by agencies of
the federal government, including the FDA. MEDY can give no assurance that
it will be able to comply fully with all of the government regulations to
which it is subject. Failure to comply strictly with all FDA requirements
(not all of which are written) may result in sanctions as severe as the
cessation of MEDY's manufacturing business which would have a material
adverse effect on MEDY. (See "Item 1 - Business" in MEDY's Annual Report on
Form 10-KSB for the fiscal year ended September 30, 1997, which report is
incorporated by reference.)
(10) Protection of Technology. Although MEDY obtains secrecy agreements from its
employees and others having access to its trade secrets and holds patents
on certain of its technology, such agreements and patents do not afford
complete protection against the unauthorized use of such information by
others. Furthermore, the costs of prosecuting persons who may accidentally
or intentionally infringe on MEDY's patents or divulge its trade secrets
can be expensive and time consuming. The unauthorized use of MEDY's trade
secrets and the infringement of its patents could have a material adverse
effect on MEDY and its ability to compete. (See "Item 1 - Business" in
MEDY's Annual Report on Form 10-KSB for the fiscal year ended September 30,
1997, which report is incorporated by reference.)
(11) Limited Public Market. There currently is a limited public market for
MEDY's Common Stock. No assurance can be given that a market for the Common
Stock will continue subsequent to this offering or that purchasers will be
able to resell their securities at the purchase prices paid in this
Offering, or liquidate their investment without considerable delay, if at
all. If a market does continue, the price may be highly volatile. Factors
such as those discussed in this "Risk Factors" section may have a
significant impact on the market price of the securities offered. Also,
some brokerage firms may not effect transactions in securities that trade
below a stipulated price. Further, most lending institutions will not
permit the use of low-priced or thinly traded securities as collateral for
loans.
12
<PAGE>
(12) Dependence on Principal Customers. In the past, MEDY has been dependent on
a limited number of principal customers (see MEDY's Annual Report on Form
10-KSB for the fiscal year ended September 30, 1997, "Item 1 - Business"
and Item 6 - "Management's Discussion and Analysis of Financial Condition
and Results of Operations" therein, which report is incorporated by
reference). As a result of acquisitions during the current fiscal year, the
Company does not expect that it will have any single customer accounting
for more than 10% of its sales during the current fiscal year.
(13) No Dividends Paid or Contemplated. No dividends have been paid by MEDY in
the past and dividends are not contemplated in the foreseeable future.
Investors who anticipate the need of either immediate or future income by
way of dividends from their investment should refrain from the purchase of
Shares offered hereby.
(14) Year 2000 Compliance. Although there can be no assurance, MEDY does not
anticipate that it will suffer any adverse impact as a result of Year 2000
computer software issues.
USE OF PROCEEDS
---------------
The Selling Shareholder will receive all proceeds from the sale of the
Shares offered and sold under this Prospectus.
If, and to the extent, the 1997 and 1998 Warrants are exercised for cash,
the Company will receive proceeds equal to the aggregate exercise price of the
warrants, approximately $672,600 if all of the warrants are exercised for cash.
The 1997 and 1998 Warrants allow the holder to effect a "cashless" exercise of
the Warrants. These warrants are described under the captions "The 1997
Debentures and Warrants" and "The 1998 Debentures and Warrants" in this
Prospectus under "Selling Shareholder." Any proceeds the Company receives from
the exercise of these warrants will be used for working capital.
THE COMPANY
-----------
Medical Dynamics, Inc., a Colorado corporation incorporated in March 1971
(referred to herein as "MEDY" or the "Company"), is engaged in the design,
development, manufacture and marketing of medical and dental video cameras and
related disposable products for a variety of professional specialties. MEDY's
principal products are small, color, medical and dental video camera systems for
use in patient diagnosis and various surgical procedures. MEDY has been
manufacturing such cameras since August of 1981. In October 1997 MEDY acquired
100% of the outstanding capital stock of Computer Age Dentist, Inc. (CADI), a
California corporation based in Los Angeles, California. CADI is engaged in the
development and sale of Practice Management Software and related electronic
services to the dental profession. In February 1998 CADI acquired by merger
Information Presentation Systems, Inc. of Marietta, Georgia, one of the nation's
largest suppliers of customized multimedia systems for use in a variety of
dental operatory environments. In April 1998, CADI acquired by merger Command
Dental Systems of Farmington Hills, Michigan, which develops and markets
turn-key computer systems for the efficient management of dental practices.
MEDY's principal executive offices and manufacturing facilities are at 99
Inverness Drive East, Englewood, Colorado, 80112. Its telephone number at that
address is (303) 790-2990.
SELLING SHAREHOLDER
-------------------
The Tail Wind Fund, Ltd. ("Tail Wind" or the "Selling Shareholder") is not
an affiliate of MEDY, nor has the Selling Shareholder or any affiliate of the
Selling Shareholder had any position, office or other material relationship with
MEDY within the past three years, except as disclosed below. Tail Wind's
business address is Windermere House, P.O. Box SS-5539, Nassau, Bahamas.
13
<PAGE>
Of the Shares offered hereby, 58,667 have been issued upon the conversion
of certain of the 1997 Debentures. The balance are issuable upon the conversion
of the remainder of the 1997 Debentures (of which $500,000 in face amount are
outstanding), upon the conversion of the outstanding 1998 Debentures (of which
$1,100,000 in face amount are outstanding and the remainder of $400,000 will be
issued in connection with the closing to occur on or before December 31, 1998),
the payment of interest related thereto and upon the exercise of the 1997 and
1998 Warrants. The Selling Shareholder does not own, directly or indirectly, any
other shares of Common Stock. Assuming the Selling Shareholder sells all Shares
offered hereby, although there is no requirement that it do so, it will
beneficially own no shares of Common Stock at the conclusion of the Offering.
