MEDICAL DYNAMICS INC
PRE 14A, 1998-03-25
PHOTOGRAPHIC EQUIPMENT & SUPPLIES
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                    Proxy Statement Pursuant to Section 14(a)
                     of the Securities Exchange Act of 1934
                                (Amendment No. )

File by the Registrant  [XX]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:
[XX]      Preliminary Proxy Statement

[ ]       Definitive Proxy Statement
[ ]       Definitive Additional Materials
[ ]       Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 14a-12

                             MEDICAL DYNAMICS, INC.
                 ----------------------------------------------
                (Name of Registrant as Specified In Its Charter)

                             Van Horsley, President
                    ----------------------------------------
                   (Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate Box:)

[XX]      $125  per  Exchange   Act  Rules   O-11(c)(1)(ii),   14a-6(i)(1),   or
          14a-6(j)(2).
[ ]       $500 per each party to the  controversy  pursuant to Exchange Act Rule
          14a-6(i)(4) and O-11.

[ ]       Fee  computed on table below per Exchange  Act Rules  14a-6(i)(4)  and
          O-11.

          (1)  Title of each class of securities to which transaction applies:


          (2)  Aggregate number of securities to which transaction applies:


          (3)  Per unit price or other underlying value of transaction  computed
               pursuant to Exchange Act Rule O- 11:1


          (4)  Proposed maximum aggregate value of transaction:

- ----------

1    Set forth the amount on which the filing fee is calculated and state how it
     was determined.

[ ]  Check box if any part of the fee is offset as provided by Exchange Act Rule
     O-11(a)(2)  and identify the filing for which the  offsetting  fee was paid
     previously.  Identify the previous filing by registration statement number,
     or the Form or Schedule and the date of its filing.

     (1)  Amount Previously Paid:
     (2)  Form, Schedule or Registration Statement No.:
     (3)  Filing Party:
     (4)  Date Filed:



<PAGE>



                             MEDICAL DYNAMICS, INC.
                             99 Inverness Drive East
                               Englewood, CO 80112

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

                   NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To
                            Be Held on June 11, 1998

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

                                                                  April 30, 1998

TO THE SHAREHOLDERS OF MEDICAL DYNAMICS, INC.:

     The Annual Meeting of  Shareholders of Medical  Dynamics,  Inc., a Colorado
corporation,   ("Medical   Dynamics"   or  the   "Company")   will  be  held  at
______________________________,  ___________________,  Englewood, Colorado _____
on June 11, 1998 at 10:00 a.m. local time, to consider and take action on:

     1. The election of seven  directors to serve until the next annual  meeting
of shareholders and until their successors have been elected and qualified.

     2. An amendment to effect a 100-for-one reverse stock split.

     3. Conditional upon the approval of Proposal 2, a one-for-100 forward stock
split.

     4. An increase in the  Company's  authorized  capitalization  to 30,000,000
shares of $.01 par value common stock.

Fractional  shares  resulting  from the reverse stock split will be purchased by
the Company for a price to be determined based on the circumstances  existing at
about the time that the Reverse Stock Split is completed.

     5. Approval of the Medical Dynamics 1998 Stock Option Plan.

     6. Such other  business as may  properly  come before the  meeting,  or any
adjournments or postponements thereof.

     The  discussion  of the  proposals  set forth above is  intended  only as a
summary,  and is qualified in its entirety by the  information  contained in the
accompanying Proxy Statement.

     Only  holders of record of common  stock at the close of  business on April
24, 1998, will be entitled to notice of and to vote at this Annual  Meeting,  or
any postponements or adjournments thereof.



<PAGE>


SHAREHOLDERS  ARE  CORDIALLY  INVITED  TO ATTEND  THE  MEETING IN PERSON AND THE
MANAGEMENT OF THE COMPANY HOPES THAT YOU WILL FIND IT CONVENIENT TO ATTEND.

     Shareholders,  whether or not they expect to be present at the meeting, are
requested  to sign and date the  enclosed  proxy and return it  promptly  in the
envelope  enclosed for that purpose.  Any person giving a proxy has the power to
revoke  it at any time by  following  the  instructions  provided  in the  Proxy
Statement.

                                     By Order of the Board of Directors:
                                     Van Horsley, President


PLEASE  DATE,  SIGN AND  PROMPTLY  RETURN  YOUR PROXY SO THAT YOUR SHARES MAY BE
VOTED IN ACCORDANCE  WITH YOUR WISHES.  THE GIVING OF SUCH PROXY DOES NOT AFFECT
YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.

                             YOUR VOTE IS IMPORTANT






<PAGE>




                             MEDICAL DYNAMICS, INC.
                             99 Inverness Drive East
                               Englewood CO 80112

                                 PROXY STATEMENT
                       FOR ANNUAL MEETING OF SHAREHOLDERS
                           TO BE HELD ON JUNE 11, 1998

                                                                  April 30, 1998

     This  Proxy  Statement  is  being  furnished  to  shareholders  of  Medical
Dynamics,  Inc.  ("Medical  Dynamics" or the  "Company") in connection  with the
solicitation of proxies by and on behalf of the Company's Board of Directors for
use at the Annual Meeting of shareholders of the Company (the "Annual  Meeting")
and at any  adjournments or  postponements  thereof.  The Annual Meeting will be
held at 10:00 a.m. local time, at __________________,  _____________, Englewood,
CO 80112,  on June 11, 1998.  This Proxy  Statement  will be first mailed to the
shareholders on or about May 4, 1997.

                                VOTING SECURITIES

     Holders of record of the Company's common stock (the "Common Stock") at the
close of business on April 24, 1998 (the "Record Date") will be entitled to vote
on all matters.  On the Record Date, the Company had 9,628,669  shares of Common
Stock  outstanding.  The holders of shares of Common  Stock are  entitled to one
vote per share.  The  Company's  only class of voting  securities  is the Common
Stock.

     A  majority  of the  issued  and  outstanding  shares of the  Common  Stock
entitled to vote,  represented  in person or by proxy,  constitutes a quorum for
the  transaction of business at the meeting.  As described in more detail below,
if there is a quorum present:

     the  seven  nominees  for  the  Board  receiving  the  greatest  number  of
     affirmative votes will be elected as directors (proposal 1);

     a majority of the outstanding  shares must vote in favor of proposals 2, 3,
     and 4 for their approval; and

     a majority of the shares voting (if a quorum is present) must vote in favor
     of proposal 5 for its approval.

Management  may,  in its  discretion,  seek an  adjournment  of the meeting to a
specific  time and place if  sufficient  votes are not cast for the  approval of
proposals  2, 3, 4, or 5.  Management  may also  recommend  that the  meeting be
adjourned if a quorum is not present.  Management has not determined  whether to



<PAGE>



do so,  however.  The proxy holder will vote all proxies it receives  which have
directed a vote FOR  proposal 2 in favor of any  adjournment  for the purpose of
soliciting  additional  votes;  the proxy holder will vote all proxies  received
which voted against proposal 2 against any such  adjournment;  all proxies which
direct an  abstention  with  respect to the vote on proposal 2 will abstain from
voting on any  adjournment  proposed  for the purpose of  soliciting  additional
votes.

     Abstentions  will be treated as shares present or represented  and entitled
to vote for purposes of  determining  the presence of a quorum,  but will not be
considered  as votes cast in  determining  whether a matter has been approved by
the  shareholders.  Any shares a broker  indicates on its proxy that it does not
have the authority to vote on any particular  matter because it has not received
direction from the  beneficial  owner thereof will not be counted as voting on a
particular matter.

     A shareholder who gives his proxy pursuant to this  solicitation may revoke
it at any time  before it is voted  either by  giving  notice of the  revocation
thereof  to the  Secretary  of the  Company,  by filing  another  proxy with the
Secretary or by attending the Annual Meeting and voting in person.  All properly
executed and unrevoked proxies, if received in time, will be voted in accordance
with the instructions of the beneficial owners contained thereon.

     The  Company  will  bear  the  cost of the  solicitation.  In  addition  to
solicitation  by mail,  the  Company  will  request  banks,  brokers  and  other
custodian  nominees and  fiduciaries to supply proxy materials to the beneficial
owners  of the  Company's  Common  Stock  for whom  they  hold  shares  and will
reimburse them for their reasonable expenses in so doing.

         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     At April 24,  1998,  Medical  Dynamics  had only one  class of  outstanding
voting securities,  its common stock (referred to herein as the "Common Stock").
The following table sets forth  information as of April 24, 1998 with respect to
the ownership of the Common Stock for all directors,  individually, all officers
and directors as a group, and all beneficial owners of more than five percent of
the Common Stock.  The following  shareholders  have sole voting and  investment
power with respect to the shares unless indicated otherwise.

                                   Shares owned                    * Percent
Name of beneficial owner         beneficially (1)                  of class
- ------------------------         ----------------                  --------

Edwin L. Adair, M.D.               1,174,298 (2)                     12.2%
and Pat Horsley Adair
317 Paragon Way
Castle Pines Village
Colorado   80104

Daniel L. Richmond                  647,760 (5)                        6.7%
6500 Baird Av
Reseda, CA.  91335

                                      2

<PAGE>


Chae U. Kim                         647,760 (5)                        6.7%
3231 Cheviot Vista Place
Los Angeles, CA.  90034

I. Dean Bayne, M.D.                    20,000                          0.2%

Van A. Horsley                       355,586 (3)                       3.7%

Leroy Bilanich, Ed.D.                  20,000                          0.2%

All officers and                    3,195,404 (4)                     32.7%
directors as a
group (10 persons)


(1)  As used in this section,  the term  beneficial  ownership with respect to a
     security is defined by Rule 13d-3 under the Securities Exchange Act of 1934
     as consisting of sole or shared voting power  (including  the power to vote
     or direct the vote) and/or sole or shared  investment  power (including the
     power to dispose or direct the  disposition)  with  respect to the security
     through  any  contract,   arrangement,   understanding,   relationship   or
     otherwise.  Unless otherwise  indicated,  beneficial ownership is of record
     and consists of sole voting and investment power.

(2)  Includes  175,000  stock  options  issued to the  Chairman of which all are
     presently exercisable. Also includes 120,000 options issued to Dr. Adair in
     December,  1995 in  consideration  for  cancellation of fiscal 1996 royalty
     payments due him totaling $120,000, also presently exercisable.

(3)  Includes 270,680 shares under presently exercisable stock options. Does not
     include  options to acquire  100,000  shares  exercisable at prices ranging
     from $3.00 to $3.75 per share  which vest  based upon  defined  performance
     goals.

(4)  Includes shares referenced in notes (2), (3), and(5) and 330,000 additional
     shares  and  no  currently-exercisable  options  held  by  three  executive
     officers  (Jo  Brehm,  Scott  McLaughlin  and  Don  Jackson)  who  are  not
     directors, all of which are presently exercisable. Does not include options
     held by them to acquire  740,000 shares  exercisable at prices ranging from
     $2.00 to $5.00 per share which vest based upon defined performance goals.

(5)  Does not include  options to acquire  600,000  shares  exercisable at $3.25
     which vest upon defined performance goals.

     The  Company  knows of no  arrangement,  the  operation  of which may, at a
subsequent date, result in change in control of the Company.



                                       3
<PAGE>



                                   PROPOSAL 1-
                              ELECTION OF DIRECTORS

 The  following  persons are nominated as directors of the Company for a term of
one year and until the election and qualification of their successors:

           Edwin L. Adair, M.D.               Pat Horsley Adair
           Van A. Horsley                     I. Dean Bayne
           Leroy I. Bilanich                  Daniel L. Richmond
           Chae U. Kim

These persons will constitute the entire Board of Directors. The person named in
the proxy intends to vote for those nominees,  each of whom has been recommended
for  election by the Board of Directors  of the  Company,  unless a  shareholder
withholds  authority to vote for any or all of the nominees.  The seven nominees
receiving the greatest number of affirmative votes will be elected as directors.
If any nominee is unable to serve or, for good cause, will not serve, the person
named in the proxy reserves the right to substitute another person of his choice
as nominee in his place.  Each of the nominees has agreed to serve,  if elected.
The  following  table  sets  forth the names  and ages of the  nominees  and the
executive  offices held by each such person.  The Company has no other officers.
These officers serve at the pleasure of the Board of Directors.

