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: [ ] Confidential, for use of
[ ] Preliminary Proxy Statement Commission
[xx] Definitive Proxy Statement Only (as Permitted by Rule
[ ] Definitive Additional Materials 14a-6(e)(2)
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 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] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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:
5. Total fee paid:
[ ] Fee paid previously with preliminary materials.
- ----------
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 10:00 a.m.
local time, in the Arapahoe Inverness Room, Inverness Hotel, 200 Inverness Drive
West, Englewood, Colorado 80112, on June 11, 1998, 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. A proposal for an amendment to effect a 100-for-one reverse stock
split and to redeem the resulting fractional shares.
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.
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, and
any postponements or adjournments thereof.
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.
<PAGE>
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, in the Arapahoe Inverness Room, Inverness Hotel,
200 Inverness Drive West, 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 9,787,683 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 Annual 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 must vote in favor of proposal 5 for its
approval.
Management may, in its discretion, seek an adjournment of the Annual 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, although Management has not determined
whether to do so. If Managerment moves for an adjournment to solicit additional
votes, the proxy holder will vote all proxies it receives which have directed a
vote FOR proposal 2 in favor of the 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.
1
<PAGE>
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 executive
officers named in the compensation table, all executive officers and directors
as a group, and all beneficial owners of more than five percent of the Common
Stock.
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 (6) 6.7%
6500 Baird Av
Reseda, CA. 91335
2
<PAGE>
Chae U. Kim 647,760 (6) 6.7%
3231 Cheviot Vista Place
Los Angeles, CA. 90034
I. Dean Bayne, M.D. 20,000 (5) 0.2%
Van A. Horsley 355,586 (3) 3.7%
Leroy Bilanich, Ed.D. 20,000 (5) 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 295,000 shares underlying stock options issued to the Chairman of
which all are 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 underlying options referenced in notes (2), (3), (5) and
(6), and 330,000 additional shares held by three executive officers (Jo
Brehm, Scott McLaughlin and Don Jackson) who are not directors. 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. Consists of currently exercisable options.
(6) Does not include options to acquire 600,000 shares granted subsequently to
September 30, 1997, 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 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) Member of the Compensation Committee.
(2) Member 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 is currently a self-employed entrepreneur and
inventor. 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.
5
<PAGE>
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.
Pat Horsley Adair has been a director and Secretary of Medical Dynamics
since September 8, 1981 and currently assists her husband, Dr. Adair, in his
activities. 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 and is currently a practicing surgeon.
6
<PAGE>
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 for the Organization Effectiveness Group 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.
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.
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 The Board has a standing audit committee appointed after the completion
of the 1997 fiscal year. The members of the audit committee held several
informal discussions regarding audit committee issues but did not hold a formal
meeting.
7
<PAGE>
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.
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. The table below includes all compensation paid to him by the
Company and any subsidiary.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------- ----------------------------------------
Awards Payout
----------------------------------------
Securities
underlying
Name and Restricted Options & LTIP All Other
Position Year Salary Bonus Other Awards SAR's Payout Compensation
-------- ---- ------ ----- ----- ------ ----- ------ ------------
<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>
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. Amounts for
matching contributions for the account of Mr. Horsley are included under "All
Other Compensation" in the Summary Compensation Table.
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.
8
<PAGE>
Employment Agreements. On October 1, 1997 Medical Dynamics, in conjunction
with its purchase of Computer Age Dentist, Inc. (CADI), entered into employment
agreements with Dan Richmond (CADI's CEO) and Chae Kim (CADI's President). The
terms 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.
During fiscal 1997, no stock options were granted by Medical Dynamics to
its Chief Executive Officer. During fiscal 1997, Medical Dynamics granted no
stock appreciation rights to any person, and no outstanding options were
repriced.
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 during the 1997 fiscal year as well as
the year-end value of options held on September 30, 1997. No Stock Appreciation
Rights have been granted to, or are held by, the Chief Executive Officer:
9
<PAGE>
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Name Shares acquired Value realized # of unexercised Value of in-the-
on exercise options at FY money options
end at FY end
(exercisable/ (exercisable/
unexercisable) unexercisable)
<S> <C> <C> <C> <C>
Van A. Horsley 3,598 $3,216 220,680 $279,602
0 0
</TABLE>
Long Term Incentive Compensation Plans; Defined Benefit or Actuarial Plans
- --------------------------------------------------------------------------
Medical Dynamics has no long term incentive compensation plans, defined
benefit, or actuarial plans.
Compensation of Directors
- -------------------------
General. Medical Dynamics' directors who are not employees 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.
10
<PAGE>
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 determined in good faith 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.
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
11
<PAGE>
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 will 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 6. NA
to be redeemed
Estimated number
of shares 9,787,683 92,980 9,298,045
outstanding
Estimated number
of shareholders 12,844 1,117 1,117
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Amendment to Articles of Incorporation. The Board of Directors has 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 (to the extent less than one
share), and the subsequent Forward Stock Split, is advisable and in the best
interests of the Company and its shareholders.
The company has a very large number of shareholders who have fewer than 100
shares and a small resulting shareholder value. Communications with shareholders
and the conduct of a shareholder 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 less
than a single 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 Board will
consider 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.
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
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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 approved and
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
$20.00 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 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 less than a single share of Common Stock 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 shares of Common Stock before the Reverse Stock Split 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 the Unclaimed Property Act of the State of
Colorado (Colo. Rev. Stat. ss.38-13-110), Medical Dynamics will be obligated to
pay the remaining amounts due shareholders to the Colorado State Treasury.
Effective Date of the Stock Splits
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The Stock Splits will become effective on the filing date of the Amendment
to the Articles providing for the Stock Splits. The amendment 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 assuming both Stock Splits are approved
and completed.