The exact number of shares to be offered and sold is not known at the date
of this Prospectus because the shares will be acquired upon conversion of
convertible securities at varying prices, most of which will be converted based
on the market price of the Common Stock on the date of conversion. The Selling
Shareholder will at no time own more than 4.99% of the Common Stock because of a
limitation contained in the documents governing the conversion of the
convertible securities. This limitation prohibits the Selling Shareholder from
converting the convertible securities or exercising the 1997 or 1998 Warrants to
the extent that conversion or exercise would result in the Selling Shareholder
owning more than 4.99% of the issued and outstanding shares of Common Stock.
This limitation is referred to in this Prospectus as the "5% Limitation." If all
the Shares being offered by the Selling Shareholder are sold, the Selling
Shareholder will own no shares of the Company's common stock following the
completion of the Offering.
The following is a description of the transaction in which the Selling
Shareholder acquired the convertible securities which, if converted or
exercised, will result in the issuance of the Shares offered for sale in this
Prospectus by the Selling Shareholder.
The 1997 Debentures and Warrants
On October 31, 1997, in a private placement offering under Regulation D,
the Selling Shareholder purchased debentures in an aggregate principal amount of
$1,100,000 (the "1997 Debentures"). The 1997 Debentures bear interest at 8% per
annum, with interest payable semi-annually on April 5 and October 5 of each
year, commencing April 5, 1998. Principal and accrued but unpaid interest is due
in full on October 31, 2000. Events of default under the 1997 Debentures which
could result in acceleration of amounts due, among other things, include: (i)
failure to pay any amounts of principal or interest when due; (ii) failure of
the Common Stock to be listed on the Nasdaq SmallCap Market, the Nasdaq National
Market, the New York Stock Exchange, or the American Stock Exchange; and/or
(iii) events of bankruptcy and similar events.
14
<PAGE>
The Company may, at its option, pay accrued interest on the 1997 Debentures
with shares of its Common Stock valued at "Market Price." For the purpose of the
1997 Debentures, "Market Price" means the average of the two lowest closing bid
prices of the Common Stock as reported by The Nasdaq Stock Market during the
immediately preceding 60-trading day period. Based on the Market Price on
September 10, 1998, assuming all accrued interest is paid in shares of Common
Stock and the 1997 Debentures are held to maturity (thereby accruing total
interest of approximately $95,000), the Company will pay Tail Wind approximately
47,500 shares of Common Stock (the "1997 Interest Shares").
Subject only to the 5% Limitation, Tail Wind is entitled to convert the
1997 Debentures, in whole or in part, at any time into shares of Common Stock at
the lesser of $3.45 per share or Market Price. Assuming that Tail Wind can and
elects to convert the full amount of the 1997 Debentures into shares of Common
Stock at the Market Price on September 10, 1998, Tail Wind would receive 275,000
shares of Common Stock (the "1997 Conversion Shares").
In connection with Tail Wind's purchase of the 1997 Debentures, the Company
issued to Tail Wind warrants to purchase up to 84,615 shares of Common Stock,
exercisable through October 31, 2000 at a price of $3.375 per share (the "1997
Warrants"). The 1997 Warrants contains standard anti-dilution provisions should
MEDY issue stock dividends or conduct a stock split or reorganization, or upon
occurrence of certain other events. Subject to the 5% Limitation, the 1997
Warrants are currently exercisable.
The 1998 Debentures and Warrants
On July 31, 1998, in a private placement offering under Regulation D, the
Selling Shareholder purchased debentures in an aggregate principal amount of
$1,100,000 , and committed to purchase an additional $400,000 principal amount
on or before December 31, 1998, (the "1998 Debentures"). The 1998 Debentures
bear interest at 8% per annum, with interest payable semi-annually on January 5
and July 5 of each year, commencing January 5, 1999. Principal and accrued but
unpaid interest is due in full on July 31, 2003. Events of default under the
1998 Debentures which could result in acceleration of amounts due, among other
things, include: (i) failure to pay any amounts of principal or interest when
due; (ii) failure of the Common Stock to be listed on the Nasdaq SmallCap
Market, the Nasdaq National Market, the New York Stock Exchange, or the American
Stock Exchange; and/or (iii) events of bankruptcy and similar events.
15
<PAGE>
The Selling Shareholder has agreed to purchase 1998 Debentures equal to an
additional $400,000 on or before December 31, 1998, subject only to conditions
which are not within the control of the Selling Shareholder, including
conditions relating to the then market price of the Common Stock and the
effectiveness of the registration statement of which this Prospectus is a part.
The Company may, at its option, pay accrued interest on the 1998 Debentures
with shares of its Common Stock valued at Market Price. Based on the Market
Price on September 10, 1998, assuming all accrued interest on the 1998
Debentures is paid in shares of Common Stock and that the 1998 Debentures are
held to maturity, the Company will pay Tail Wind approximately 308,000 shares of
Common Stock (the "1998 Interest Shares").
Tail Wind is entitled to convert the 1998 Debentures, in whole or in part,
into shares of Common Stock at the lesser of Market Price or the "Ceiling Price"
at any time from and after November 29, 1998 as to one-third of the1998
Debentures, on and after January 27, 1999 as to two-thirds of the 1998
Debentures, and on and after March 29, 1999 as to the full amount of the 1998
Debentures. For purposes of the 1998 Debentures, "Ceiling Price" means 120% of
the average closing bid price of the Common Stock for the 20 trading days
immediately preceding the effective date of this registration statement. If
conversion has not occurred by July 31, 2000, the Ceiling Price thereafter will
mean 120% of the Market Price on July 31, 2000 if the adjustment would result in
a lower price, except that the Ceiling Price will not be adjusted below $2.25
per share. Assuming that Tail Wind can and elects to convert the full amount of
the 1998 Debentures into shares of Common Stock, based on the Market Price on
September 10, 1998, Tail Wind would receive 750,000 shares of Common Stock (the
"1998 Conversion Shares", including Shares issuable upon conversion of the
$400,000 of 1998 Debentures not yet issued to Tail Wind).