Identification of Directors and Executive Officers
- --------------------------------------------------

The following table sets forth certain  information  regarding the directors and
executive  officers  of  Medical  Dynamics  and of its  significant  subsidiary,
Computer Age Dentist, Inc. ("CADI"):

Name                       Age      Position
- ----                       ---      --------

Edwin L. Adair, M.D. (1)   67       Chairman of the Board and Treasurer of
                                    Medical Dynamics

Van A. Horsley (2)         46       Director, President, Chief Financial Officer
                                    and Chief Executive Officer of Medical
                                    Dynamics; Director and Vice President of
                                    CADI

Daniel L. Richmond         36       Director of Medical Dynamics, Inc.;
                                    Director and Chief Executive Officer of
                                    CADI

Chae U. Kim                36       Director of Medical Dynamics, Inc.;
                                    Director and President of CADI

Pat Horsley Adair (1)      69       Director and Secretary of Medical
                                    Dynamics

                                       4

<PAGE>


I. Dean Bayne, M.D. (2)    70       Director and Assistant Secretary of Medical
                                    Dynamics

Leroy I. Bilanich (2)      47       Director of Medical Dynamics

Jo Brehm                   61       Vice President of Medical Dynamics

R. Scott McLaughlin        51       Vice President of CADI

Don C. Jackson             49       Vice President of CADI


(1)  Members of the Compensation Committee.
(2)  Members of the Audit Committee

     No  arrangement  exists  between any of the above  officers  and  directors
pursuant  to which  any one of those  persons  was  elected  to such  office  or
position  except that  Messrs.  Kim and Richmond  were  appointed to the Medical
Dynamics  Board as a result  of the  acquisition  of CADI,  in  October  1997 as
described in the Annual Report to Shareholders.

     Directors  hold office until the next meeting of  shareholders  and until a
successor  is elected  and  qualified,  or until  their  resignation.  Executive
officers  are elected at annual  meetings of the Board of  Directors.  Each such
officer holds office for one year or until a successor has been duly elected and
qualified or until death,  resignation or removal. No director of the Company is
a director of another company having  securities  registered under Section 12 of
the Securities Exchange Act of 1934 or a company registered under the Investment
Company Act of 1940.

     A brief summary of the business  experience of each person who is currently
an officer or  director  of the  Company,  and such  person's  service  with the
Company is as follows:

     Edwin L. Adair, M.D. has been a director of Medical Dynamics since June 30,
1971,  Chairman of the Board since  September 8, 1981 and Treasurer  since March
27, 1973.  From  February 6, 1986 until July 13, 1990,  Dr. Adair also served as
Chief Executive  Officer of Medical  Dynamics.  Dr. Adair received B.S. and M.D.
degrees  from the  University  of  Colorado in 1951 and 1955,  respectively.  He
practiced  medicine from 1956 until 1983 and is a board-certified  urologist who
discontinued  the  practice of medicine due to a physical  disability  resulting
from an accident.  Dr. Adair has published  articles in medical journals and has
taught at the University of Colorado  School of Medicine.  Dr. Adair is a member
of the American  Medical  Association,  American Board of Urology,  the American
Urological  Society  and the  American  College of  Surgeons.  Medical  Dynamics
currently carries a $100,000 key man life insurance policy on Dr. Adair, reduced
from $1,100,000 as a cost savings measure during fiscal 1996.

     Van A. Horsley has been a director,  President and Chief Executive  Officer
of Medical Dynamics since July 13, 1990. From March 1, 1990 until July 13, 1990,
Mr.  Horsley  served as Chief  Financial  Officer.  Mr. Horsley holds a B.S.B.A.
degree in finance from the  University of Denver and a graduate  degree from the
School of Banking at the  University of Colorado.  From 1974 to February,  1990,
Mr.  Horsley was employed in various  capacities by Affiliated  Denver  National
Bank in  Denver,  Colorado  and from  1985  through  February,  1990  served  as
executive vice president - head of lending.



                                       5


<PAGE>



     Pat Horsley  Adair has been a director and  Secretary  of Medical  Dynamics
since September 8, 1981. Mrs. Adair attended McMurray College in Abilene, Texas,
taking courses in English and business which did not lead to a degree. From June
1974 to July  1983,  Mrs.  Adair was  employed  by  Medical  Dynamics  as office
manager.  Since  that time,  Mrs.  Adair has served as  Corporate  Secretary  to
Medical Dynamics.  From 1964 to 1975, Mrs. Adair served as executive director of
the  Arapahoe  County  Medical  Society  and  from  1976 to 1980 she  served  as
executive  director  of  the  Metro  Denver  Foundation  for  Medical  Care,  an
organization  which  serves  Arapahoe,  Denver,  Boulder,  Jefferson  and  Adams
counties, Colorado.

     Daniel L.  Richmond has been a director of Medical  Dynamics  since October
1997.  In June 1984,  Mr.  Richmond  graduated  from UCLA with a B.S.  degree in
Math/Computer  Science.  From 1983 through 1985, Mr.  Richmond  founded and then
served as  President  of  Compulink,  a  software  company  that sells to retail
jewelry  stores.  From 1986 until 1987,  Mr.  Richmond,  along with Mr. Chae Kim
headed up the  technical  team for Emory &  Associates,  a software  development
company  specializing in custom accounting  packages for large manufacturers and
distributors.  In June 1987 Mr. Richmond co-founded  Computer Age Dentist,  Inc.
("CADI").  He has served as Chief Executive Officer of CADI from June 1987 until
present.

     Chae U. Kim has been a director of Medical  Dynamics since October 1997. In
June 1985, Mr. Kim Graduated from UCLA with a B.A. degree in Biology.  From 1986
until 1987,  Mr. Kim,  along with Dan Richmond  headed up the technical team for
Emory &  Associates,  a  software  development  company  specializing  in custom
accounting packages for large  manufacturers and distributors.  In June 1987 Mr.
Kim  co-founded  CADI.  He has served as  President of CADI from June 1987 until
present.

     I. Dean Bayne, M.D. has been a director of Medical Dynamics since July 1987
and Assistant  Secretary  since October 1988.  Dr. Bayne  received B.S. and M.D.
degrees from Louisiana State University in 1949 and 1953, respectively,  and has
been engaged in private medical practice since 1958. Dr. Bayne was a resident in
obstetrics  at Herman  Kiefer  Hospital,  Detroit,  Michigan,  and a resident in
gynecology at Detroit Receiving Hospital,  Detroit,  Michigan. He is a member of
the Board of Obstetrics and  Gynecology  and the American  College of Obstetrics
and Gynecology.

     Leroy  Bilanich,  Ed.D.  has been a  director  of  Medical  Dynamics  since
September 13, 1990. Dr. Bilanich has a B.S. in journalism and broadcasting  from
Pennsylvania  State University,  an M.A. in communication from the University of
Colorado and has an Ed.D. in  organizational  behavior from Harvard  University.
Dr. Bilanich  currently works as a consultant to large  corporations in the area
of organizational  development and in the past has held various positions in the
Human Resource  Departments  at Pfizer,  Inc. from 1983 to March of 1988 and the
Olin Corporation.



                                       6
<PAGE>


     Jo Brehm is Vice President - Sales and  Administration of Medical Dynamics.
She has been an employee of Medical  Dynamics since 1973.  From December 1984 to
September  1988, Mrs. Brehm served as Vice President of Medical  Dynamics.  From
September  1988 until July  1990,  Mrs.  Brehm  served as  President  of Medical
Dynamics.

     R. Scott McLaughlin became Vice  President/National  Sales Manager for CADI
in  February  1998  as a  result  of the  acquisition  by  CADI  of  Information
Presentation Systems, Inc. of Marietta,  Georgia ("IPS") as described in Medical
Dynamics' annual report to shareholders.  Mr. McLaughlin had been one of the two
principals of IPS since its inception in 1990.  Before that, Mr.  McLaughlin was
with Unisys Corporation and its predecessor company, the Oakleaf Corporation for
eleven years in sales management,  and (previously)  General Motors  Corporation
for eleven years in financial  analysis.  Mr. McLaughlin attended the University
of South Florida in 1966 through 1967.

     Don C.  Jackson  became Vice  President/Hardware  Product  Development  and
Technical  Services for CADI in February 1998 as a result of the  acquisition by
CADI of IPS. Mr.  Jackson had founded IPS with Mr.  McLaughlin.  Mr. Jackson was
Southeast  Vice  president of the Auto  Division of Unisys and its  predecessor,
Oakleaf, for approximately twelve years before 1990. While at Oakleaf before its
purchase by Unisys, Mr. Jackson was the Executive Vice President of Oakleaf at a
time when that  corporation grew from six to  approximately  400 employees.  Mr.
Jackson  obtained a Bachelor of Science  degree in Electrical  Engineering  from
Wayne State University in 1972.

     There are no significant  employees who are not also directors or executive
officers, described above.

     Dr. Edwin L. Adair and Pat Horsley Adair are married. Van A. Horsley is the
son of Pat Horsley  Adair.  There are no other  family  relationships  among the
officers or directors.

Meetings of the Board and Committees
- ------------------------------------

     The Board of  Directors  held two formal  meetings  during the fiscal  year
ended  September 30, 1997 and one meeting  subsequently  through March 31, 1998.
Each director  attended at least 75% of the formal  meetings either in person or
by telephone. In addition, regular communications were maintained throughout the
year among all of the  officers and  directors of the Company and the  directors
acted by unanimous consent three times during fiscal 1997 and once through March
31, 1998.

             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities  Exchange Act of 1934 (the "Exchange  Act")
requires the Company's  directors and officers and persons who own more than ten
percent of the  Company's  equity  securities,  to file reports of ownership and
changes in ownership with the Securities  and Exchange  Commission  (the "SEC").
Directors,  officers and greater than  ten-percent  shareholders are required by
SEC  regulation  to furnish the Company with copies of all Section 16(a) reports
filed.



                                       7
<PAGE>


     Based  solely on its review of the copies of the reports it  received  from
persons  required  to file,  the  Company  believes  that during the period from
October 1, 1996 through March 31, 1998,  all filing  requirements  applicable to
its officers,  directors and greater than ten-percent shareholders were complied
with.


                             EXECUTIVE COMPENSATION

Summary Compensation Table
- --------------------------

     The following table sets forth information  regarding  compensation paid to
the chief  executive  officer  of Medical  Dynamics  for the three  years  ended
September  30, 1997.  No other  person who is currently an executive  officer of
Medical Dynamics earned salary and bonus compensation  exceeding $100,000 during
any of those years.  This includes all  compensation  paid to him by the Company
and any subsidiary.
<TABLE>
<CAPTION>

=================================================================================================================
                                  Annual Compensation                  Long Term Compensation
                            -------------------------------     -----------------------------------
                                                                        Awards           Payout
                                                                -----------------------------------
Name and         Year       Salary       Bonus       Other                                          All other 
Position                                                        Restricted    Options    LTIP       Compensation
                                                                Awards        &          Payout
                                                                              SAR's
- -----------------------------------------------------------------------------------------------------------------
<S>              <C>        <C>           <C>         <C>       <C>           <C>        <C>        <C>
  Van A.
 Horsley         1997       $110,000      -0-         -0-       -0-           -0-         -0-       $272
President        1996       $105,000      -0-         $925      -0-           87,174      -0-       $260
   and           1995       $105,000      -0-         $925      -0-           40,900      -0-       $559
  Chief          
Executive        
 Officer         
=================================================================================================================
</TABLE>


     401(k)  Plan.  On January 1, 1990,  Medical  Dynamics  adopted an  employee
benefit plan under Internal  Revenue Code Section  401(k).  The 401(k) plan is a
profit sharing plan under which both employees and Medical Dynamics are entitled
(at their own discretion) to contribute a portion of compensation  and earnings,
respectively, to investment funds to supplement employee retirement benefits. At
September 30, 1997,  Medical Dynamics's  matching  contributions to the plan for
the  accounts  of Van Horsley and Jo Brehm  totaled  approximately  $400 and the
matching  contribution under the plan for the accounts of all executive officers
as  a  group  totaled  $400.   These  amounts  are  included  under  "All  Other
Compensation" in the Summary Compensation Table.

