<PAGE>
MEDICAL GRAPHICS CORPORATION
350 OAK GROVE PARKWAY
ST. PAUL, MINNESOTA 55127
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 23, 1996
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of Medical Graphics Corporation, a
Minnesota corporation (the "Company"), will be held on Thursday, May 23,
1996, at 10:00 a.m. local time, at the Hyatt Regency Minneapolis, 1300
Nicollet Mall, Minneapolis, Minnesota for the following purposes:
1. To approve an increase in the number of shares reserved under the
Company's 1987 Stock Option Plan (the "1987 Plan") from 650,000
to 750,000;
2. To approve an extension of the duration of the 1987 Plan to five
years from the date it is approved by the shareholders of the
Company;
3. To approve an amendment to the 1987 Plan which shall provide option
limitations pursuant to Section 162(m) of the Internal Revenue
Code of 1986 (the "Code");
4. To elect directors to hold office for the ensuing year;
5. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1996;
and
6. To act upon such other business as may properly come before the
Annual Meeting, or any adjournment or adjournments thereof.
Shareholders of record at the close of business on April 5, 1996 are
entitled to notice of and to vote at the Annual Meeting or any adjournment
or adjournments thereof.
Your attention is directed to the Proxy Statement accompanying this
Notice for a more complete statement of matters to be considered at the Annual
Meeting. A copy of the Company's Annual Report for the fiscal year ended
December 31, 1995 also accompanies this Notice.
You are cordially invited to attend the Annual Meeting. Whether or not
you plan to attend, please sign, date and return your proxy in the reply
envelope provided.
By Order of the Board of Directors,
/s/ Wayne G. Faris
Wayne G. Faris,
Secretary
St. Paul, Minnesota
Dated: April 11, 1996
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
MEDICAL GRAPHICS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
May 23, 1996
PROXY STATEMENT
This Proxy Statement is submitted in support of a proxy solicitation by
the Board of Directors of Medical Graphics Corporation (the "Company"),
350 Oak Grove Parkway, Saint Paul, Minnesota 55127, in connection with the
1996 Annual Meeting of Shareholders to be held on Friday, May 23, 1996 at
10:00 a.m. local time, at the Hyatt Regency, Minneapolis, Minnesota. The
Company expects that the Notice of Annual Meeting, Proxy Statement and form
of proxy will first be mailed to shareholders on or about April 11, 1996.
Shareholders of record at the close of business on April 5, 1996 will be
entitled to vote at the Annual Meeting and any adjournment thereof. As of
April 5, 1996, the Company had 2,538,393 shares of its common stock, $0.05
par value (the "Common Stock"), issued, outstanding and entitled to be voted
at the Annual Meeting. The Common Stock is the only class of voting
securities of the Company. Each holder of outstanding shares of the Common
Stock is entitled to one vote per share on all matters being presented at the
Annual Meeting. There is no cumulative voting. If a shareholder abstains
from voting as to any matter, then the shares held by such shareholder shall
be deemed present at the Annual Meeting for purposes of determining a quorum
and for purposes of calculating the vote with respect to such matter, but
shall not be deemed to have been voted in favor of such matter. If a broker
returns a "non-vote" proxy, indicating a lack of authority to vote on such
matter, then the shares covered by such non-vote shall be deemed present at
the Annual Meeting for purposes of determining a quorum but shall not be
deemed to be represented at the meeting for purposes of calculating the vote
with respect to such matter.
The enclosed proxy, when properly signed and returned to the Company,
will be voted by the persons named therein at the Annual Meeting as directed
therein. Proxies in which no designation is made with respect to the various
matters of business to be transacted at the Annual Meeting will be voted for
the increase in shares for the Company's 1987 Plan; for a five year extension
of the 1987 Plan; for an amendment to the 1987 Plan pursuant to
Section 162(m) of the Code; for the nominees for directors as proposed
therein; for the ratification of the appointment of Ernst & Young LLP as
independent auditors of the Company for the current year; and in the best
judgment of the persons named in the proxy as to any other matters which may
properly come before the Annual Meeting.