16
<PAGE>
In connection with Tail Wind's purchase of the 1998 Debentures, the Company
issued to Tail Wind warrants to purchase up to 110,000 shares of Common Stock,
exercisable through July 31, 2003 at a price of $2.58 per share. In addition,
the Company is required to issue to Tail Wind warrants to purchase an additional
40,000 shares of Common Stock at the closing of Tail Wind's purchase of the
remaining $400,000 principal amount in 1998 Debentures in December 1998.
Collectively, these 150,000 warrants are referred to as the "1998 Warrants." The
1998 Warrants contains anti-dilution provisions should MEDY issue stock
dividends or conduct a stock split or reorganization, or upon occurrence of
certain other events. Subject to the 5% Limitation, 110,000 of the 1998 Warrants
are currently exercisable and the remaining 40,000 of the 1998 Warrants will be
exercisable immediately upon issuance.
If MEDY is unable to meet the effectiveness requirement for the shares
underlying the 1998 Debentures and Warrants, maintain effectiveness of this
registration statement, or maintain the listing of the Common Stock on the
Nasdaq SmallCap or the NMS Market (or senior stock exchange), MEDY will be
required to pay liquidated damages to the Selling Shareholder in an amount equal
to 2% of the aggregate principal amount of the 1998 Debentures for each month or
portion thereof following the required effectiveness date during which the
registration statement is not effective. In such event, MEDY shall bear all
reasonable fees or costs incurred by Tail Wind 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 cash (not Common Stock). The registration rights agreement contains
standard cross-indemnification provisions and requirements for contribution
should the indemnification provisions be found to be unavailable.
PLAN OF DISTRIBUTION
--------------------
The Selling Shareholder has advised MEDY that it may sell the Shares in one
or more transactions (which may involve one or more block transactions) on the
over-the-counter markets on Nasdaq and upon terms then prevailing or at prices
related to the then current market price, or in separately negotiated
transactions or in a combination of such transactions. The Shares offered hereby
may be sold by one or more of the following methods, without limitation: (a) a
block trade in which a broker or dealer so engaged will attempt to sell the
shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus;
(c) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; (d) privately negotiated transactions; and (e) face-to-face
transactions between sellers and purchasers without a broker-dealer. The Selling
Shareholder may also sell Shares in accordance with Rule 144 under the
Securities Act of 1933, as amended, if Rule 144 is then available. The Selling
Shareholder may be deemed to be an underwriter of the Shares offered hereby
within the meaning of the Securities Act of 1933, as amended.
17
<PAGE>
In effecting sales, brokers or dealers engaged by the Selling Shareholder
may arrange for other brokers or dealers to participate. Such broker or dealers
may receive commissions or discounts from the Selling Shareholder in amounts to
be negotiated by the Selling Shareholder. The Selling Shareholder may enter into
hedging transactions with broker-dealers and the broker-dealers may engage in
short sales of the Common Stock in the course of hedging the positions they
assume with the Selling Shareholder (including, without limitation, in
connection with the distribution of the Common Stock by such broker-dealers).
The Selling Shareholder may also engage in short sales of the Common Stock and
may enter into option or other transactions with broker-dealers that involve the
delivery of the Common Stock to the broker-dealers, who may then resell or
otherwise transfter such Common Stock. Such broker-dealers and any other
participating broker-dealers may, in connection with such sales, be deemed to be
underwriters within the meaning of the Securities Act of 1933, as amended. Any
discounts or commissions received by any such broker-dealers may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933, as
amended.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed broke-dealers.
MEDY will pay all of the expenses incident to the filing of this
Registration Statement, estimated to be $25,000. These expenses include legal
and accounting fees in connection with the preparation of the Registration
Statement of which this Prospectus is a part, legal and other fees in connection
with the qualification of the sale of the Shares under the laws of certain
states (if any), registration and filing fees, printing expenses, and other
expenses. The Selling Shareholder will pay all other expenses incident to the
offering and sale of the Shares to the public, including commissions and
discounts of underwriters, brokers, dealers or agents, if any. MEDY has agreed
to use its best efforts to keep the registration of the Shares offered hereby
effective until the date upon which all of the Shares offered by the Selling
Shareholder have been sold.
DESCRIPTION OF SECURITIES
-------------------------
Common Stock
Authorized. MEDY is authorized to issue 30,000,000 shares of $.01 par value
common stock (the "Common Stock"). No holder of any shares of Common Stock has
any preemptive right to subscribe to any of MEDY's securities. Upon dissolution,
liquidation or winding up of MEDY, the assets will be divided pro rata on a
share-for-share basis among holders of the shares of Common Stock and Preferred
Stock if any shares are outstanding. All shares of Common Stock outstanding are
fully paid and nonassessable and, when issued, the shares offered hereby will be
fully paid and nonassessable.
18
<PAGE>
Issued and Outstanding. On August 31, 1998, MEDY had issued and outstanding
9,991,739 shares of Common Stock. This number does not include any of the
estimated 2,449,532 shares comprising the 1997 and 1998 Conversion Shares, the
1997 and 1998 Interest Shares and the 1997 and 1998 Warrant Shares which, if and
when issued, will be offered for sale pursuant to this Prospectus by the Selling
Shareholder. For information about these shares, see the description contained
under the caption "Selling Shareholder" above.
Dividends. Holders of Common Stock are entitled to dividends when, as and
if declared by the Board of Directors out of funds legally available therefor,
subject to the rights, if any, of holders of any outstanding shares of Preferred
Stock. MEDY has not declared or paid any dividends on its Common Stock and does
not anticipate the declaration or payment of dividends in the foreseeable
future.
No Cumulative Voting. Each holder of Common Stock is entitled to one vote
per share with respect to all matters that are required by law to be submitted
to stockholders. The stockholders are not entitled to cumulative voting in the
election of directors. Accordingly, the holders of more than 50% of the shares
voting for the election of directors can elect 100% of the directors if they
choose to do so; and, in such event, the holders of the remaining less than 50%
of the shares voting for the election of the directors will be unable to elect
any person or persons to the Board of Directors.
No Preemptive Rights. Holders of Common Stock are not entitled to
preemptive rights to purchase additional shares of Common Stock when offered for
sale by the Company.