     Employment  Agreements.  On October 1, 1997 the Registrant,  in conjunction
with its purchase of Computer Age Dentist, Inc. (CADI),  entered into employment
agreements  with Dan Richmond  (CEO) and Chae Kim  (President).  The term of the
agreements are five years and call for annual compensation of $105,000 each, car
allowances of $500 per month and other  benefits  customarily  extended to other
CADI employees.  In both cases, the employment agreements define their duties to
include a continuation  of their present  positions with CADI, and for a default
under the  employment  agreements if the employee is not re-elected to the Board
of  Directors  of  Medical  Dynamics  or if the Board of  Directors  of  Medical
Dynamics is expanded  otherwise than as the result of an increase  approved by a
vote of a majority of the Board.



                                       8
<PAGE>


     Options and Option Plans. In April 1988, the Board of Directors adopted and
authorized  the 1988 Stock  Option  Plan (the "1988  Plan")  and  directed  that
management  prepare the documents formally defining the plan. The Board formally
approved the 1988 Plan on July 14, 1988 and the  shareholders  approved the 1988
Plan on  September  28,  1988.  The 1988 Plan has few  options  remaining  to be
granted, and it expires in April 1998. Consequently, and as described more fully
in Proposal 5, below,  the Board of Directors  has adopted the Medical  Dynamics
1998 Stock Option Plan and proposed its ratification to the shareholders.

     Allocations of options under Medical  Dynamics' stock option plans are made
by the Compensation  Committee based on the duties,  contributions  and value of
the services of the  respective  optionee.  The  Committee  has the authority to
determine  to whom options were  granted,  the number of shares  covered by each
option, when each option was to be granted, date of initial ability to exercise,
exercise  price and certain other terms and to prescribe,  interpret,  amend and
rescind rules and regulations relating to each plan. Any options canceled or not
exercised  within the option period  became  available for grants of new options
under the plans. The Board also has the power to select committees consisting of
not less than two members to administer each plan.

     Under the 1988 Plan,  Medical  Dynamics  reserved an aggregate of 1,000,000
shares of its common  stock for  issuance  to  employees  (including  officers),
consultants  and  directors  of Medical  Dynamics  or any  subsidiary.  The plan
contains  restrictions  on  the  number  of  options  granted  to  officers  and
directors,  exercise price, maximum term and  transferability.  On May 14, 1991,
Medical Dynamics filed a registration statement under the Securities Act of 1933
on Form S-8 which  registered  the  shares of common  stock  underlying  options
granted under the 1988 Plan. As such, shares issued upon exercise of outstanding
options can be traded on the open market with limited restriction.

     All of the options  granted  under the 1988 Plan may be  exercised  through
payment of the exercise  price with shares of Medical  Dynamics  Common Stock or
cash, or both. The ability to exercise  options through  surrendering  shares of
Common  Stock  enables  holders of options to exercise  the entire  amount of an
option by first  exercising a small number of options,  followed by successively
larger option exercises which the optionee is able to effect by surrendering the
increasing  number of shares  obtained  thereby.  For little or no initial  cash
payment,  repeated  exercises of options by  surrendering  stock having a market
price in excess of the option  exercise  price,  enable an  optionee  to provide
sufficient  consideration  to Medical  Dynamics  to  exercise  his entire  stock
option.  The  exercise  of options  might  otherwise  require  substantial  cash
consideration. This procedure is often referred to as pyramiding.




                                        9

<PAGE>
<TABLE>
<CAPTION>



     The following table sets forth certain information  regarding stock options
granted  by  Medical  Dynamics  to the  Chief  Executive  Officer  and no  other
executive  officers received total annual salary and bonus in excess of $100,000
during 1997. No stock appreciation rights were granted.

Option Grants in Fiscal 1997
- ----------------------------

=============================================================================================================
      (a)                 (b)                      (c)                        (d)                   (e)
- -------------------------------------------------------------------------------------------------------------
<S>                 <C>                <C>                              <C>                   <C>   
      Name          Options Granted    % of total options granted to    Exercise or base      Expiration date
                          (#)          employees and consultants in          price
                                               fiscal year
- -------------------------------------------------------------------------------------------------------------
Van A. Horsley            None
=============================================================================================================



Aggregated  Option  Exercises  in Last  Fiscal  Year and Fiscal  Year End Option
Values.
- --------------------------------------------------------------------------------

     The  following  table  sets  forth  information   regarding  stock  options
exercised by the chief executive officer and certain other officers or directors
during the 1997 fiscal year as well as the year-end  value of options being held
by such persons on September  30, 1997: No Stock  Appreciation  Rights have been
granted, or are held by, any such person:

=================================================================================================================
      (a)                 (b)                      (c)                        (d)                   (e)
- -----------------------------------------------------------------------------------------------------------------
      Name          Shares acquired on        Value realized           # of unexercised     Value of in-the-money
                         exercise                                      options at FY end      options at FY end
                                                                         (exercisable/          (exercisable/
                                                                         unexercisable)         unexercisable)
- -----------------------------------------------------------------------------------------------------------------
Van A. Horsley           3,598                    $3,216                     220,680               $279,602
                                                                                   0                      0
- -----------------------------------------------------------------------------------------------------------------
Edwin L. Adair, M.D.    65,000                   $16,855                     295,000               $241,872
                                                                                   0                      0
- -----------------------------------------------------------------------------------------------------------------
I. Dean Bayne              -0-                       -0-                      20,000                      0
                                                                                   0                      0
- -----------------------------------------------------------------------------------------------------------------
Leroy I. Bilanich          -0-                        $0                      20,000                $30,132
                                                                                   0                      0
- -----------------------------------------------------------------------------------------------------------------
Jo Brehm                50,000                  $132,438                           0                      0
                                                                                   0                      0
==================================================================================================================


Long Term Incentive Compensation Plans
- --------------------------------------

     Medical Dynamics has no long term incentive compensation plans.

Other Compensation
- ------------------

     There are no plans to pay bonuses or deferred  compensation to employees of
the Company.

     The Company has adopted a medical and life insurance plan for its employees
at the Company's cost and provides a discretionary disability,  dental and other
insurance plans for the benefit of its employees at their expense.



                                       10
</TABLE>

<PAGE>


Compensation of Directors
- -------------------------

     General.  Medical  Dynamics'  directors are  authorized to receive $200 for
each  directors'  meeting  attended by them. To date,  the directors have waived
their  right to  receive  directors  fees.  Dr.  Bayne owns an option to acquire
20,000 shares of common stock at $4.00 per share,  expiring June 11, 2003. Leroy
Bilanich  owns an option to acquire  20,000  shares of common stock at $1.50 per
share, expiring June 11, 2003.

     No options were granted during fiscal 1997 to board members.

     Royalty Agreements. Dr. Adair and Dr. Bayne, directors of Medical Dynamics,
are each entitled to receive  royalties equal to two percent of the net sales of
products each assigned to the Company. No royalties have been accrued or paid to
Dr.  Bayne;  $600,000 has been paid to Dr. Adair through the end of fiscal 1995.
No cash amounts have been paid to Dr. Adair  subsequently.  In an effort to help
reduce negative cash flow during fiscal 1996, Dr. Adair accepted  120,000 common
stock  options  priced at $1.00 per share in  substitution  for his cash royalty
payment for the 1996 fiscal  year.  During 1997 Dr.  Adair and Medical  Dynamics
made certain  changes to the license  agreement which included an elimination of
the minimum  annual  royalty,  effective for the 1997 fiscal year.  See "Certain
Relationships and Related  Transactions" for further  information  regarding the
royalty agreement.

     Indemnification    Agreements.    Medical   Dynamics   has   entered   into
indemnification  agreements with certain of its directors and officers providing
for indemnification of each such director by Medical Dynamics to the full extent
permitted by the Colorado Business Corporation Act, and it intends to enter into
similar agreements with the remaining directors.  The agreements provide that in
all circumstances in which a director or officer may receive  indemnification by
statute, such indemnity shall be provided.

     Officer's Life Insurance.  Until recently,  Medical  Dynamics  maintained a
$100,000 whole life key-man  insurance policy on its Chairman which was acquired
in 1985. Medical Dynamics canceled that policy during the current fiscal year.

     Medical Dynamics has no other arrangements pursuant to which it compensates
its directors for acting in their capacities as such.

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Transactions With Management and Others.
- ----------------------------------------

     Medical  Dynamics has engaged in certain  transactions  with members of its
Board of Directors. In each case, the Board believed that the transaction was in
the Company's best interests and the terms of the  transaction  were at least as
fair to Medical Dynamics as could have been obtained from an independent person,
and the transaction was approved by the disinterested directors. Registrant will
continue to follow this procedure in approving any transactions  with affiliated
persons. No such transactions are contemplated at this time.


                                       11

<PAGE>


     License  Agreement  with  Dr.  Adair.  Medical  Dynamics  entered  into  an
exclusive  revocable  license  agreement  with its  chairman,  Dr.  Edwin Adair,
effective  June 3, 1987,  as  amended,  relating  to use of  certain  technology
invented and developed by Dr. Adair. Before an amendment negotiated in September
1997,  Medical  Dynamics was obligated to pay Dr. Adair a minimum annual royalty
of $120,000.  Additionally,  Dr. Adair was obligated to give Medical  Dynamics a
right of first refusal for his inventions.  Actual  royalties never exceeded the
minimum annual royalty.  As a result of negotiations  between the  disinterested
directors and Dr. Adair,  the parties  agreed to amend the license  agreement to
waive the minimum  annual royalty due September 30, 1997 for the year then ended
and any future minimum annual  royalty,  and to waive Dr. Adair's  obligation to
provide Medical Dynamics with a right of first refusal on future technology.

     Distribution  Agreement.  Medical  Dynamics  entered  into  a  distribution
agreement with Micro- Medical Devices, Inc. ("MMD"), a corporation  wholly-owned
by Dr.  Adair  during  June of fiscal  year  1995.  The  distribution  agreement
includes all products  developed by Dr. Adair related to his  Universal  Sterile
Endoscopy System(TM) ("USES").

     MMD has appointed Medical Dynamics as its exclusive  worldwide  distributor
for the USES products through June 30, 2000. MMD also granted Medical Dynamics a
right of first refusal to distribute any further products MMD may develop. There
are no minimum performance  requirements under the distribution  agreement,  and
Medical  Dynamics  need only  purchase  products  it has  already  sold to third
parties.

     MMD also agreed to sublease space from Medical Dynamics for  administration
purposes at cost. The rental payment and  reimbursement  to Medical Dynamics for
employees  MMD may utilize are intended to compensate  Medical  Dynamics for all
associated  expenses,  including rent on a per-  square-foot  basis.  During the
fiscal year ended  September 30, 1997,  Medical  Dynamics  purchased  $12,760 in
products from MMD, and MMD has not needed any significant leased space.

Other Related Party Transactions.
- ---------------------------------

     Medical  Dynamics  employs two sons of Dr. Adair and one son of Pat Horsley
Adair at annual salary rates of approximately  $45,600,  $45,600,  and $115,000.
During the most recently  completed  fiscal year those persons received no other
compensation from Medical Dynamics in addition to their salaries.

     Except as otherwise stated above,  since October 1, 1995,  Medical Dynamics
has not been a party to any transaction involving in excess of $60,000, in which
any director or executive officer, nominee for election as a director,  security
holder of  record or  beneficially  of more  than five  percent  of any class of
Medical  Dynamics'  securities,  or any  member of the  immediate  family of the
foregoing had or will have a direct or indirect material interest.

     Medical  Dynamics is not aware of any other  relationship  between nominees
for election as directors or its directors and Medical Dynamics that are similar
in nature and scope to those relationships listed in this Section.

                                       12

<PAGE>


                                PROPOSALS 2 and 3
                       2 -- 100:1 REVERSE STOCK SPLIT; and
                         3 -- 1:100 FORWARD STOCK SPLIT

     The Board of Directors has approved and  recommends  that the  shareholders
approve a  two-step  recapitalization  which will  result in  persons  currently
holding  fewer than 100 shares of Common Stock to be redeemed by the Company for
cash.