A proxy may be revoked at any time prior to its being exercised at the
Annual Meeting by written notification to the Secretary of the Company.
Personal attendance at the Annual Meeting is not sufficient to revoke a proxy
unless a written notice of proxy termination is filed with an officer of the
Company at the Annual Meeting.
The solicitation expenses incurred herein will be borne by the Company,
and this solicitation will be distributed by mail to the shareholders. Some
of the officers, directors and regular management employees of the Company
may also solicit proxies on behalf of management in person or by facsimile
transmission or telephone. No additional compensation will be paid to such
persons therefore; however, any costs thereof will be borne by the Company.
The Company will reimburse brokerage firms, banks, and other custodians,
nominees and fiduciaries for their expenses reasonably incurred in forwarding
solicitation material to the beneficial owners of the Common Stock.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information concerning beneficial ownership of the Common
Stock of the Company is furnished as of the record date, except as noted,
with respect to (i) all persons known by the Company to be the beneficial
owner of more than five percent of the outstanding Common Stock, (ii) each of
the directors and nominees for election to the Board of Directors of the
Company, (iii) each of the executive officers of the Company named in the
Summary Compensation Table below, and (iv) all directors and executive
officers as a group. Unless otherwise indicated, the shareholders listed in
the table have sole voting and investment power with respect to the shares
indicated.
<TABLE>
<CAPTION>
SHARES
NAME AND ADDRESS OF BENEFICIALLY PERCENT
BENEFICIAL OWNER OWNED OF CLASS (1)
- ------------------- ------------ ------------
<S> <C> <C>
Michael J. Paulucci
525 Lake Avenue South
Duluth, MN 55802............................... 422,700(2) 16.7
Heartland Advisors
790 North Milwaukee St.
Milwaukee, WI 53202............................ 339,800(3) 13.4
Catherine A. Anderson (4)
350 Oak Grove Parkway
St. Paul, MN 55127............................. 332,206(5)(6) 12.5
AWM Investment Company, Inc.
153 East 53 Street
New York, NY 10022............................. 278,200(7) 11.0
Brian P. King (8)
350 Oak Grove Parkway
St. Paul, MN 55127.............................. 42,397(9) 1.7
Anthony J. Adducci (10)
5601 Dunlap Ave.
Shoreview, MN 55126............................. 27,200(11) 1.1
Earl E. Bakken (4)
7000 Central Ave. N.E.
Minneapolis, MN 55432.......................... 25,000(12) *
Wayne G. Faris (4)
2335 Angell Road
Sun Fish Lake, MN 55118........................ 20,850(11) *
Gerald T. Knight (10)
5021 Interlachen Bluff
Edina, MN 55436................................ 23,000(13) *
</TABLE>
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<TABLE>
<S> <C> <C>
Donald C. Wegmiller (4)
7871 Chesshire Lane North
Maple Grove, MN 55369.......................... 21,000(14) *
W. Edward McConaghay (10)
2655 Lake of the Isles Parkway
Minneapolis, MN 55408.......................... 19,000(13) *
Douglas H. Ward
350 Oak Grove Parkway
St. Paul, MN 55127............................. 3,000(15) *
Eric W. Sivertson
350 Oak Grove Parkway
St. Paul, MN 55127............................. -0- *
All directors and executive officers
as a group (thirteen persons)................... 586,752(16) 21.1
</TABLE>
- ------------
* Less than one percent.
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right to acquire them as of April 5, 1996 or within sixty days of such
date are treated as outstanding when determining the percentage shown
for such person, but are not treated as outstanding when determining
the percentages shown for any other person.