Preferred Stock
MEDY is authorized to issue up to 5,000,000 shares of $.001 par value
Preferred Stock, in series to be designated by the Board of Directors (the
"Preferred Stock"). No shares of Preferred Stock have been issued and it is not
contemplated that any shares of Preferred Stock will be issued by MEDY in the
immediate future; however, the Board may use its ability to issue Preferred
Stock to effect the business purposes of MEDY.
Material provisions concerning the terms of any series of Preferred Stock
such as dividend rate, conversion features and voting rights, will be determined
by the Board of Directors of MEDY at the time of such issuance. The ability of
the Board to issue Preferred Stock also could be used by MEDY as a means of
resisting a change of control of MEDY and, therefore, could be considered an
"anti-takeover" device.
19
<PAGE>
1997 and 1998 Debentures and Warrants
For a description of these securities, see "1997 Debentures and Warrants"
and "1998 Debentures and Warrants" under the caption "Selling Shareholder" in
this Prospectus.
Stock Options
Exclusive of the 1997 Warrants and the 1998 Warrants, on July 31, 1998,
MEDY had outstanding stock options to purchase 3,801,237 shares of Common Stock
exercisable at exercise prices ranging between $1.00 and $4.50 per share.
Certain of these options are only exercisable upon the Company achieving certain
performance goals.
Transfer and Warrant Agent
The transfer agent for MEDY's Common Stock and Warrant Agent for MEDY's
Common Stock is Continental Stock Transfer & Trust Co., 72 Reade Street, New
York, New York 10007.
LEGAL MATTERS
-------------
The firm of Norton o Lidstone, LLC, 5445 DTC Parkway, Suite 850, Englewood,
CO 80111, has acted as counsel for MEDY in connection with this offering and has
passed upon the validity of the securities offered hereby.
EXPERTS
-------
The financial statements of Medical Dynamics, Inc. for the years ended
September 30, 1997 and 1996 incorporated into the Registration Statement by
reference have been audited by Hein + Associates LLP, independent certified
public accountants, upon the authority of that firm as experts in accounting and
auditing.
20
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPONAS HAVING BEEN AUTHORIZED
BY MEDY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES TO ANY PERSON IN ANY JURISDICTION WHERE
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT
ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
MEDICAL DYNAMICS, INC.
TABLE OF CONTENTS
- -----------------
AVAILABLE INFORMATION
DOCUMENTS INCORPORATED BY REFERENCE
PROSPECTUS SUMMARY
RISK FACTORS
USE OF PROCEEDS
THE COMPANY
SELLING SHAREHOLDER
PLAN OF DISTRIBUTION
DESCRIPTION OF SECURITIES
LEGAL MATTERS
EXPERTS
21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
--------------------------------------------
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection with
the issuance and distribution of the securities being offered. All expenses are
estimated except the registration fee.
Registration and filing fee $ 1,181
Printing 1,000
Accounting fees and expenses 5,000
Legal fees and expenses 12,000
Blue sky filing fees and expenses 2,000
Transfer and Warrant Agent fees 500
Miscellaneous 3,319
-------
Total $25,000
=======
Item 15. Indemnification of Directors and Officers
-----------------------------------------
Section 7-109-102 of the Colorado Revised Statutes and the Registrant's
Articles of Incorporation, under certain circumstances provide for the
indemnification of the Registrant's officers, directors and controlling persons
against liabilities which they may incur in such capacities. A summarization of
the circumstances in which such indemnification is provided for is contained
herein, but that description is qualified in its entirety by reference to the
Registrant's Articles of Incorporation and the relevant Section of the Colorado
Revised Statutes.
In general, the statute provides that any director may be indemnified
against liabilities (including the obligation to pay a judgment, settlement,
penalty, fine or expense), incurred in a proceeding (including any civil,
criminal or investigative proceeding) to which the director was a party by
reason of such status. Such indemnity may be provided if the director's actions
resulting in the liabilities: (i) were taken in good faith; (ii) were reasonably
believed to have been in the Registrant's best interest with respect to actions
taken in the director's official capacity; (iii) were reasonably believed not to
be opposed to the Registrant's best interest with respect to other actions; and
(iv) with respect to any criminal action, the director had no reasonable grounds
to believe the actions were unlawful. Unless the director is successful upon the
merits in such an action, indemnification may generally be awarded only after a
determination of independent members of the Board of Directors or a committee
thereof, by independent legal counsel or by vote of the shareholders that the
applicable standard of conduct was met by the director to be indemnified.
22
<PAGE>
The statutory provisions further provide that unless limited by a
corporation's articles of incorporation, a director or officer who is wholly
successful, on the merits or otherwise, in defense of any proceeding to which he
as a party, is entitled to receive indemnification against reasonable expenses,
including attorneys' fees, incurred in connection with the proceeding. In
addition, a corporation may indemnify or advance expenses to an officer,
employee or agent who is not a director to a greater extent than permitted for
indemnification of directors, if consistent with law and if provided for by its
articles of incorporation, bylaws, resolution of its shareholders or directors
or in a contract. The provision of indemnification to persons other than
directors is subject to such limitations as may be imposed on general public
policy grounds.
In addition to the foregoing, unless hereafter limited by the Registrant's
articles of incorporation, a court, upon petition by an officer or director, may
order the Registrant to indemnify such officer or director against liabilities
arising in connection with any proceeding. A court may order the Registrant to
provide such indemnification, whether or not the applicable standard of conduct
described above was met by the officer or director. To order such
indemnification the court must determine that the petitioner is fairly and
reasonably entitled to such indemnification in light of the circumstances. With
respect to liabilities arising as a result of proceedings on behalf of the
Registrant, a court may only require that a petitioner be indemnified as to the
reasonable expenses incurred.