     The first step of the  recapitalization  will include a reverse stock split
     (the  "Reverse  Stock Split") by which each 100 shares of Common Stock will
     automatically,  and without any action by the shareholder,  become a single
     share.  Any person who owns fewer  than 100  pre-split  shares  will have a
     fractional  share  which will be  redeemed by the Company for a price to be
     determined by the Board of Directors following  shareholder approval of the
     Reverse  Stock  Split.  Fractional  shares  in  excess  of one  will not be
     redeemed.  The  Company  will use its  existing  working  capital to redeem
     fractional shares.

     The second step of the recapitalization  will include a forward stock split
     (the "Forward  Stock Split") by which each share of Common Stock  resulting
     after the Reverse Stock Split will automatically become 100 shares. Because
     the Forward  Stock Split is in the same ratio as the Reverse  Stock  Split,
     there will be no fractional shares remaining after the Forward Stock Split.

     Shareholders  should  note  that  the  Forward  Stock  Split  will  only be
completed if the Reverse Stock Split is also  approved.  The Company may, in the
discretion of the Board of  Directors,  complete the Reverse Stock Split whether
or not the Forward Stock Split is approved.

     A reverse stock split and a forward stock split require an amendment to the
Company's Articles of Incorporation.  The following table sets forth information
describing  the  potential  impact of the Reverse  Stock Split and Forward Stock
Split being proposed hereby:

================================================================================
                  Current Status         After Reverse           After Forward
                  --------------         -------------           -------------
                                         Stock Split             Stock Split
                                         -----------             -----------
- --------------------------------------------------------------------------------
Number of Shares
Authorized            15,000,000               150,000              15,000,000
(common stock)
- --------------------------------------------------------------------------------
Estimated
fractional shares        330,624              3,306.24                      NA
to be redeemed
- --------------------------------------------------------------------------------
Estimated number
of shares to be        9,628,669                92,980               9,298,045
outstanding
- --------------------------------------------------------------------------------
Estimated number
of shareholders           12,844                 1,117                   1,117
================================================================================



                                       13
<PAGE>


     Amendment to Articles of Incorporation. The Board of Directors have adopted
resolutions  authorizing  amendments to Article IV of the Company's  Articles of
Incorporation,  subject to  shareholder  approval,  accomplishing  the foregoing
Reverse and Forward Stock Splits.

Purpose of the Reverse Stock Split and the Forward Stock Split

     The Board of Directors  believes that the Reverse Stock Split, the purchase
by the Company of any resulting fractional shares held by all shareholders,  and
the  subsequent  Forward Stock Split,  is advisable and in the best interests of
the Company and its shareholders.

     Primarily, there are a very large number of shareholders of the Company who
have  fewer  than  100  shares  and  a  small   resulting   shareholder   value.
Communications  with shareholders and the conduct of a shareholders  meeting is,
consequently, very expensive. This is a primary reason that Medical Dynamics has
not held a  shareholder  meeting in the  recent  past.  Estimates  are that this
meeting  will  cost  approximately$100,000  in  printing,   mailing,  and  proxy
tabulation  costs  alone  because of the large  number of record and  beneficial
shareholders of the Company. Comparable costs for a shareholder meeting of 1,100
record holders would be significantly lower on an annual basis.

     The Board of  Directors  does not  believe  that the  proposed  Reverse and
Forward Stock Splits will have any material impact on the stock price of Medical
Dynamics common stock in the  over-the-counter  market as reported on the Nasdaq
SmallCap market. It is Medical Dynamics' belief that many of the persons holding
fewer than 100 shares are not  participating  in the market in any event because
of the cost of market transactions for such small holdings.

Certificates and Fractional Shares; Escheat Provisions

     The certificates  currently  representing  issued and outstanding shares of
Common  Stock will be deemed to  represent  the number of shares of Common Stock
after the effective  date of the Reverse  Stock Split.  Any person owning only a
fractional  share of Common Stock  following  the Reverse  Stock Split will only
have a right to submit his or her shares to the Company in  exchange  for a cash
payment in an amount to be  determined  by the Board of Directors in  accordance
with the  requirements of the Coloado  Business  Corporation  Act. The Company's
Board of Directors  believes that this value equates  approximately  to the fair
market value of the Company's Common Stock at the date hereof.  In reaching this
determination, the Board considered the market price for the Common Stock on the
Nasdaq SmallCap market, the perceived value of the Company's assets and business
operations,  and  other  factors  the  members  of the  Board  deemed  relevant.
Shareholders  holding  fractional  shares following the Reverse Stock Split will
have no right to participate in the subsequent Forward Stock Split.

                                       14

<PAGE>


     Following  the Forward  Stock Split,  the Company  will issue  certificates
representing  the  shares  of  new  (post-recapitalization)  Common  Stock.  Any
shareholder  (except those holding only a fractional share following the Reverse
Stock  Split)  will be  entitled  to (but not  required  to)  submit  his or her
certificates  representing pre-Stock Split Common Stock and receive certificates
for the same number of shares of post-Stock  Split Common Stock.  If the Forward
Stock Split is not  approved  but the  Reverse  Stock  Split is  completed,  any
resulting  fractional  shares will not be rounded.  If the  recapitalization  is
subsequently approved (see Proposal 4, below), stock dividends will be issued to
all remaining  shareholders  of Medical  Dynamics (not  including  those persons
holding less than a single share after the Reverse Stock Split to accomplish the
effect of the Forward Stock Split.

     Shareholders are not required to exchange their certificate(s) of pre-Stock
Split Common Stock for new certificates.  Shareholders  may,  however,  exchange
their  certificates  for shares of post-Stock Split Common Stock by surrendering
their old  certificates to the Company's  transfer agent and payment of a fee of
$_______  per new  certificate.  The  holder  will  receive a share  certificate
representing the appropriate  number of shares of post-Stock Split Common Stock.
The following examples are instructive:

     A person  holding 100  pre-split  shares of Common Stock will own one share
     following  the Reverse  Stock Split,  and 100 shares  following the Forward
     Stock Split.

     A person  holding 90 pre-split  shares will have a fractional  share (0.90)
     following the Reverse Stock Split and be entitled to receive 90% of the per
     share value which is to be determined by the Board of Directors.

     A person  holding 150  pre-split  shares will own 1.5 shares  following the
     Reverse Stock Split and 150 shares following the Forward Stock Split.

     Holders of fewer than a single share  following the Reverse Stock Split and
before the Forward Stock Split will have no further  rights as a shareholder  of
Medical Dynamics; such persons will be treated as unsecured creditors of Medical
Dynamics until such time as he or she surrenders her shares to Medical  Dynamics
or its transfer agent and receives payment  therefor.  The indebtedness will not
bear  interest  unless the  shareholder  perfects  his right to dissent from the
Reverse Stock Split pursuant to the procedure  required by the Colorado Business
Corporation  Act, which is summarized  below.  (All  shareholders  will be given
appropriate  instructions  for the  surrender  of  their  shares  following  the
effectiveness  of the  Reverse  Stock  Split.)  Any  holder  of  fewer  than 100
pre-Stock  Split shares who does not surrender his or her fractional  share will
remain an unsecured  creditor of Medical Dynamics until five years following the
completion of the Reverse Stock Split. After that time, pursuant to ss.38-13-110
of the Unclaimed Property Act of the State of Colorado, Medical Dynamics will be
obligated to pay the remaining  amounts due  shareholders  to the Colorado State
Treasury.


                                       15

<PAGE>



Effective Date of the Stock Splits

     The Stock Splits will become  effective on the filing date of the Amendment
to the Articles  describing the Stock Splits,  which is expected to be filed not
sooner  than  twenty  days  following  the  annual  shareholders'  meeting  (the
"Effective  Date").   The  Reverse  Stock  Split  will  occur  first,   followed
immediately by the Forward Stock Split.

Federal  Income  Tax  Consequences  of  the  Recapitalization  and  Buy-Back  of
Fractional Shares

     Reverse  Stock Split and Forward  Stock Split.  The Reverse Stock Split and
the Forward Stock Split will not result in the  recognition  of any taxable gain
or loss for federal income tax purposes to any remaining shareholders of Medical
Dynamics.  Each shareholder will be required to allocate his or her basis in the
pre-recapitalization shares owned by each shareholder among the number of shares
owned following the recapitalization. The tax basis of the Common Stock received
by  shareholders  as a result of the Reverse and  Forward  Stock  Splits will be
equal,  in the  aggregate,  to the basis of the shares  exchanged for the Common
Stock. For tax purposes,  the holding period of the shares  immediately prior to
the effective date of the Stock Splits will be included in the holding period of
the Common Stock received as a result of the Stock Splits.

     Fractional  Share  Purchase.  Holders of fewer  than 100 shares  before the
Reverse  Stock Split will own a fractional  share  following  the Reverse  Stock
Split.  At that time, each such  shareholder  will be obligated to surrender the
fractional share for an amount to be determined by the Board. To the extent such
amount  exceeds  the  holder's  basis  in his or her  shares,  the  holder  will
recognize gain; to the extent such amount is less than the holder's  basis,  the
holder will be entitled to recognize a loss.

Votes Required and Recommendation

     Approval of the  proposal  for the Company to amend the  Articles to effect
the Reverse  Stock Split and the Forward  Stock Split  requires the  affirmative
vote of a majority of the outstanding shares of the Company's Common Stock. Each
of these  matters  will be voted on  separately.  The Board of  Directors of the
Company  recommends that  shareholders  vote FOR the proposal for the Company to
amend the  Articles  to effect the Reverse  Stock  Split and the  Forward  Stock
Split.  Unless otherwise  specified,  the enclosed proxy will be voted "FOR" the
approval of the amendment.



                                       16
<PAGE>


                                   PROPOSAL 4
                                RECAPITALIZATION

General Description

     Common Stock.  The Board of Directors has approved and recommends  that the
shareholders  approve a  recapitalization  of Medical Dynamics which will become
effective  regardless  whether the shareholders  approve the Reverse Stock Split
and Forward Stock Split described in Proposals 2 and 3, above. Medical Dynamics'
articles of  incorporation  presently  authorizes  it to issue up to  15,000,000
shares of Common Stock.  The authorized  capitalization  will be adjusted in the
same  proportions  as for the  Reverse  Stock  Split and  Forward  Stock  Split.
Currently  Medical Dynamics has 9,628,669  shares  outstanding and an additional
3,915,852  shares  reserved  for issuance  upon  exercise of  outstanding  stock
options and  conversion of outstanding  debentures;  following the completion of
the  two  Stock  Splits  (assuming,  without  assurance,   shareholder  approval
thereof),  Medical Dynamics will continue to have 13,213,897 shares  outstanding
and reserved for issuance.

     In the recent past,  Medical  Dynamics has used its authorized but unissued
Common Stock for financing  activities in a private placement of its securities,
and for the  issuance  of stock  upon  exercise  of  options  or  conversion  of
debentures,  and as partial  consideration  for the  acquisition of Computer Age
Dentist,  Inc.  ("CADI") in October 1997 and Information  Presentation  Systems,
Inc. ("IPS") in February 1998. Whether or not the shareholders approve the Stock
Splits,  Medical  Dynamics has  insufficient  authorized  capital to allow it to
accomplish  further  equity-based  financing  or  acquisitions.   While  Medical
Dynamics has no agreements to complete  either a financing or acquisition at the
present time, such plans may change in the future.

     Preferred  Stock.  Medical  Dynamics  currently has 5,000,000 shares of its
preferred  stock  authorized,  and no shares  issued.  Neither the Reverse Stock
Split,  nor the Forward  Stock  Split,  nor the proposed  recapitalization  will
affect the authorized preferred stock.

     Amendment to Articles of Incorporation. The Board of Directors have adopted
resolutions  authorizing  amendments to Article IV of the Company's  Articles of
Incorporation,  subject to  shareholder  approval,  accomplishing  the foregoing
recapitalization  which will result in  30,000,000  shares of Common Stock being
authorized.