(2) Includes 100,000 shares held in the Michael J. Paulucci Northland Funds
Trust, of which Mr. Paulucci is beneficiary, and 11,500 shares held by
Mr. Paulucci's spouse and children, of which Mr. Paulucci may be
deemed the beneficial owner. Mr. Paulucci's ownership is stated as of
February 7, 1996 and disclosure is made in reliance upon a report on
Form 4, dated January, 1996 filed with the Securities and Exchange
Commission.
(3) Heartland Advisors, Inc., in its capacity as investment adviser, may be
deemed beneficial owner of 339,800 shares which are owned by numerous
investment counselling clients. Disclosure is made in reliance upon a
statement on Schedule 13G, dated as of February 9, 1996, filed with the
Securities and Exchange Commission.
(4) Currently a member of the Board of Directors of the Company.
(5) Includes 10,600 shares held by Mrs. Anderson's husband. Each disclaims
beneficial ownership of the other's stock. Excludes 3,500 shares held
by the STA Trust, the beneficiaries of which are the Anderson's children;
the Andersons each disclaim beneficial ownership of such shares.
(6) Includes 115,000 shares subject to stock options which are currently
exercisable or may be exercised within 60 days.
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<PAGE>
(7) AWM Investment Company, Inc., in its capacity as investment advisor, may be
deemed beneficial owner of 278,200 shares which are owned by numerous
investment counselling clients. Disclosure is made in reliance
upon a statement on Schedule 13G, dated as of January 10, 1996, filed
with the Securities and Exchange Commission.
(8) Resigned from the Company effective April 3, 1996.
(9) Includes 18,000 shares subject to stock options which are currently
exercisable or may be exercised within 60 days.
(10) Currently a member of, and nominee for election to, the Board of
Directors of the Company.
(11) Includes 10,000 shares subject to stock options which are currently
exercisable or may be exercised within 60 days.
(12) Includes 20,000 shares subject to stock options which are currently
exercisable or may be exercised within 60 days.
(13) Includes 13,000 shares subject to stock options which are currently
exercisable or may be exercised within 60 days.
(14) Includes 16,000 shares subject to stock options which are currently
exercisable or may be exercised within 60 days.
(15) Includes 3,000 shares subject to stock options which are currently
exercisable or may be exercised within 60 days.
(16) Includes 247,000 shares subject to stock options which are currently
exercisable or may be exercised within 60 days.
APPROVAL OF AN INCREASE IN THE NUMBER OF
SHARES RESERVED UNDER THE COMPANY'S 1987 STOCK OPTION PLAN;
AN EXTENSION OF THE 1987 PLAN'S TERM; AND
AN AMENDMENT TO LIMIT AWARDS UNDER THE 1987 PLAN
A. INCREASE OF THE AUTHORIZED SHARES
The Company has granted options covering 612,817 shares pursuant to the
1987 Plan which has reserved 650,000 shares. In order to reserve sufficient
shares for future options, the Board of Directors proposes that the number of
shares reserved under the 1987 Plan be increased from 650,000 to 750,000
shares. The Board believes that granting fairly priced stock options to
employees is an effective means to promote the future growth and development
of the Company. Such options increase employees' proprietary interest in the
Company's success and enables the Company to attract and retain qualified
personnel. The Board therefore recommends that all shareholders vote in
favor of increasing the number of shares reserved under the 1987 Plan from
650,000 to 750,000 shares.
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<PAGE>
B. EXTENSION OF THE TERM
The term of the 1987 Plan is ten years, terminating on March 11, 1997.
Because the 1987 Plan provides the necessary flexibility the Company requires
and no significant changes have occurred which affected the 1987 Plan's
terms, the Board of Directors proposes that the term of the 1987 Plan be
extended five years from the date the extension is approved by the
shareholders of the Company. The 1987 Plan was adopted almost ten years ago,
and, although the 1987 Plan suits the Company's needs at this time, the Board
will study the 1987 Plan and current trends adopted by recent stock option
plans. The Board therefore recommends that all shareholders vote in favor of
extending the term of the 1987 Plan for five years from the date the
extension is approved by the shareholders of the Company.