Indemnification in connection with a proceeding by or in the right of the
Registrant in which the director is successful is permitted only with respect to
reasonable expenses incurred in connection with the defense. In such actions,
the person to be indemnified must have acted in good faith, in a manner believed
to have been in the Registrant's best interest and must not have been adjudged
liable for negligence or misconduct. Indemnification is otherwise prohibited in
connection with a proceeding brought on behalf of the Registrant in which a
director is adjudged liable to the Registrant, or in connection with any
proceeding charging improper personal benefit to the director in which the
director is adjudged liable for receipt of an improper personal benefit.
Colorado law authorizes the Registrant to reimburse or pay reasonable
expenses incurred by a director, officer, employee or agent in connection with a
proceeding, in advance of a final disposition of the matter. Such advances of
expenses are permitted if the person furnishes to the Registrant a written
statement of his belief that he met the applicable standard of conduct required
to permit such indemnification. The person seeking such expense advances must
also provide the Registrant with a written agreement to repay such advances if
it is determined the applicable standard of conduct was not met. A determination
must also be made that the facts known to the Registrant would not preclude
indemnification.
The statutory section cited above further specifies that any provisions for
indemnification of or advances for expenses to directors which may be contained
in the Registrant's Articles of Incorporation, Bylaws, resolutions of its
shareholders or directors, or in a contract (except for insurance policies)
shall be valid only to the extent such provisions are consistent with the
Colorado statutes and any limitations upon indemnification set forth in the
Articles of Incorporation.
23
<PAGE>
The statutory provision cited above also grants the power to the Registrant
to purchase and maintain insurance policies which protect any director, officer,
employee, fiduciary or agent against any liability asserted against or incurred
by them in such capacity arising out of his status as such. Such policies may
provide for indemnification whether or not the corporation would otherwise have
the power to provide for it. No such policies providing protection against
liabilities imposed under the securities laws have been obtained by the
Registrant. The registration rights agreements dated July 31, 1998, and October
31, 1997 between the Registrant and Tail Wind., provides for cross
indemnification by the Registrant and Tail Wind, in certain circumstances,
including for certain securities laws violations.
Item 16. Exhibits and Financial Statement Schedules.
-------------------------------------------
(a) Exhibits. The following is a complete list of exhibits filed as a part
of this Registration Statement, which Exhibits are incorporated herein.
Number Description
- ------ -----------
4.1* Form of Convertible Debenture, incorporated by reference to the
Registrant's Current Report on Form 8-K reporting an event of October
23, 1997 (Commission file no. 0-8632)
4.2* Common Stock Purchase Warrant issued to The Tail Wind Fund, Ltd.,
incorporated by reference to the Registrant's Current Report on Form
8-K reporting an event of October 23, 1997 (Commission file no.
0-8632)
4.3* Form of Convertible Debenture, incorporated by reference to the
Registrant's Current Report on Form 8-K reporting an event of July 31,
1998 (Commission file no. 0-8632)
4.4* Common Stock Purchase Warrant issued to The Tail Wind Fund, Ltd.,
incorporated by reference to the Registrant's Current Report on Form
8-K reporting an event of July 31, 1998 (Commission file no. 0-8632)
5.1** Opinion and Consent of Norton * Lidstone, LLC.
10.1* Purchase Agreement between Medical Dynamics, Inc. and The Tail Wind
Fund, Ltd., incorporated by reference to the Registrant's Current
Report on Form 8-K reporting an event of October 23, 1997 (Commission
file no. 0- 8632)
10.2* Registration Rights Agreement between Medical Dynamics, Inc., and The
Tail Wind Fund, Ltd., incorporated by reference to the Registrant's
Current Report on form 8-K reporting an event of October 23, 1997
(Commission file no. 0-8632)
24
<PAGE>
10.3* Purchase Agreement between Medical Dynamics, Inc. and The Tail Wind
Fund, Ltd., incorporated by reference to the Registrant's Current
Report on Form 8-K reporting an event of July 31, 1998 (Commission
file no. 0-8632)
10.4* Registration Rights Agreement between Medical Dynamics, Inc., and The
Tail Wind Fund, Ltd., incorporated by reference to the Registrant's
Current Report on form 8-K reporting an event of July 31, 1998
(Commission file no. 0-8632)
23.1 Consent of Norton * Lidstone, LLC. (See Exhibit 5.1)
23.2 Consent of Hein + Associates LLP.
- ----------
* Previously filed.
** To be filed by amendment.
Item 17. Undertakings.
- ----------------------
The undersigned Registrant hereby undertakes: (1) to file, during any
period in which offers or sales are being made, a post-effective amendment to
the Registration Statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the Registration Statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement, including (but not limited to) any addition or deletion of a managing
underwriter; (2) that for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and (3) to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's Annual Report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
25
<PAGE>
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered, to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the Registrant's Articles of Incorporation, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
26
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Englewood, Arapahoe County, State of Colorado, on September ___,
1998.
MEDICAL DYNAMICS, INC.
By: /s/ Van A. Horsley
------------------------------
Van A. Horsley, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Edwin L. Adair Director September 21, 1998
- ----------------------
Edwin L. Adair, M.D.
/s/ Pat Horsley Adair Director September 21, 1998
- ----------------------
Pat Horsley Adair
/s/ I. Dean Bayne Director September 21, 1998
- ----------------------
I. Dean Bayne, M.D.
/s/ Van A. Horsley Director, September 21, 1998
- ---------------------- Principal Financial Officer,
Van A. Horsley Principal Accounting Officer
and Chief Executive Officer
/s/ Leroy Bilanich Director September 21, 1998
- ----------------------
Leroy Bilanich
/s/ Daniel L. Richmond Director September 21, 1998
- ----------------------
Daniel L. Richmond
/s/ Chae U. Kim Director September 21, 1998
- ----------------------
Chae U. Kim
27
<PAGE>
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 JULY __, 2003 ("EXPIRATION DATE").
MEDICAL DYNAMICS, INC.
WARRANT TO PURCHASE 110,000 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"), up to
110,000 shares of the Company's Common Stock, par value $.001 per share (the
"Common Stock"), at any time not later than 5:00 P.M., Mountain time, on the
Expiration Date, at an exercise price per share equal to $2.58 (the "Warrant
Price"). The number of shares of Common Stock purchasable upon exercise of this
Warrant (the "Warrant Shares") and the Warrant Price shall be subject to
adjustment from time to time as described herein.