     Completion of  Recapitalization.  The Board of Directors  proposes that the
recapitalization  be  completed  whether or not the Reverse  Stock Split and the
Forward Stock Split are approved and completed, as follows:

*    If the Reverse  Stock Split is not  approved,  the Forward Stock Split will
     not be  completed  whether  or  not it is  approved.  The  following  chart
     provides information regarding the capital structure of Medical Dynamics as
     is  currently  exists and as it will  continue to exist if the Stock Splits
     are not completed:



                                       17
<PAGE>
<TABLE>
<CAPTION>


- ----------------------------------------------------------------------------------------------
                         No Stock Split Completed               Following Recapitalization
- ----------------------------------------------------------------------------------------------
                     Outstanding           Authorized         Outstanding           Authorized
                     and Reserved                             and Reserved
- ----------------------------------------------------------------------------------------------
<S>                  <C>                   <C>                <C>                   <C>       
Common Stock         13,544,521            15,000,00          13,544,521            30,000,000
- ----------------------------------------------------------------------------------------------
Preferred Stock             -0-            5,000,000                 -0-             5,000,000
- ----------------------------------------------------------------------------------------------


*    If the Reverse Stock Split is approved and completed, but the Forward Stock
     Split is not approved,  Medical  Dynamics  will still  complete the Reverse
     Stock  Split  if the  recapitalization  described  in  this  Proposal  4 is
     approved.  Medical Dynamics would then immediately declare a stock dividend
     payable to the remaining shareholders (those holding a whole share or more)
     to  accomplish  the  purpose  and intent of the Forward  Stock  Split.  The
     following  chart provides  information  regarding the capital  structure of
     Medical Dynamics if the recapitalization is approved and completed in those
     circumstances:

- ---------------------------------------------------------------------------------------------
                          Reverse Stock Split                 Following Recapitalization
                            Only Completed
- ---------------------------------------------------------------------------------------------
                   Outstanding           Authorized         Outstanding           Authorized
                   and Reserved                             and Reserved
- ---------------------------------------------------------------------------------------------
Common Stock       13,218,897            15,000,000         13,213,897            30,000,000
- ---------------------------------------------------------------------------------------------
Preferred Stock           -0-             5,000,000                -0-             5,000,000
- ---------------------------------------------------------------------------------------------


*    If both the Reverse Stock Split and the Forward Stock Split are  completed,
     the following chart provides  information  regarding the resulting  capital
     structure of Medical Dynamics:

- ---------------------------------------------------------------------------------------------
                           Both Stock Splits                    Following Recapitalization
                              Completed
- ---------------------------------------------------------------------------------------------
                    Outstanding           Authorized         Outstanding           Authorized
                    and Reserved                             and Reserved
- ---------------------------------------------------------------------------------------------
Common Stock        13,213,897            15,000,000         13,213,897            30,000,000
- ---------------------------------------------------------------------------------------------
Preferred Stock            -0-             5,000,000                -0-             5,000,000
- ---------------------------------------------------------------------------------------------

     In  all  three  cases,   Medical   Dynamics   expects  to  have  sufficient
capitalization to accomplish its corporate goals as expressed below.



                                       18
</TABLE>

<PAGE>


Reasons for the Proposed Recapitalization

     As noted above, Medical Dynamics has used its common stock to obtain equity
investment in the Company as a means of raising  capital.  In October 1997,  the
availability of authorized  capital also resulted in debt financing  obtained by
the Company,  convertible into shares of Medical Dynamics common stock.  Medical
Dynamics  has  also  used  its  capital  stock  as an  alternative  for  cash in
completing the acquisition of CADI in October 1997 and IPS in February 1998.

     At the present time,  Medical  Dynamics only has remaining  unissued common
stock of 1,455,479 shares on a fully diluted basis.

     The Board of Directors is concerned  that this limited  amount of remaining
capitalization  is  insufficient  for Medical  Dynamics to accomplish its growth
objectives for more than the immediate future. Although the Company has no plans
currently to issue common stock in connection with any  transaction  which would
exceed  the  amount  of  authorized  capital,  the  Board  wants to  retain  its
flexibility should a series of transactions need to be accomplished.

     An  increase in  authorized  capital is also  necessary  for the Company to
reserve  shares for  issuance  pursuant  to the  exercise  of options  under the
proposed 1998 Medical Dynamics Stock Option Plan.

Effect of the Proposed Recapitalization

     The proposed recapitalization will result in Medical Dynamics being able to
issue a large number of additional  shares of its common  stock.  Subject to its
fiduciary  requirements under the business judgment rule, the Board of Directors
may authorize the issuance of additional shares of common stock without the need
to obtain shareholder approval. If issued, these shares would greatly affect the
percentage interest of the present Medical Dynamics shareholders by reducing the
proportionate voting power of the outstanding shares.

     In addition,  the power to issue a  substantial  number of shares of common
stock  following  the  proposed  recapitalization  could  be used  by  incumbent
management  to make more  difficult  a change in control of the  Company.  Under
certain circumstances, such shares could be used to create voting impediments or
to frustrate  persons  seeking to effect a takeover or otherwise gain control of
the Company.  For example,  additional shares of common stock could be privately
placed  with  purchasers  who might  side with the Board in  opposing  a hostile
takeover bid or to dilute the stock  ownership of a person or entity  seeking to
obtain control of the Company.

     Despite such anti-takeover  implications,  the proposed recapitalization is
not the result of  Management's  knowledge of any specific  effort to accumulate
the  Company's  securities  or to obtain  control  of the  Company by means of a
merger,  tender  offer,  proxy  solicitation  in opposition  to  management,  or
otherwise.  The  Company  is not  submitting  the  proposed  amendment  for  the
recapitalization to enable it to frustrate any known efforts by another party to
acquire a controlling interest or to seek Board representation.



                                       19
<PAGE>


     Furthermore,  the  proposed  recapitalization  not a part  of any  plan  by
Medical  Dynamics'  management  to adopt a series of  amendments  to render  the
takeover of Medical  Dynamics  more  difficult.  Management  does not  presently
intend to propose  any  anti-takeover  measures in future  proxy  solicitations.
Except as indicated below, management is not aware of the existence of any other
provisions  currently  in the  Articles of  Incorporation  or Bylaws  having any
anti-takeover  effects  which would impose any burden in excess of  requirements
imposed by the Colorado  Business  Corporation Act or federal law upon potential
tender offerors or others seeking a takeover of the Company.

*    In 1988, the shareholders authorized a class of preferred stock which could
     also be used by the Board of  Directors  to delay or  frustrate a change of
     control transaction.

*    Also in 1988, the shareholders  approved an amendment to Medical  Dynamics'
     Articles of  Incorporation  which limited the liability of directors of the
     Company for monetary damages  resulting from alleged breaches of their duty
     of care. Notwithstanding the amendment, directors remain potentially liable
     for breaches by them of their duty of loyalty to the Company.

*    Colorado law allows indemnification of directors,  officers, employees, and
     agents of the Company  against  liabilities  incurred in any  proceeding in
     which an  individual  is made a party  because he was a director,  officer,
     employee,  or agent of the  company  if such  person  conducted  himself in
     accordance  with the applicable  standard of care  (requiring,  among other
     things,  actions taken in good faith in a manner reasonably  believed to be
     in, or at least not opposed to, the best interests of the corporation).  In
     addition,  the Company has entered into  indemnification  agreements with a
     number  of  (but  not  all  of)  its   directors.   The   availability   of
     indemnification  to directors  for  liability  based upon their  actions in
     choosing to issue shares in an attempt to resist a takeover could influence
     a director in choosing  whether to approve the  issuance of common stock or
     preferred stock or in taking other actions to resist a takeover.

Federal Income Tax Consequences

     Existing  holders of Medical  Dynamics common stock will not be required to
recognize any gain or loss for federal  income tax purposes  resulting  from the
approval and the completion of the proposed recapitalization.

Votes Required and Recommended

     Approval of the  proposal  for the Company to amend the  Articles to effect
the  recapitalization  requires  the  affirmative  vote  of a  majority  of  the
outstanding  shares of the Company's Common Stock. The Board of Directors of the
Company   recommends   that   shareholders   vote  FOR  the   proposal  for  the
recapitalization of Medical Dynamics.  Unless otherwise specified,  the enclosed
proxy will be voted "FOR" the approval of the amendment.



                                       20

<PAGE>



                                   PROPOSAL 5
                  MEDICAL DYNAMICS, INC. 1998 STOCK OPTION PLAN

     The Board of Directors has approved and  recommends  that the  shareholders
approve the Medical  Dynamics,  Inc.  1998 Stock Option Plan (the "1998  Plan").
Under the 1998 plan as approved by the Board of Directors, 1,500,000 shares will
be reserved for  issuance to  employees  (including  officers),  directors,  and
consultants of Medical Dynamics and its subsidiaries.  The Company currently has
only a single  existing  stock  option  plan which was  approved by the Board of
Directors for the benefit of the employees of and  consultants to CADI.  Medical
Dynamics has granted  options to its employees,  officers,  and  directors,  but
these have been  authorized  by the Board  outside of any approved plan since no
availability  remains under the Medical  Dynamics,  Inc., 1988 Stock Option Plan
(the "1988 Plan"). The outstanding options granted to Medical Dynamics' officers
and  directors  are  disclosed  above  under  "Executive  Compensation"  in  the
discussion of Proposal No. 1.

     Presently the Company does not have a sufficient  number of authorized  but
unissued and  unreserved  shares to reserve for the grant of the total number of
shares  approved for the 1998 Plan.  Consequently,  unless the  recapitalization
described in Proposal No. 4, above,  is approved,  the Company will be unable to
take full advantage of the 1998 Plan.

     The Board does not need shareholder  approval for the  establishment of the
1998 Plan; the Board is authorized to establish  stock option plans and to issue
options to acquire the  Company's  common stock  without  shareholder  approval.
Plans which have been approved by  shareholders in accordance with ss.422 of the
Internal  Revenue Code,  however,  have significant tax advantages as "incentive
stock  options"   ("ISOs").   To  the  extent  the  1998  Plan  is  approved  by
shareholders,  Medical  Dynamics  will be entitled  to grant  ISOs;  even if the
shareholders  do not approve the 1998 Plan it will remain in place for the grant
of non-qualified stock options ("NQOs").

     To the extent that management  personnel may be eligible to receive options
which may be granted under the 1998 Plan,  management  has an interest in seeing
the 1998 Plan approved by the shareholders.  No current plans exist to grant any
options under the 1998 Plan but, as noted above, the Company has granted options
to its employees  (including officers) on a regular basis. As of March 31, 1998,
there were ______  employees of Medical Dynamics (not including CADI) and ______
employees of CADI who are eligible to  participate  in the 1998 Plan,  including
________  persons who are  officers or  directors  of Medical  Dynamics  and two
additional  persons  who are  officers  of  CADI.  ISOs  may not be  granted  to
consultants or directors who are not also employees.

     The 1998 Plan will be  administered  by the  compensation  committee of the
Board of Directors (the  "Committee") or, if none is established,  by the Board.
Members of the  Committee  are  eligible  to  participate  in the 1998 Plan.  In
addition to  determining  who will be granted  options under the 1998 Plan,  the
Committee  has the authority  and  discretion to determine  when options will be
granted and the number of options to be granted.  The  Committee  may  determine
which options may be options  intended to qualify for special  treatment as ISOs
or which will be NQOs which do not qualify to special  treatment.  The Committee
may also determine the time or times when each option becomes  exercisable,  the
duration  of the  exercise  period,  and the form or  forms  of the  instruments
evidencing  options to be granted under the 1998 Plan.  The Committee may adopt,
amend, and rescind such rules and regulations as in its opinion may be advisable
for the administration of the 1998 Plan.

                                       21

<PAGE>


     The  Committee  may also  construe the 1998 Plan and the  provisions in the
instruments  evidencing options granted under the 1998 Plan, and is empowered to
make  all  other   determinations   deemed   necessary  or  advisable   for  the
administration of the 1998 Plan. The Committee may suspend,  terminate,  modify,
or amend the 1998 Plan, but without the approval of the holders of a majority of
the  outstanding  shares of  common  stock,  the  Committee  may not  materially
increase  the  number  of  shares of  common  stock as to which  options  may be
granted,   change  the  eligibility   requirements   fore  persons  entitled  to
participate in the 1998 Plan, or materially increase the benefits to be received
by any participant  under the 1998 Plan. The Committee may not adversely  affect
the  rights of any  participant  under  any  unexercised  option or any  portion
thereof without the consent of such participant.  Unless sooner terminated,  the
1998 Plan will terminate on April 1, 2008.