C. OPTION LIMITATIONS UNDER THE 1987 PLAN
Section 162(m) of the Code limits corporate deductions to $1 million for
compensation paid to "covered employees." Covered employees include the CEO
and each of the four other most highly-compensated executives of public
companies whose compensation, under the rules of the Securities and Exchange
Commission ("SEC"), must be disclosed. As a publicly-traded company, the
Company's officers are subject to the SEC disclosure requirements and
represent covered employees under Section 162(m) of the Code. Section
162(m)'s limitation, however, generally excludes stock option plans where the
following conditions have been met: (1) the performance goals must be
established by a compensation committee of the board of directors, which
consists of two or more outside directors, (2) the option price must not be
less than the fair market value of the stock at the time of the grant, and
(3) the shareholders must approve the maximum number of options or rights
which can be awarded to any one executive. If these requirements are met,
stock options granted pursuant to the 1987 Plan are not expected to count
against the $1 million cap for compensation paid to covered employees. The
proposed amendment satisfies the third condition outlined above by limiting
the options of Optionees under the 1987 Plan. The Board of Directors propose
the following amendment and inclusion of Section 19:
SECTION 19.
OPTION LIMITATIONS UNDER THE 1987 PLAN
No Optionee, who is any employee of the Company at the time of grant,
may be granted any option or options, the value of which options are based
solely on an increase in the value of the shares of Common Stock after the
date of grant of such options, for more than 50,000 shares of Common Stock,
in the aggregate, for the period from May 23, 1996 to December 31, 1996 or in
any calendar year period beginning with the period commencing January 1, 1997
and ending December 31, 1997. The foregoing annual limitation specifically
includes the grant of any options representing "qualified performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue
Code.
For the reasons set forth above, the Board of Directors recommends that all
shareholders vote in favor of amending the 1987 Plan to include the
aforementioned provision, which provides option limitations pursuant to
Section 162(m) of the Code.
SUMMARY OF 1987 PLAN
A general description of the basic features of the 1987 Plan, assuming
the amendment described above is approved by the shareholders, is outlined
below. This summary is qualified in its entirety by the terms of the 1987
Plan, a copy of which, in its amended form, may be obtained from the
Secretary of the Company.
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<PAGE>
GENERAL. The 1987 Plan provides for the granting to participating
eligible employees of the Company of the (a) options to purchase common stock
that qualify as "incentive stock options" within the meaning of Section 422
of the Code ("Incentive Stock Options") and (b) options to purchase common
stock that do not qualify as incentive stock options ("Non-Qualified
Options"). The 1987 Plan is administered by the Compensation Committee,
which (other than with respect to automatic grants of options to non-employee
directors) selects the participants to be granted options under the 1987
Plan, determines the amount of grants to participants and prescribes
discretionary terms and conditions of each grant not otherwise fixed under
the 1987 Plan. As of April 5, 1996, there were approximately 140 employees
of the Company who may be deemed to be eligible employees under the 1987
Plan, of whom 49 were participants. The 1987 Plan will terminate on March
11, 1997, although it is proposed to be extended until March 11, 2002, and
may be terminated before that date by action of the Board. No options will
be granted after the termination of the 1987 Plan. The maximum number of
shares of Company common stock that may be issued under the 1987 Plan is
currently 650,000 and proposed to be increased to 750,000.
STOCK OPTIONS. Incentive Stock Options must be granted with an exercise
price equal to at least the fair market value of the common stock on the date
of grant (or, in the case of participants owning more than 10% of the total
combined voting power of all classes of stock of the Company, at least equal
to 110% of the fair market value on the date of grant); Non-Qualified Options
may be granted with an exercise price less than 100% of the fair market value
of the common stock on the date of grant.