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.
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
<PAGE>
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 July __, 2003, 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.
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.
2
<PAGE>
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
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.
3
<PAGE>
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
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)
4
<PAGE>
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) If the Company shall at any time or from time to time after the
date of issuance hereof issue or sell in a financing transaction (which shall
not include any sales or issuances of Common Stock after the date hereof
pursuant to contractual obligations in effect on the date hereof), (A) any
shares of Common Stock for a consideration per share less than the lesser of (i)
the Market Price (as defined above) on the date of such issuance and (ii) the
Warrant Price, or (B) any securities convertible into shares of Common Stock
("Convertible Securities") for which the conversion or exercise price (which,
for the purposes of this Section 9(d), shall be the total obtained by dividing
(x) the total amount received by the Company as consideration for the issuance
of such Convertible Securities plus any amount payable to the Company on
conversion or exercise thereof, by (y) the number of shares of Common Stock
issuable upon the conversion or exercise thereof) is less than the lesser of (i)
the Market Price (as defined above) on the date of such issuance and (ii) the
Warrant Price, then the Warrant Price shall be reduced to a price equal to 120%
of such per share consideration, or conversion or exercise price. Such
adjustments shall be made successively whenever such sales are made.
5
<PAGE>
(e) 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.
(f) 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
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.
(g) 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.
6
<PAGE>
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:
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 July __,
1998.
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.
7
<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:
________________________________
8
<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 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.
* 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>
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.
<PAGE>
PURCHASE AGREEMENT
------------------
THIS PURCHASE AGREEMENT ("Agreement") is made as of the 31st day of July,
1998 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 and the Registration Rights
Agreement.
1.3 "Closing" means the consummation of the transactions contemplated
by this Agreement, which shall occur as provided herein.
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 form attached hereto as Exhibit A.
1.7 "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.
1.8 "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.
1.9 "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 B, to be entered into as of the date hereof.
<PAGE>
1.10 "SEC" means the Securities and Exchange Commission.
1.11 "SEC Filings" has the meaning set forth in Section 4.5.
1.12 "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.
1.13 "1933 Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
1.14 "1934 Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
1.15 "Warrants" means (a) the "First Investment Warrant," which is the
Warrant issued to the Investor on the First Closing Date to purchase up to an
aggregate of 110,000 shares of Common Stock at the exercise price stated
therein, the form of which is attached hereto as Exhibit C and (b) the "Second
Investment Warrant," which is the Warrant to be issued to the Investor on the
Second Closing Date to purchase up to an aggregate of 40,000 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.
2.1 First Investment. 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 in eleven equal Debenture forms of
$100,000 face amount each and (b) the First Investment Warrant issued and
delivered concurrently herewith (the "First Investment").
2.2 Second Investment. Subject to the terms and conditions of this
Agreement, and in reliance on the representations and warranties contained
herein, upon the satisfaction of the conditions set forth below, on or before
December 31, 1998, the Investor shall purchase and the Company shall sell and
issue to the Investor (a) Debentures at an aggregate purchase price of $400,000,
which shall be issued and delivered against receipt of funds as contemplated by
Section 3, below, in four equal Debenture forms of $100,000 face amount each and
(b) the Second Investment Warrant (the "Second Investment"). The obligation of
the Investor to make the Second Investment shall be subject to the satisfaction
of the following conditions:
2
<PAGE>
(a) The average closing bid price of the Common Stock for the
month of November 1998 shall be $2.10 or above;
(b) The effective date of the registration statement contemplated
by the Registration Rights Agreement is within 120 days of the date hereof;
(c) The registration statement on Form S-3 (Registration No.
333-42631) is not subject to any suspension of effectiveness and has not been so
subject for a period in excess of ten (10) days during the period commencing on
the date hereof and ending on November 30, 1998;
(d) The representations and warranties of the Company shall be
true and correct as of the date of the Second Investment;
(e) The trading in the Common Stock shall not have been suspended
by the SEC or the Nasdaq Stock Market, and the Common Stock shall not have been
delisted from the Nasdaq Stock Market;
(f) The Company shall have delivered to the Investor an opinion
of Company's counsel in form and substance similar to the opinion delivered in
connection with the First Investment.
2.3 Closing Dates and Closings. The date and time of the issuance and
sale of the Debentures and Warrants pursuant to this Agreement (the "Closing
Dates") shall be (i) in the case of the First Investment, the date hereof (the
"First Closing Date"); and (ii) in the case of the Second Investment, December
31, 1998 or such earlier date in the month of December 1998 as the parties may
mutually agree (the "Second Closing Date"). On each Closing Date, the Investor
shall cause the purchase price for the Debentures being purchased on that
Closing Date to be paid into escrow as provided in the Escrow Agreement attached
hereto as Exhibit E, and the Company shall cause the Debentures and Warrant
subscribed for hereby with respect to that Closing Date to be executed, issued
and delivered to the Escrow Agent as provided in the Escrow Agreement. The
parties expressly acknowledge and agree that on or before the Second Closing
Date, the Company also shall cause to be delivered to the Investor a certificate
of an officer of the Company to the effect that the conditions precedent to the
Second Investment (as set forth in Section 2.2 above) have been satisfied and
that the representations and warranties of the Company set forth herein are true
and correct as of such date and will be true and correct as of the Second
Closing Date.
3. Payment of Purchase Price. The Investor shall cause the purchase price
to be paid in full by wire transfer to the Escrow Agent 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:
3
<PAGE>
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 Debentures and exercise of the
Warrants, and such shares, when issued in accordance with the respective terms
of the Debentures and the Warrants, 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 30,000,000 shares of Common Stock and 5,000,000 shares of preferred stock. As
of July 27, 1998, the Company has 9,991,739 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
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.
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(c) 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, 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 a total of 13,887,691 shares of
Common Stock immediately prior to the Closing, plus an indeterminable number of
shares of Common Stock issuable to the Investor pursuant to convertible
debentures previously issued to the investor.