     Options   granted  under  the  1998  Plan  will  contain   provisions   for
proportionate adjustment of the number of shares for outstanding options and the
option  price per share in the event of stock  dividends,  or  recapitalizations
resulting from stock splits, or other combinations or exchanges of shares.

     In the event of the  dissolution or  liquidation,  corporate  separation or
division, or merger or consolidation of Medical Dynamics, the Committee may (but
is not  obligated  to) provide that each option  holder may exercise such option
prior to the  occurrence  of such  event  regardless  of any  other  vesting  or
exercise periods.  The Committee may also provide that the options granted under
the 1998  Plan not  exercised  prior to the  completion  of the  dissolution  or
liquidation,  corporate  separation or division,  or merger or  consolidation of
Medical  Dynamics,  will  expire on a date fixed by the  Committee  prior to the
completion of such event unless previously exercised.

     Participants  in the  1998  Plan  may be  selected  by the  Committee  from
employees  (including  officers),  consultants  and  directors  (whether  or not
employees) of Medical Dynamics, its divisions and subsidiaries. In making grants
under the 1998 Plan,  the  Committee may take into account the duties of persons
selected,  their  present  and  potential  contributions  to the  success of the
Company, and such other considerations as the Committee determines relevant. The
Committee has broad  discretion in determining the number of shares with respect
to which  options  may be granted to  participants.  The 1998 Plan does  include
certain limitations on the Committee's discretion, however:

*    The maximum  aggregate  fair  market  value  (determined  as of the date of
     grant) of the shares as to which ISOs become exercisable for the first time
     in any calendar year may not exceed $100,000.



                                       22
<PAGE>


*    The  exercise  price  per  share  for ISOs may not be less than 100% of the
     market  price of the  common  stock on the  date of  grant  (determined  by
     reference to the public market for Medical Dynamics' common stock).

*    The  exercise  price  per share for any ISO  granted  to a person  who is a
     holder of 10% or more of the outstanding  Medical Dynamics common stock may
     not be less than 110% of the market price on the date of grant.

*    The  exercise  price  per  share  for NQOs may not be less  than 80% of the
     market price on the date of grant.

*    The term of any option granted may not be greater than five years.

*    If any optionee ceases to be employed by, or be a director of or consultant
     to Medical  Dynamics or its divisions or subsidiaries  for any reason other
     than death, disability,  retirement, or termination for cause, the optionee
     may  exercise  all  vested  options  within  three  months  following  such
     cessation,  to the  extent  exercisable  on the  date of  cessation.  If an
     optionee's  employment  or  consulting  relationship  is  terminated  or  a
     director  is  removed  for  cause,   all  options  held  by  him  terminate
     immediately.

*    If an  optionee  dies  while a  director  of,  or  while  employed  by or a
     consultant  to the  Company  (or during the three  month  period  following
     termination (other than for cause)),  or if the optionee retires or becomes
     disabled, the options,  unless previously terminated,  may be exercised (to
     the extent then exercisable) by the optionee or his legal representative at
     any time  within  one year  following  the date of  death,  disability,  or
     retirement.

*    An option  granted  under the 1998 Plan is not  transferable  other than by
     will or by the laws of descent and distribution.

     An  optionee  has no rights as a  shareholder  with  respect  to any shares
covered  by options  until the  options  have been  exercised  and the  exercise
accepted  by  the  Company   directly  or  through  its  transfer  agent.  If  a
registration  statement  meeting the  requirements of ss.10(a)(3) of the federal
Securities  Act of 1933 (the "1933 Act")  relating to the shares  issuable  upon
exercise of options  granted under the 1998 Plan is not in effect at the time of
exercise,  the optionee must  establish the  availability  of an exemption  from
registration  under federal and applicable state law. To establish an exemption,
the optionee will have to (among other things)  represent and warrant in writing
to Medical  Dynamics that the shares to be issued are not being  acquired with a
view toward distribution, and that the shares will be "restricted securities" as
defined  in Rule 144  under  the 1933 Act,  and may not be  further  transferred
unless an exemption is available or the shares are subsequently registered.  Any
exemption from registration statement must be established to the satisfaction of
Medical Dynamics,  in its sole discretion.  The Company has no current intention
to file a  registration  statement  relating to the shares  underlying  the 1998
Plan, but it may do so in its discretion. The Company currently has an effective
registration statement on Form S-8 relating to other outstanding options.



                                       23
<PAGE>


Federal Income Tax Consequences

     The federal  income tax  consequences  of a stock option plan,  such as the
proposed 1998 Plan, are material to the Company and to optionees.  The following
discussion  is  included  for  general   information  to  the  Medical  Dynamics
shareholders,  and the actual impact may differ  depending on the laws in effect
and other circumstances existing at the date of grant or exercise.

     Incentive Stock Options. No income tax effect results to the optionee or to
the Company  upon a grant of an ISO or upon the  exercise of the ISO. The amount
realized by the optionee  upon  subsequent  resale of the shares  received  upon
exercise of an ISO will be considered capital gain if held for at least one year
following exercise.  If the optionee completes a sale, taxable exchange or other
disposition  within  that one year period (or within two years after the date of
grant), the optionee will realize  compensation  income for federal tax purposes
equal to the amount of the gain.

     Non-qualified  Stock Options. An optionee must recognize income at the time
of the grant of a NQO to the extent the option has a "readily ascertainable fair
market  value"  at the time it is  granted.  Since  NQOs may be issued at 80% of
market price on the date of grant,  each  optionee  receiving a NQO will have to
determine whether the option has a "readily  ascertainable fair market value" at
such date.

     Upon exercise of a NQO, the optionee  will have to recognize  income to the
extent the fair market  value of the shares  acquired  on  exercise  exceeds the
exercise price, such as when the shares have appreciated from the date of grant.

     It is also a general rule that, to the extent the optionee  must  recognize
income on the grant or  exercise of a stock  option  (whether  NQO or ISO),  the
Company must recognize an offsetting expense.

Votes Required and Recommended

     Approval of the proposal for the Company to approve the 1998 Plan  requires
the  affirmative  vote of a majority  of the shares  voting at the  meeting if a
quorum is  present.  The  Board of  Directors  of the  Company  recommends  that
shareholders  vote  FOR  the  proposal  for  the  1998  Plan.  Unless  otherwise
specified, the enclosed proxy will be voted "FOR" the approval of the 1998 Plan.

                               DISSENTER'S RIGHTS

     Pursuant to  ss.7-113-102(2.5)  of the Colorado  Business  Corporation Act,
Medical  Dynamics  shareholders  owning  fewer than 100 shares are  entitled  to
dissent  from the Reverse  Stock  Split.  A copy of Article 113 of the  Colorado
Business   Corporation   Act  is  attached  hereto  and  by  this  reference  is
incorporated  herein.  The following  summary of Article 113 is qualified in its
entirety by reference to Article 113.


                                       24
<PAGE>



     If any shareholder who, as a result of the Reverse Stock Split, holds fewer
than a single share,  that  shareholder is entitled to receive cash equal to the
valuation  of the  shares  as  determined  by the  Board  of  Directors.  If any
shareholder believes that the offered value is less than the "fair value" of the
shares  immediately  before  the  effective  date of the  Reverse  Stock  Split,
excluding any  appreciation  or  depreciation  in  anticipation of the corporate
action  except  to  the  extent  that  exclusion  would  be  inequitable,   such
shareholder  is entitled to dissent from the Reverse  Stock Split  following the
procedure outlined in Article 113.

     A shareholder  entitled to dissent (being only those  shareholders  who own
fewer  than 100  shares  before the  Reverse  Stock  Split) who wishes to assert
dissenters'  rights must deliver a notice to Medical  Dynamics written notice of
the shareholder's  intention to demand payment for the  shareholder's  shares if
the  proposed  corporate  action is  effectuated.  This notice must be delivered
before the vote is taken at the meeting.  In addition,  the shareholder must not
vote the shares in favor of the proposed corporate action.

     If the  Reverse  Stock  Split is  approved,  Medical  Dynamics  will give a
written notice to all  shareholders who are entitled to demand payment for their
shares under article 113 (being only those  shareholders  who provided notice to
Medical  Dynamics  of their  intention  to  dissent  pursuant  to the  preceding
paragraph  and who did not vote the shares in favor of the Reverse Stock Split).
Medical  Dynamics  will  give  this  notice  no later  than ten days  after  the
effective  date of the  Reverse  Stock  Split  (the  date that the  articles  of
amendment  are filed  with the  Colorado  Secretary  of State).  In the  notice,
Medical Dynamics will:

     State that the Reverse Stock Split was authorized and the effective date of
     the Reverse Stock Split;

     State the address to which the shareholder  must send a demand for payment,
     and an address where certificates for shares must be deposited;

     Supply a form for demanding payment;

     Set the date by which Medical  Dynamics must receive the payment demand and
     stock certificates; and

     Include a copy of article 113.

     Any shareholder  entitled to dissent who wishes to dissent must comply with
the  instructions  in the notice which  Medical  Dynamics  will send,  including
providing  Medical  Dynamics  with  the  appropriate   demand  for  payment  and
depositing  the  certificate(s)  representing  their shares of Medical  Dynamics
common stock.  Except in certain limited  circumstances,  the demand for payment
and deposit of certificates are  irrevocable.  A shareholder who does not demand
payment and deposit the shareholder's share certificates as required by the date
or dates set in the dissenters' notice is not entitled to payment for the shares
under article 113.


                                       25
<PAGE>



     Following  the  effectiveness  of the Reverse Stock Split or receipt of the
demand for payment, whichever is later, Medical Dynamics will pay each dissenter
who complied with the statutory requirements the amount the Company estimates to
be the fair value of the dissenter's shares, plus accrued interest.  The payment
will be accompanied by the information required by ss.7-113-206(2).

     If a person entitled to receive payment from Medical  Dynamics  pursuant to
Article 113 is dissatisfied  with the estimate of payment from Medical Dynamics,
he or she may give notice to the Company in writing of the dissenter's  estimate
of the fair value of the  dissenter's  shares and of the amount of interest due.
Such person may demand  payment of such  estimate,  less any payment  previously
made. The dissenting  shareholder may also make such demand if Medical  Dynamics
fails to make payment within sixty days after the date set in Medical  Dynamics'
original notice to receive the payment demand.  A dissenter  waives the right to
demand  payment under  ss.7-113-209  unless the dissenter  causes the Company to
receive the notice  required by  ss.7-113-209(1)  of this section  within thirty
days after Medical Dynamics made or offered payment for the dissenter's shares.

     If a  dissenting  shareholder's  demand  for  payment  remains  unresolved,
Medical  Dynamics may,  within sixty days after  receiving  the payment  demand,
commence a proceeding  and petition the court to determine the fair value of the
shares and accrued interest  pursuant to ss.7-113-301.  If Medical Dynamics does
not commence the  proceeding  within the sixty-day  period,  it will pay to each
dissenter  whose  demand  remains  unresolved  the  amount  demanded.  The court
proceeding will be conducted as provided in ss.7-113-301 et seq.

                              INDEPENDENT AUDITORS

     The  independent  accounting  firm of Hein & Associates was selected by the
Board  of  Directors  with  respect  to  audit  of  the  consolidated  financial
statements of the company for the fiscal year ended  September 30, 1997, as well
as many  prior  fiscal  years.  A  representative  of Hein &  Associates  is not
expected to be present at the annual meeting.

                           PROPOSALS FROM SHAREHOLDERS

     Proposals  from  shareholders  intended  to be present  at the next  Annual
Meeting of shareholders  should be addressed to the Company at Medical Dynamics,
Inc., Attention:  Corporate Secretary,  99 Inverness Drive East,  Englewood,  CO
80112 and must be received by the Company by November 1, 1998.  Upon  receipt of
any such  proposal,  the Company shall  determine  whether or not to include any
such proposal in the Proxy  Statement and proxy in  accordance  with  applicable
law. It is suggested that such  proposals be forwarded by Certified  Mail-Return
Receipt Requested.