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 of directors. 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.
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.
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.
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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 Annual 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 (the "Original 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. 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 will forfeit his or her right to payment
for the shares under Article 113 and, thereafter, will be entitled only to the
payment of the amount approved for payment to non-dissenting shareholders for
their fractional shares.
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).
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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. 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.
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. The
Reverse Stock Split and the Forward Stock Split will be voted on separately. The
Board of Directors of the Company recommends that shareholders vote FOR the
proposal to amend the Company's Articles of Incorporation to effect both the
Reverse Stock Split and the Forward Stock Split. Unless otherwise specified, the
enclosed proxy will be voted "FOR" the approval of both the Reverse Stock Split
and the Forward Stock Split.
PROPOSAL 4
RECAPITALIZATION
General Description
Common Stock. The Board of Directors has approved and recommends that the
shareholders approve an increase in the number of shares of Common Stock the
Company is authorized to issue 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. Currently Medical Dynamics has
9,787,683 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 approximately 13,213,897 shares outstanding and reserved
for issuance.
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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, Information Presentation Systems, Inc.
("IPS") in February 1998, and Command Dental Systems ("CDS") in April 1998.
Whether or not the shareholders approve the Stock Splits described in Proposals
2 and 3, above, 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 has adopted
resolutions authorizing amendments to Article IV of the Company's Articles of
Incorporation, subject to shareholder approval, increasing the number of shares
of Common Stock which the Company may issued to 30,000,000.
Completion of Recapitalization. The Board of Directors proposes that the
recapitalization described in this Proposal 4 be approved and 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 on
the date of this proxy statement, and as it will continue to exist if the
Stock Splits are not completed but the amendment described in this Proposal
4 is approved and completed:
No Stock Split Completed Following Recapitalization
Outstanding Authorized Outstanding Authorized
and Reserved and Reserved
Common Stock 13,544,521 15,000,000 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 complete the Reverse Stock
Split if the recapitalization described in this Proposal 4 is approved.
Without further shareholder approval, Medical Dynamics could and plans to
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immediately thereafter declare a stock dividend payable to the continuing
shareholders (those holding a whole share or more after the Reverse Stock
Split) 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 13,213,897 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
and the increase in authorized Common Stock is approved, 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.
Reasons for the Recapitalization Described in this Proposal 4
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, IPS in February 1998, and
CDS in April 1998.
At the present time, Medical Dynamics only has remaining unissued and
unreserved Common Stock of 1,455,479 shares on a fully diluted basis.
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The Board of Directors is concerned that this limited amount of remaining
capitalization is insufficient for Medical Dynamics to accomplish its future
growth objectives. 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 Common Stock 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 which is described in Proposal
5, below.
Effect of the Recapitalization Described in this Proposal 4
The recapitalization described in this Proposal 4 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 further 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 of Common Stock.
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 any change in control of the Company more difficult. 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 recapitalization described in
this Proposal 4 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 in the Company or to seek Board
representation.
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.
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10. 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.
11. 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.
12. 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 recapitalization described in this Proposal
4.
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 recapitalization described in this
Proposal 4.
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. Presently the Company does
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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 Medical Dynamics 1988 Stock Option Plan (the "1988 Plan") has expired
by its terms. As a result, the only existing stock option plan maintained by the
company is the plan adopted by the Board of Directors for the grant of options
to the employees of and consultants to CADI (the "CADI Plan"). The CADI Plan was
not submitted to the shareholders for approval. The outstanding options granted
to Medical Dynamics' officers and directors are disclosed above under "Executive
Compensation" in the discussion of Proposal No. 1.
The Board is not legally required to obtain shareholder approval for the
establishment of the 1998 Plan. 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"). If 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 17 employees of Medical Dynamics (not including CADI) and 55
employees of CADI who are eligible to participate in the 1998 Plan, including
six 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.
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,
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or amend the 1998 Plan, but without the approval of the holders of the
shareholders, 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:
13. 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.
14. 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).
15. 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.
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16. The exercise price per share for NQOs may not be less than 80% of the
market price on the date of grant.
17. The term of any option granted may not be greater than five years.
18. 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 or her terminate
immediately.
19. 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.
20. 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. No optionee will
be entitled to exercise any option unless he or she can do so in accordance with
all applicable securities laws. Any exemption from the registration requirement
included in the Securities Act of 1933 claimed by any optionee must be
established to the satisfaction of Medical Dynamics, in its sole discretion.
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.
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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 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 to approve the
1998 Plan. Unless otherwise specified, the enclosed proxy will be voted "FOR"
the approval of the 1998 Plan.
INDEPENDENT AUDITORS
The independent accounting firm of Hein & Associates has been selected by
the Board of Directors with respect to audit of the consolidated financial
statements of the Company for the fiscal year ending September 30, 1998. 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 January 3, 1999. 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 includes the audited financial
statements for the Company.
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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.
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
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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;
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(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:
(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.
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(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
(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.
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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.
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(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.
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
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<PAGE>
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.
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;
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<PAGE>
(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:
(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;
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<PAGE>
(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.
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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.
(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.
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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 of Common
Stock of Medical Dynamics, Inc. held of record by the undersigned on April 24,
1998, at the Annual Meeting of Shareholders to be held on June 11, 1998 and at
any adjournments or postponements thereof.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below)
to vote for all 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 [ ] Leroy I Bilanich
[ ] I. Dean Bayne [ ] Van A. Horsley
[ ] Chae U. Kim [ ] Daniel L. Richmond
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 increased in the authorized capital 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 Plan.
[ ] Yes [ ] No [ ] Abstain
<PAGE>
6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
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 for the approval of
all other matters.
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.
Date: ,1998 -------------------------------
--------------------- Signature
-------------------------------
Signature if held jointly