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.
4.6 Use of Proceeds. The proceeds of the sale of the Securities
hereunder shall be used by the Company for working capital and operating
capital.
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;
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(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;
(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.
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(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 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.
4.10 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.
4.11 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.
4.12 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.
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4.13 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.
4.14 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.
4.15 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.
4.16 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.
4.17 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.
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4.18 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.
4.19 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.
4.20 Compliance with Nasdaq Continued Listing Requirements. The
Company is in compliance with all applicable Nasdaq Small Cap Market continued
listing requirements and has not received any notice from Nasdaq concerning a
possible delisting of the Company's Common Stock within the last twelve months.
4.21 Acknowledgment of Dilution. The number of shares of Common Stock
issuable upon conversion of the Debentures may increase substantially in certain
circumstances, including the circumstance where the trading price of the Common
Stock declines. The Company's executive officers and directors have studied and
fully understand the nature of the Securities being sold hereunder and recognize
that such Securities have a dilutive effect. The Board of Directors of the
Company has concluded in its good faith business judgment that such issuance is
in the best interests of the Company. The Company acknowledges that its
obligations to issue shares of Common Stock in accordance with the terms of the
Debentures upon conversion of the Debentures are binding upon it and enforceable
regardless of the dilution that such issuance may have on the ownership interest
of the other stockholders of the Company.
4.22 Brokers and Finders. The Company has taken no action which would
give rise to any claim by any Person for a broker's commission, finder's fee or
similar payment by the Company or the Investor related to this Agreement or the
transactions contemplated hereby, except for amounts which are payable to Rochon
Capital Group, Ltd. which shall be the sole responsibility of the Company and
shall be paid exclusively by the Company out of escrow from the proceeds hereof.
4.23 No Directed Selling Efforts or General Solicitation. Neither the
Company nor any person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D
under the 1933 Act) in connection with the offer or sale of any of the
Securities.
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4.24 No Integrated Offering Requiring Registration. Neither the
Company nor any of its Affiliates, nor any Person acting on its or their behalf,
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would require
registration of the offer and sale of the Securities under the 1933 Act, or
cause the offering of the Securities to be integrated with any prior offering(s)
by the Company for purposes of the 1933 Act or any applicable shareholder
approval provisions, including those under the rules of Nasdaq.
4.25 Year 2000. All of the products which are being offered and sold
by the Company are now Year 2000 compliant, which for the purpose of this
Section 4.25 means that such products contain and/or rely on computer software
programs which are capable of handling and processing dates beyond the year
1999. The Company has undertaken all commercially reasonable efforts to ensure
that its operational computer systems also are prepared to handle and process
dates beyond the year 1999.
4.26 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.
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. The
Investor is not a registered broker dealer or a Person engaged in the business
of being a broker dealer.
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.
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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
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.
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7.1 Capital Raising Limitations. From the date hereof through the
eight-month period following the later of (A) the effective date of the
registration statement contemplated by the Registration Rights Agreement and (B)
the Second Closing Date (the "Restricted Period"), without the prior written
consent of the Investor (which consent may be withheld in such Investor's sole
discretion), the Company shall not issue or sell, or agree to issue or sell (a)
any equity or debt securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (i) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for the
Common Stock at any time after the initial issuance of such debt or equity
securities; or (ii) with a fixed conversion, exercise or exchange price that is
subject to being reset at some future date(s) after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock; or (b) any securities of the Company pursuant to an "equity
line" structure which provides for the sale, from time to time, of securities of
the Company which are registered for resale pursuant to the 1933 Act (the
transactions in this sentence being collectively referred to as " Variable Rate
Transactions"). The Restricted Period shall be extended by that number of days,
if any, during which any Blackout Period (as defined in the Registration Rights
Agreement) has been in effect.
7.2 Rights of Investor upon Additional Offerings. The Company agrees
that for the period of one year following the later of (A) the effective date of
the registration contemplated by the Registration Rights Agreement and (B) the
Second Closing Date, the Company 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, 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, which right must be exercised in writing
by the Investor within ten business days following receipt of the notice from
the Company. If, subsequent to the Company giving notice to the Investor
hereunder, the terms and conditions of the proposed third-party sale are changed
in any way, the Company shall be required to provide a new notice to the
Investor hereunder and the Investor shall have the right to participate in the
offering on such changed terms and conditions as provided hereunder.
7.3 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 statement 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.
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7.4 Opinion of Counsel. The Company has delivered, simultaneously with
the execution and delivery of this Agreement, the opinion of Norton Lidstone
LLC, its counsel, in the form attached hereto as Exhibit F.
7.5 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.
7.6 Reports. So long as the Investor holds Debentures or Warrants, the
Company will deliver to the Investor the following reports by overnight courier
to the address set forth in Section 9.4:
(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.
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(d) 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.
7.7 Press Releases. At least 48 hours prior to issuance, the Company
shall submit for comment by facsimile to the Investor any press release or other
publicity concerning the Investor, the Transaction Agreements or the
transactions contemplated thereby.
7.8 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.
7.9 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.
7.10 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.
7.11 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) 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
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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.
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
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:
15
<PAGE>
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:
Norton Lidstone LLC
5445 DTC Parkway, Suite 850
Denver, CO 80111
Attn: Herrick Lidstone, Jr.
Telephone: 303/221-5552
Facsimile: 303/221-5553
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
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
16
<PAGE>
9.5 Expenses. The Company shall pay the fees of Bryan Cave LLP,
counsel to the Investor, in an amount up to $12,500.
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.
17
<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:
18
<PAGE>
Schedule 4.3
------------
See attached Schedule 4.3
19
<PAGE>
Schedule 4.7
------------
None.
20
<PAGE>
Schedule 4.8
------------
None.
21
<PAGE>
CONVERTIBLE DEBENTURE
---------------------
$100,000 July __, 1998
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 July __, 2003 ("Due Date"), the principal sum of
One Hundred Thousand Dollars ($100,000), 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 principal amount hereof unpaid during such period (including
amounts converted during the period for the time such was outstanding) 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
January and July, commencing in January 1999.