                          ANNUAL REPORT TO SHAREHOLDERS

     This proxy statement is being accompanied by the Company's annual report to
shareholders.  The  annual  report to  shareholders  does  include  the  audited
financial statements for the Company.

ANNUAL REPORT ON FORM 10-KSB AND QUARTERLY REPORT ON FORM 10-QSB

     The Company's Annual Report on Form 10-KSB for the year ended September 30,
1997,  its  Quarterly  Report on Form 10-QSB for the period  ended  December 31,
1998, and other reports filed by Medical Dynamics under the Securities  Exchange
Act of 1934,  are  available  to any  shareholder  at no cost upon  request  to:
Corporate  Secretary,  99  Inverness  Drive  East,  Englewood,  CO 80112,  or by
telephone: (303) 790-2990.

                                       26

<PAGE>


                                  OTHER MATTERS

     Management  does not know of any other  matters  to be  brought  before the
meeting.  Should any other matter requiring a vote of shareholders  arise at the
meeting, the persons named in the proxy will vote the proxies in accordance with
their best judgment.

                                        By Order of the Board of Directors:

                                        MEDICAL DYNAMICS, INC.
                                        Van A. Horsley, President




                                       27

<PAGE>

                                   Exhibit "A"
                           Dissenter's Rights Statute
                           Article 113, C.R.S. Title 7

7-113-101.  Definitions. For purposes of this article:

     (1) "Beneficial shareholder" means the beneficial owner of shares held in a
voting trust or by a nominee as the record shareholder.

     (2) "Corporation" means the issuer of the shares held by a dissenter before
the  corporate  action,  or the  surviving  or  acquiring  domestic  or  foreign
corporation, by merger or share exchange of that issuer.

     (3)  "Dissenter"  means a  shareholder  who is  entitled  to  dissent  from
corporate  action under section  7-113-102  and who exercises  that right at the
time and in the manner required by part 2 of this article.

     (4) "Fair value", with respect to a dissenter's shares,  means the value of
the shares  immediately  before the effective  date of the  corporate  action to
which the dissenter  objects,  excluding any  appreciation  or  depreciation  in
anticipation  of the corporate  action except to the extent that exclusion would
be inequitable.

     (5)  "Interest"  means  interest from the  effective  date of the corporate
action  until the date of payment,  at the average  rate  currently  paid by the
corporation  on its  principal  bank  loans  or, if none,  at the legal  rate as
specified in section 5-12-101, C.R.S.

     (6)  "Record  shareholder"  means  the  person  in whose  name  shares  are
registered in the records of a  corporation  or the  beneficial  owner of shares
that are  registered  in the  name of a  nominee  to the  extent  such  owner is
recognized  by the  corporation  as  the  shareholder  as  provided  in  section
7-107-204.

     (7)  "Shareholder"  means  either  a  record  shareholder  or a  beneficial
shareholder.

7-113-102. Right to dissent.

     (1) A shareholder,  whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the event of
any of the following corporate actions:

     (a)  Consummation  of a plan of merger to which the  corporation is a party
if: (I) Approval by the  shareholders  of that  corporation  is required for the
merger by section 7-111-103 or 7-111-104 or by the articles of incorporation; or
(II) The corporation is a subsidiary that is merged with its parent  corporation
under section 7-111-104;

     (b)  Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired;

     (c) Consummation of a sale, lease,  exchange,  or other disposition of all,
or substantially all, of the property of the corporation for which a shareholder
vote is required under section 7-112-102 (1); and

     (d) Consummation of a sale, lease,  exchange,  or other disposition of all,
or substantially all, of the property of an entity controlled by the corporation
if the shareholders of the corporation were entitled to vote upon the consent of
the corporation to the disposition pursuant to section 7-112-102 (2).

     (1.3) A shareholder  is not entitled to dissent and obtain  payment,  under
subsection (1) of this section,  of the fair value of the shares of any class or
series of shares  which  either  were listed on a national  securities  exchange
registered under the federal  "Securities  Exchange Act of 1934", as amended, or
on the national market system of the national  association of securities dealers
automated  quotation  system,  or were held of record by more than two  thousand
shareholders, at the time of:

                                       28

<PAGE>




     (a) The  record  date  fixed  under  section  7-107-107  to  determine  the
shareholders  entitled to receive notice of the  shareholders'  meeting at which
the corporate action is submitted to a vote;

     (b) The record date fixed under section 7-107-104 to determine shareholders
entitled to sign writings consenting to the corporate action; or

     (c) The effective date of the corporate  action if the corporate  action is
authorized other than by a vote of shareholders.

     (1.8) The  limitation  set forth in subsection  (1.3) of this section shall
not apply if the shareholder will receive for the shareholder's shares, pursuant
to the corporate action, anything except:

     (a) Shares of the  corporation  surviving the  consummation  of the plan of
merger or share exchange;

     (b) Shares of any other corporation which at the effective date of the plan
of merger or share  exchange  either  will be  listed on a  national  securities
exchange  registered  under the federal  "Securities  Exchange Act of 1934",  as
amended,  or on the  national  market  system  of the  national  association  of
securities dealers automated quotation system, or will be held of record by more
than two thousand shareholders;

     (c) Cash in lieu of fractional shares; or

     (d) Any  combination of the foregoing  described  shares or cash in lieu of
fractional shares.

     (2) (Deleted by amendment effective June 1, 1996.)

     (2.5) A  shareholder,  whether or not  entitled  to vote,  is  entitled  to
dissent and obtain payment of the fair value of the shareholder's  shares in the
event of a  reverse  split  that  reduces  the  number  of  shares  owned by the
shareholder  to a  fraction  of a share or to scrip if the  fractional  share or
scrip so created is to be acquired  for cash or the scrip is to be voided  under
section 7-106-104.

     (3) A  shareholder  is entitled  to dissent and obtain  payment of the fair
value of the  shareholder's  shares in the event of any corporate  action to the
extent provided by the bylaws or a resolution of the board of directors.

     (4)  A  shareholder   entitled  to  dissent  and  obtain  payment  for  the
shareholder's  shares under this article may not challenge the corporate  action
creating  such  entitlement  unless the action is  unlawful or  fraudulent  with
respect to the shareholder or the corporation.

7-113-103.  Dissent by nominees and beneficial  owners.

     (1) A record shareholder may assert dissenters' rights as to fewer than all
the  shares  registered  in the  record  shareholder's  name only if the  record
shareholder  dissents with respect to all shares  beneficially  owned by any one
person and causes the  corporation  to receive  written notice which states such
dissent and the name, address,  and federal taxpayer  identification  number, if
any, of each person on whose behalf the record shareholder  asserts  dissenters'
rights.  The  rights  of a record  shareholder  under  this  subsection  (1) are
determined as if the shares as to which the record shareholder  dissents and the
other shares of the record shareholder were registered in the names of different
shareholders.

     (2) A beneficial shareholder may assert dissenters' rights as to the shares
held on the beneficial shareholder's behalf only if:

     (a) The beneficial shareholder causes the corporation to receive the record
shareholder's  written  consent  to the  dissent  not  later  than  the time the
beneficial shareholder asserts dissenters' rights; and


                                       29

<PAGE>



     (b)  The  beneficial  shareholder  dissents  with  respect  to  all  shares
beneficially owned by the beneficial shareholder.

     (3) The corporation may require that,  when a record  shareholder  dissents
with respect to the shares held by any one or more beneficial shareholders, each
such beneficial  shareholder must certify to the corporation that the beneficial
shareholder  and the record  shareholder  or record  shareholders  of all shares
owned beneficially by the beneficial  shareholder have asserted,  or will timely
assert,  dissenters'  rights  as to all  such  shares  as to  which  there is no
limitation on the ability to exercise  dissenters'  rights. Any such requirement
shall be stated in the dissenters' notice given pursuant to section 7-113-203.

7-113-201.  Notice of dissenters'  rights.  

     (1) If a  proposed  corporate  action  creating  dissenters'  rights  under
section 7-113-102 is submitted to a vote at a shareholders'  meeting, the notice
of the meeting  shall be given to all  shareholders,  whether or not entitled to
vote. The notice shall state that  shareholders are or may be entitled to assert
dissenters' rights under this article and shall be accompanied by a copy of this
article and the  materials,  if any,  that,  under  articles  101 to 117 of this
title, are required to be given to shareholders entitled to vote on the proposed
action at the meeting. Failure to give notice as provided by this subsection (1)
shall not affect any action  taken at the  shareholders'  meeting  for which the
notice was to have been given,  but any  shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding  payment
for the  shareholder's  shares under this article by reason of the shareholder's
failure to comply with the provisions of section 7-113-202 (1).

     (2) If a  proposed  corporate  action  creating  dissenters'  rights  under
section  7-113-102 is authorized  without a meeting of shareholders  pursuant to
section 7-107-104,  any written or oral solicitation of a shareholder to execute
a writing  consenting to such action  contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters'  rights under this article,  by a copy of this
article,  and by the materials,  if any, that, under articles 101 to 117 of this
title, would have been required to be given to shareholders  entitled to vote on
the  proposed  action  if the  proposed  action  were  submitted  to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection (2)
shall not affect any action taken  pursuant to section  7-107-104  for which the
notice was to have been given,  but any  shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding  payment
for the  shareholder's  shares under this article by reason of the shareholder's
failure to comply with the provisions of section 7-113-202 (2).

7-113-202.  Notice  of intent to demand  payment.

     (1) If a  proposed  corporate  action  creating  dissenters'  rights  under
section  7-113-102  is  submitted  to a vote at a  shareholders'  meeting and if
notice of  dissenters'  rights has been given to such  shareholder in connection
with the action  pursuant to section  7-113-201 (1), a shareholder who wishes to
assert dissenters' rights shall:

     (a) Cause the  corporation  to receive,  before the vote is taken,  written
notice of the  shareholder's  intention to demand payment for the  shareholder's
shares if the proposed corporate action is effectuated; and

     (b) Not vote the shares in favor of the proposed corporate action.

     (2) If a  proposed  corporate  action  creating  dissenters'  rights  under
section  7-113-102 is authorized  without a meeting of shareholders  pursuant to
section  7-107-104  and if notice of  dissenters'  rights has been given to such
shareholder in connection with the action  pursuant to section  7-113-201 (2), a
shareholder who wishes to assert  dissenters' rights shall not execute a writing
consenting to the proposed corporate action.

     (3) A shareholder  who does not satisfy the  requirements of subsection (1)
or (2) of this section is not entitled to demand  payment for the  shareholder's
shares under this article.


                                       30

<PAGE>



7-113-203.  Dissenters'  notice. 

     (1) If a  proposed  corporate  action  creating  dissenters'  rights  under
section   7-113-102  is  authorized,   the  corporation  shall  give  a  written
dissenters'  notice to all  shareholders  who are entitled to demand payment for
their shares under this article.

     (2) The dissenters' notice required by subsection (1) of this section shall
be given no later than ten days after the effective date of the corporate action
creating dissenters' rights under section 7-113-102 and shall:

     (a) State that the corporate  action was authorized and state the effective
date or proposed effective date of the corporate action;

     (b) State an address at which the corporation  will receive payment demands
and the address of a place where  certificates for  certificated  shares must be
deposited;

     (c) Inform holders of uncertificated  shares to what extent transfer of the
shares will be restricted after the payment demand is received;

     (d)  Supply a form for  demanding  payment,  which  form  shall  request  a
dissenter to state an address to which payment is to be made;

     (e) Set the date by which the  corporation  must receive the payment demand
and  certificates  for  certificated  shares,  which date shall not be less than
thirty days after the date the notice required by subsection (1) of this section
is given;

     (f) State the requirement  contemplated  in section  7-113-103 (3), if such
requirement is imposed; and

     (g) Be accompanied by a copy of this article.

7-113-204.  Procedure  to  demand  payment. 