For Incentive Stock Options granted after December 31, 1986, the
aggregate fair market value (determined as of the time the Incentive Stock
Option is granted) of shares of common stock with respect to which Incentive
Stock Options become exercisable for the first time by a participant under
the 1987 Plan during any calendar year may not exceed $100,000. On March 13,
1992, the closing price of a share of Company common stock as reported by the
Nasdaq National Market System was $12.25. Incentive Stock Options have a
maximum term fixed by the Compensation Committee, not to exceed 10 years from
the date of grant (five years in the case of an Incentive Stock Option
granted to participants owning more than 10% of the total combined voting
power of all classes of stock of the Company). Non-Qualified Options have a
maximum term fixed by the Compensation Committee, not to exceed 10 years from
the date of grant. Stock options become exercisable during their terms in
the manner determined by the Compensation Committee. Stock options may not be
transferred other than by will or the laws of descent and distribution;
during the lifetime of a participant they may be exercised only by the
participant.
FEDERAL INCOME TAX CONSEQUENCES. The following description of federal
income tax consequences is based on current statutes, regulations and
interpretations. The description does not include state or local income tax
consequences. In addition, the description is not intended to address
specific tax consequences applicable to an individual participant who
receives an award.
INCENTIVE STOCK OPTIONS. There will not be any federal income tax
consequences to either the participant or the Company as a result of the
grant to a participant of an Incentive Stock Option under the 1987 Plan. The
exercise by a participant of an Incentive Stock Option also will not result
in any federal income tax consequences to the Company or the participant,
except that (i) an amount equal to the excess of the fair market value of the
shares acquired upon exercise of the Incentive Stock Option, determined at
the time of exercise, over the consideration paid for the shares by the
participant will be a tax preference item for purposes of the alternative
minimum tax, and (ii) the participant may be subject to an additional excise
tax if any amounts are treated as "excess parachute payments" within the
meaning of the Code.
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<PAGE>
If a participant disposes of the shares acquired upon exercise of an
Incentive Stock Option, the federal income tax consequences will depend upon
how long the participant has held the shares. If the participant does not
dispose of the shares within two years after the Incentive Stock Option was
granted, nor within one year after the participant exercised the Incentive
Stock Option and the shares were transferred to the participant, then the
participant will recognize a long-term capital gain or loss. The amount of
the long-term capital gain or loss will be equal to the difference between
(i) the amount the participant realized on disposition of the shares, and
(ii) the option price at which the participant acquired the shares. The
Company is not entitled to any compensation expense deduction under these
circumstances.
If the participant does not satisfy both of the above holding period
requirements (a "disqualifying disposition"), then the participant will be
required to report as ordinary income, in the year the participant disposes
of the shares, the amount by which the lesser of (i) the fair market value of
the shares at the time of exercise of the Incentive Stock Option (or, for
directors, officers or greater-than 10% stockholders of the Company, the fair
market value of the shares six months after exercise, unless such persons
file an election under Section 83(b) of the Code within 30 days of the date
of exercise) or (ii) the amount realized on the disposition of the shares (if
the disposition is the result of a sale or exchange to one other than a
related taxpayer), exceeds the option price for the shares. The Company will
be entitled to a compensation expense deduction in an amount equal to
ordinary income includable in the taxable income of the participant. This
compensation income may be subject to withholding, and the Company may be
required to withhold in order to receive, a deduction. The remainder of the
gain or loss recognized on the disposition, if any, will be treated as
long-term or short-term capital gain or loss, depending on the holding period.
NON-QUALIFIED OPTIONS. Neither the participant nor the company incurs
any federal income tax consequences as a result of the grant of a
Non-Qualified Option. Upon exercise of a Non-Qualified Option, a participant
will recognize ordinary income, subject to withholding, on the "Includability
Date" in an amount equal to the difference between (i) the fair market value
of the shares purchased, determined on the Includability Date, and (ii) the
consideration paid for the shares. The Includability Date generally will be
the date of exercise of the Non-Qualified Option. However, the Includability
Date for participants who are officers or greater-than-10% stockholders of
the Company will occur six months later, unless such persons file an election
under Section 83(b) of the Code within 30 days of the date of exercise, to
treat the date of exercise as the Includability Date. The participant may be
subject to an additional excise tax if any amounts are treated as "excess
parachute payments" within the meaning of the Code.