This Debenture is one of the Debentures referred to in and issued pursuant
to the Purchase Agreement dated July __, 1998, between the Company and the
Investor named therein (the "Purchase Agreement"), and is entitled to the
benefits of, and subject to the terms and provisions of the Purchase Agreement.
Capitalized terms used herein and not otherwise defined herein shall have the
meaning ascribed to them in the Purchase Agreement.
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.
<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 one hundred twenty
(120) days after the original issuance hereof, up to one-third of the principal
amount of this Debenture, (ii) at any time from and after one hundred eighty
(180) days after the original issuance hereof, up to an aggregate of two-thirds
of the principal amount of this Debenture, and (iii) at any time from and after
two hundred forty (240) days after the original issuance hereof, 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 the Due Date, 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
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
2
<PAGE>
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 five (5) business days after the Delivery Period for any
reason (whether due to a requirement of law or a stock exchange or otherwise),
the holder shall be entitled to a 1% discount on the Conversion Price for the
next conversion noticed by such holder to the Company. 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.
(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 the Ceiling Price (defined below). "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. The "Ceiling Price" shall mean 120% of the average closing bid price
of the Common Stock for the twenty trading days prior to the effective date of
the registration statement contemplated by the Registration Rights Agreement
entered into by and between the parties on July __, 1998; provided, however,
that the Ceiling Price shall be adjusted effective upon the second anniversary
of the Purchase Agreement to 120% of the Market Price on such date, if such
adjustment would result in a lower price, but in no event shall the Ceiling
Price be adjusted to an amount less than $2.25.
3
<PAGE>
(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:
(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
4
<PAGE>
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
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.
5
<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.
(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.
6
<PAGE>
(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 July __, 1998.
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.
7
<PAGE>
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:_______________________________
8
<PAGE>
MEDICAL DYNAMICS, INC.
CONVERTIBLE DEBENTURE
NOTICE OF CONVERSION
MEDICAL DYNAMICS, INC.
99 Iverness 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 or 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. The undersigned hereby represents and
warrants that sales of the Conversion Shares will be made only pursuant to the
Prospectus covering the registered resale of the Conversion Shares, and that it
will comply with all applicable prospectus delivery requirements.
Dated:___________________, ____
Signature:______________________________
______________________________
Name (please print)
______________________________
Address
______________________________
______________________________
Federal Identification or Soc Sec #
9
NORTON * LIDSTONE, LLC
5445 DTC Parkway, Suite 850
Michael J. Norton Englewood, Colorado 80111
Herrick K. Lidstone, Jr. telephone: 303-221-5552
facsimile: 303-221-5553
______________, 1998
Medical Dynamics, Inc.
99 Inverness Drive East
Englewood, Colorado 80112 [TO BE AMENDED]
Re: Medical Dynamics, Inc.
Registration Statement on Form S-3
Registration No. 333-42631
Ladies and Gentlemen:
In connection with the above-captioned Registration Statement (the
"Registration Statement") filed by Medical Dynamics, Inc., a Colorado
corporation (the "Company"), with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations thereunder as amended through the date hereof, we have been
requested to render our opinion as to the legality of:
i) Shares of the Company's common stock (the "Common Stock") which are
issuable as a result of the conversion of convertible debentures in the
aggregate principal amount of $1,500,000 (the "Debentures") on the terms
and conditions stated in the Debentures (the "Conversion Shares");
ii) Shares of Common Stock which are issuable in payment of interest on the
Debentures to be calculated as provided therein (the "Interest Shares");
and
iii) Up to 150,000 shares issuable on exercise of a warrant to purchase
Common Stock as provided therein (the "Warrant Shares").
The Conversion Shares, the Interest Shares and the Warrant Shares are
hereinafter collectively referred to as the "Securities".
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement (including all amendments thereto); (ii) the Articles of Incorporation
and the By-laws of the Company, each as amended to date; and (iii) records of
certain of the Company's proceedings relating to, among other things, the
issuance and sale of the Securities. In addition, we have made such other
examinations of law and facts as we considered necessary in order to form a
basis for the opinions hereunder expressed.
<PAGE>
NORTON * LIDSTONE, LLC
Medical Dynamics, Inc.
____________, 1998
Page 2
In our examination of the aforesaid documents, we have assumed, without
independent investigation, the genuineness of all signatures, the enforceability
of the documents against each party thereto other than the Company, the
authenticity of all documents submitted to us as originals, the conformity to
the original documents of all documents submitted to us as certified,
photostatic, reproduced or conformed copies of validly existing agreements or
other documents, the authenticity of all such latter documents and the legal
capacity of all individuals who have executed any of the documents we have
reviewed.
In expressing the opinions set forth herein, we have relied upon
representations as to factual matters contained in certificates of officers of
the Company.
Based upon the foregoing, and subject to the assumptions, exceptions and
qualifications set forth herein, we are of the opinion that the Conversion
Shares, the Interest Shares, and the Warrant Shares have been duly authorized
and when the Conversion Shares and the Interest Shares are issued and delivered
in accordance with the terms of the Debenture, and the Warrant Shares are issued
and delivered in accordance with the terms of the Warrant, the Securities will
be legally issued, fully paid and nonassessable.
The foregoing opinions are limited to the laws of the State of Colorado.
Our opinion is rendered only with respect to the laws, and the rules,
regulations and orders thereunder, which are currently in effect.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the Prospectus. In giving such consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7 of
the Act.
Very truly yours,
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the registration statement
on Form S-3 of Medical Dynamics, Inc. of our report dated November 20, 1997, on
our audits of the consolidated financial statements of Medical Dynamics, Inc. as
of September 30, 1997, and for each of the two years in the period ended
September 30, 1997, which report is included in the Company's Annual Report on
Form 10-KSB.
HEIN + ASSOCIATES LLP
Denver, Colorado
_______________, 1998