     (1) A  shareholder  who is given a dissenters'  notice  pursuant to section
7-113-203 and who wishes to assert  dissenters' rights shall, in accordance with
the terms of the dissenters' notice:

     (a) Cause the  corporation  to receive a payment  demand,  which may be the
payment demand form  contemplated in section  7-113-203 (2) (d), duly completed,
or may be stated in another writing; and

     (b) Deposit the shareholder's certificates for certificated shares.

     (2) A shareholder  who demands payment in accordance with subsection (1) of
this section  retains all rights of a shareholder,  except the right to transfer
the shares,  until the effective  date of the proposed  corporate  action giving
rise to the shareholder's  exercise of dissenters' rights and has only the right
to receive  payment for the shares after the  effective  date of such  corporate
action.

     (3) Except as provided  in section  7-113-207  or  7-113-209  (1) (b),  the
demand for payment and deposit of certificates are irrevocable.

     (4) A shareholder who does not demand payment and deposit the shareholder's
share  certificates  as  required  by the date or dates  set in the  dissenters'
notice is not entitled to payment for the shares under this article.

7-113-205. Uncertificated shares. 

     (1) Upon receipt of a demand for payment  under  section  7-113-204  from a
shareholder  holding  uncertificated  shares,  and in  lieu  of the  deposit  of
certificates  representing the shares, the corporation may restrict the transfer
thereof.

     (2) In all other  respects,  the provisions of section  7-113-204  shall be
applicable to shareholders who own uncertificated shares.

                                       31

<PAGE>




7-113-206.  Payment.

     (1) Except as provided in section 7-113-208, upon the effective date of the
corporate  action creating  dissenters'  rights under section  7-113-102 or upon
receipt of a payment demand pursuant to section  7-113-204,  whichever is later,
the corporation shall pay each dissenter who complied with section 7-113-204, at
the address stated in the payment demand, or if no such address is stated in the
payment  demand,  at the address shown on the  corporation's  current  record of
shareholders  for the record  shareholder  holding the dissenter's  shares,  the
amount the corporation estimates to be the fair value of the dissenter's shares,
plus accrued interest.

     (2) The payment made  pursuant to  subsection  (1) of this section shall be
accompanied by:

     (a) The corporation's balance sheet as of the end of its most recent fiscal
year or, if that is not available, the corporation's balance sheet as of the end
of a fiscal year ending not more than sixteen months before the date of payment,
an income statement for that year, and, if the corporation  customarily provides
such statements to shareholders,  a statement of changes in shareholders' equity
for that year and a statement of cash flow for that year,  which  balance  sheet
and statements shall have been audited if the corporation  customarily  provides
audited  financial  statements to shareholders,  as well as the latest available
financial  statements,  if any,  for the  interim  or  full-year  period,  which
financial statements need not be audited;

     (b) A  statement  of the  corporation's  estimate  of the fair value of the
shares;

     (c) An explanation of how the interest was calculated;

     (d) A statement of the  dissenter's  right to demand  payment under section
7-113-209; and

     (e) A copy of this article.

7-113-207.  Failure to take action. 

     (1) If the effective  date of the  corporate  action  creating  dissenters'
rights under section  7-113-102  does not occur within sixty days after the date
set by the corporation by which the corporation  must receive the payment demand
as provided in section  7-113-203,  the  corporation  shall return the deposited
certificates  and release the transfer  restrictions  imposed on  uncertificated
shares.

     (2) If the effective  date of the  corporate  action  creating  dissenters'
rights under section 7-113-102 occurs more than sixty days after the date set by
the  corporation  by which the  corporation  must receive the payment  demand as
provided in section 7-113-203, then the corporation shall send a new dissenters'
notice,  as  provided  in section  7-113-203,  and the  provisions  of  sections
7-113-204 to 7-113-209 shall again be applicable.

7-113-208.  Special provisions relating to shares acquired after announcement of
proposed corporate action.

     (1) The corporation  may, in or with the dissenters'  notice given pursuant
to section 7-113-203,  state the date of the first announcement to news media or
to  shareholders  of  the  terms  of  the  proposed  corporate  action  creating
dissenters'  rights under section  7-113-102 and state that the dissenter  shall
certify in writing,  in or with the  dissenter's  payment  demand under  section
7-113-204,  whether  or not  the  dissenter  (or  the  person  on  whose  behalf
dissenters'  rights are asserted)  acquired  beneficial  ownership of the shares
before  that  date.  With  respect to any  dissenter  who does not so certify in
writing,  in or with the payment  demand,  that the  dissenter  or the person on
whose  behalf the  dissenter  asserts  dissenters'  rights  acquired  beneficial
ownership of the shares before such date, the corporation may, in lieu of making
the payment  provided in section  7-113-206,  offer to make such  payment if the
dissenter agrees to accept it in full satisfaction of the demand.

     (2) An offer to make payment  under  subsection  (1) of this section  shall
include or be accompanied by the information required by section 7-113-206 (2).

7-113-209.  Procedure if dissenter is dissatisfied  with payment or offer. 

     (1) A  dissenter  may give  notice to the  corporation  in  writing  of the
dissenter's  estimate  of the fair  value of the  dissenter's  shares and of the
amount of interest due and may demand payment of such estimate, less any payment
made under section  7-113-206,  or reject the corporation's  offer under section
7-113-208  and demand  payment of the fair value of the shares and interest due,
if:

                                       32

<PAGE>


     (a) The dissenter  believes that the amount paid under section 7-113-206 or
offered  under  section  7-113-208  is less than the fair value of the shares or
that the interest due was incorrectly calculated;

     (b) The corporation  fails to make payment under section  7-113-206  within
sixty days after the date set by the corporation by which the  corporation  must
receive the payment demand; or

     (c) The corporation  does not return the deposited  certificates or release
the  transfer  restrictions  imposed on  uncertificated  shares as  required  by
section 7-113-207 (1).

     (2) A  dissenter  waives the right to demand  payment  under  this  section
unless the dissenter  causes the  corporation to receive the notice  required by
subsection (1) of this section within thirty days after the corporation  made or
offered payment for the dissenter's shares.

7-113-301.  Court action. 

     (1) If a demand for payment under section 7-113-209 remains unresolved, the
corporation may, within sixty days after receiving the payment demand,  commence
a proceeding  and  petition the court to determine  the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the  sixty-day  period,  it shall pay to each  dissenter  whose  demand  remains
unresolved the amount demanded.

     (2) The corporation  shall commence the proceeding  described in subsection
(1) of this section in the district  court of the county in this state where the
corporation's  principal  office  is  located  or,  if  the  corporation  has no
principal office in this state, in the district court of the county in which its
registered  office is  located.  If the  corporation  is a  foreign  corporation
without a registered  office,  it shall  commence the  proceeding  in the county
where the registered  office of the domestic  corporation  merged into, or whose
shares were acquired by, the foreign corporation was located.

     (3) The corporation shall make all dissenters,  whether or not residents of
this state, whose demands remain unresolved parties to the proceeding  commenced
under  subsection (2) of this section as in an action against their shares,  and
all  parties  shall  be  served  with a copy of the  petition.  Service  on each
dissenter  shall be by  registered or certified  mail, to the address  stated in
such dissenter's  payment demand, or if no such address is stated in the payment
demand, at the address shown on the corporation's current record of shareholders
for the record  shareholder  holding the dissenter's  shares,  or as provided by
law.

     (4) The  jurisdiction  of the court in which the  proceeding  is  commenced
under  subsection  (2) of this section is plenary and  exclusive.  The court may
appoint one or more persons as  appraisers  to receive  evidence and recommend a
decision on the question of fair value. The appraisers have the powers described
in the order  appointing them, or in any amendment to such order. The parties to
the  proceeding  are entitled to the same  discovery  rights as parties in other
civil proceedings.

     (5)  Each  dissenter  made  a  party  to  the  proceeding  commenced  under
subsection  (2) of this section is entitled to judgment for the amount,  if any,
by which  the  court  finds  the  fair  value of the  dissenter's  shares,  plus
interest,  exceeds  the amount paid by the  corporation,  or for the fair value,
plus interest,  of the dissenter's  shares for which the corporation  elected to
withhold payment under section 7-113-208.

7-113-302.  Court  costs  and  counsel  fees. 

     (1) The court in an appraisal  proceeding commenced under section 7-113-301
shall  determine  all  costs  of  the   proceeding,   including  the  reasonable
compensation and expenses of appraisers  appointed by the court. The court shall
assess the costs against the corporation; except that the court may assess costs
against all or some of the dissenters,  in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under section 7-113-209.

                                       33

<PAGE>




     (2) The court may also assess the fees and  expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:

     (a) Against the  corporation  and in favor of any  dissenters  if the court
finds the corporation did not substantially comply with the requirements of part
2 of this article; or

     (b) Against either the corporation or one or more  dissenters,  in favor of
any other  party,  if the court finds that the party  against  whom the fees and
expenses are assessed acted arbitrarily,  vexatiously, or not in good faith with
respect to the rights provided by this article.

     (3) If the court finds that the services of counsel for any dissenter  were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to said counsel  reasonable  fees to be paid out of the amounts awarded to
the dissenters who were benefitted.


                                       34

<PAGE>


                             Medical Dynamics, Inc.
                             99 Inverness Drive East
                               Englewood, CO 80112

                                     PROXY

           This Proxy is Solicited on Behalf of the Board of Directors


     The  undersigned  hereby  appoints  Van A.  Horsley and Edwin L. Adair,  or
either one of them, as Proxy, each with the power to appoint his substitute, and
hereby  authorizes them to vote, as designated  below,  all of the shares Common
Stock of Medical  Dynamics,  Inc. held of record by the undersigned on April 24,
1998, at the Special  Meeting of  Shareholders to be held on June 11, 1998 or at
any adjournments or postponements thereof.


1.   ELECTION OF DIRECTORS    FOR all nominees listed below   WITHHOLD AUTHORITY
                              (except as marked to the        to vote for all
                              contrary below)                 nominees listed
                                                              below

   (INSTRUCTION) To withhold authority to vote for any individual nominee mark
                   the box next to the nominee's name below.)

     Edwin L. Adair, M.D.  Pat Horsley Adair  Van A. Horsley  Leroy I Bilanich 
                  I Dean Bayne  Daniel L. Richmond  Chae U. Kim

2.   FOR approval of the proposed  100:1 reverse  stock split and  redemption of
     resulting fractional shares when fewer than one share is held. The proposed
     reverse stock split may, in the  discretion  of the Board of Directors,  be
     completed even if the forward stock split (proposal 3) is not approved.

                        Yes            No            Abstain
                    ---            ---           ---

3.   FOR  approval of the  proposed  100:1  forward  stock  split.  The proposed
     forward  stock split will not be completed  unless the reverse  stock split
     (proposal 2) is first approved and completed.

                        Yes            No            Abstain
                    ---            ---           ---

4.   FOR  approval  of the  proposed  recapitalizationn  which  will  result  in
     30,000,000 shares of $.01 par value common stock being authorized.
                               
                        Yes            No            Abstain
                    ---            ---           ---

5.   Approval of the Medical Dynamics 1998 Stock Option and Bonus Plan.

                         Yes           No            Abstain
                    ---            ---           ---

6.   In their  discretion,  the Proxies are  authorized  to vote upon such other
     business as may properly come before the meeting.

                                                                          (over)
<PAGE>


     This proxy,  when properly  executed,  will be voted in the manner directed
herein by the undersigned shareholder.  If no direction is made, this proxy will
be voted for the  election as  directors  of all  nominees and will abstain from
voting on all other matters.

     Dated:              , 19
           --------------    ----

                                        ----------------------------------------
                                        Signature

                                        ----------------------------------------
                                        Signature if held jointly

                                        Please  sign  exactly  as  name  appears
                                        below.  When  shares  are  held by joint
                                        tenants,  both should sign. When signing
                                        as attorney, as executor, administrator,
                                        trustee,  or guardian,  please give full
                                        title as such. If a corporation,  please
                                        sign in full corporate name by President
                                        or  other  authorized   officer.   If  a
                                        partnership,  please sign in partnership
                                        name by authorized person.

                  PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
                     CARD PROMPTLY IN THE ENCLOSED ENVELOPE
           



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