At the time of a subsequent sale or disposition of any shares of common
stock obtained upon exercise of a Non-Qualified Option, any gain or loss will
be a capital gain or loss. Such capital gain or loss will be long-term
capital gain or loss if the sale or disposition occurs more than one year
after the Includability Date and short-term capital gain or loss if the sale
or disposition occurs one year or less after the Includability Date.
In general, the company will be entitled to a compensation expense
deduction in connection with the exercise of a Non-Qualified Option for any
amounts includable in the taxable income of a participant as ordinary income.
The Company will be entitled to the deduction in the Company's tax year in
which the participant is taxed.
ELECTION OF DIRECTORS
The number of members of the Board of Directors is currently set at eight,
and the directors are divided into Class A (consisting of two directors),
Class B (consisting of three directors) and Class C
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(consisting of three directors). The members of each class are elected to
serve three-year terms with the term of office of each class ending in
successive years. Anthony J. Adducci, Gerald T. Knight and W. Edward
McConaghay are the Class B directors whose terms expire at the Annual
Meeting. The Board of Directors has nominated Messrs. Adducci, Knight and
McConaghay for election to the Board at the Annual Meeting for terms expiring
at the annual meeting in 1999. The other directors of the Company will
continue in office for their existing terms.
Proxies solicited by the Board of Directors will, unless otherwise
directed, be voted to elect Messrs. Adducci, Knight and McConaghay. If a
shareholder of record returns a proxy withholding authority to vote the proxy
with respect to any of the nominees, then the shares of the Common Stock
covered by such proxy shall be deemed present at the Annual Meeting for
purposes of determining a quorum and for purposes of calculating the vote
with respect to such nominee or nominees, but shall not be deemed to have
been voted for such nominee or nominees. The affirmative vote of a majority
of the outstanding shares of the Common Stock is necessary to elect each
nominee. Cumulative voting is not permitted. In the unlikely event that any
of the nominees is not a candidate for election at the Annual Meeting, the
persons named in the accompanying form of proxy will vote for such other
persons as the Board of Directors may designate. The Board of Directors has
no reason to believe that any nominee will not be a candidate for election.
Certain biographical information furnished by the Company's Board of
Directors is set forth below.
<TABLE>
<CAPTION>
NAME, BUSINESS EXPERIENCE DURING
THE PAST FIVE YEARS AND SELECTED
OTHER INFORMATION CONCERNING
CLASS A (TERM ENDING IN 1998) DIRECTORS AND NOMINEES
- -------------------------------------------------------------------------------
<S> <C>
Wayne G. Faris Partner in Faris and Faris, a Minneapolis
Director since 1990 law firm, since January, 1996.
Age -- 54
Mr. Faris was the Chief Executive Officer of ATAK Sports Inc., a bicycle
products manufacturing company, from July 1994 to December 1995 and the Chief
Executive Officer of The Clifton Group, an investment management firm,
from September 1990 to June 1994. Prior to that time, he was a partner of the
law firm of Oppenheimer Wolff & Donnelly. He has served as Secretary of the
Company since December 1988.
- -------------------------------------------------------------------------------
Eric W. Sivertson President and Chief Executive Officer
Director since January 1996 of the Company.
Age -- 45
Mr. Sivertson has been President and Chief Executive Officer of the Company
since January 1996. Mr. Sivertson was President of Pacesetter, Inc., a
pacemaker division of St. Jude Medical, Inc., from October 1994 to January
1996. He was President of the St. Jude Medical Division from 1992 to 1994,
President of St. Jude International from 1990 to 1992 and held other sales and
marketing positions with St. Jude Medical Inc. from 1985 to 1990.
Mr. Sivertson served in successive sales and marketing management positions
during his tenure at American Hospital Supply from 1977 through 1984,
culminating as Vice President of Marketing for the Converters Division.
- -------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CLASS B (TERM ENDING IN 1996)
- -------------------------------------------------------------------------------
<S> <C>
Anthony J. Adducci President of Technology Enterprises
Director since 1980 since June 1981.
Age -- 58
Mr. Adducci has been President of Technology Enterprises, a private venture
capital firm, since June 1981. Prior to June 1981, Mr. Adducci was a founder
and served as Executive Vice President of Cardiac Pacemakers, Inc., a
manufacturer of cardiac pacemakers located in Arden Hills, Minnesota.
- -------------------------------------------------------------------------------
Gerald T. Knight Vice President -- Finance and Chief
Director since October 1990 Financial Officer of The Toro Company
Age -- 48 since April 1992.
Mr. Knight served as Chairman of the Board at Medical Graphics Corporation from
May 1995 to December 1995. He has been Vice President -- Finance and Chief
Financial Officer of The Toro Company, a manufacturer of lawn equipment,
since April 1992. From December 1990 to March 1992, Mr. Knight was Executive
Director -- Finance and Corporate Controller of NeXT Computer, Inc., a
manufacturer of computer workstations. From November 1985 through
December 1990 he served in several executive level financial positions for
The Pillsbury Company. During the previous fifteen years, Mr. Knight served
in a number of financial positions with General Electric Company.
- -------------------------------------------------------------------------------
W. Edward McConaghay President of Key Indicators since March
Director since March 1994 1995.
Age -- 46
Mr. McConaghay is a principal in Key Indicators, a consulting firm specializing
in new product and market development for information and technology based
businesses. He was Senior Vice President of Sales and Marketing for Deluxe
Corporation, a Minnesota check and business forms printing company, from
December 1993 to January 1995. From August 1993 to November 1993, he was Vice
President for Northern Telecom, Inc. From August 1992 to August 1993,
he was Vice President of Marketing for Northern Telecom-Asia/Pacific. From May
1991 to August 1992, Mr. McConaghay served as Secretary to the Executive
Office and AVP, Marketing Programs for Northern Telecom Limited. From
September 1983 to May 1991, he served in a number of senior level sales,
marketing and operations positions for Northern Telecom, Inc.
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</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CLASS C (TERM ENDING IN 1997)
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<S> <C>
Catherine A. Anderson Chairman of the Board since January 1996.
Age -- 49
Ms. Anderson served as President and Chief Executive Officer from May 1995 to
December 1995. She was the Company's Chairman of the Board and Chief
Executive Officer from March 1987 to May 1995 and President and Chief
Operating Officer since July 1989. Ms. Anderson served as the Company's
President and Chief Operating Officer from August 1986 to January 1988, as
Chairman of the Board from January 1985 to August 1986, as Executive Vice
President from 1979 to December 1986, and as President from 1977 to 1979.
From 1972 to 1976, Ms. Anderson was Director of the Cardiopulmonary Clinical
and Research Laboratories at the University of Minnesota Hospitals and Clinics.
She co-founded the Company and became its first employee in 1977.
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Earl E. Bakken Founder and Director Emeritus since
Director since 1989 August 1994.
Age -- 72
Mr. Bakken is the founder of Medtronic, Inc. ("Medtronic"), a Fortune 500
Minneapolis-based manufacturer of cardiac pacemakers and other medical devices.
He has been a consultant to Medtronic since April 1989 and served as Senior
Chairman from July 1985 to May 1989 and Chairman of the Board for more than
five years before July 1985.
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Donald C. Wegmiller President of Management Compensation
Director since 1988 Group/HealthCare since April 1993.
Age -- 57
Mr. Wegmiller has been President of Management Compensation Group/HealthCare,
an executive and physician compensation consulting firm for healthcare
organizations, since 1993. From 1992 to 1993, he was Vice Chairman and
President of HealthSpan Health System, a Minneapolis-based diversified health
services organization. From 1978 to 1992, he was President and Chief
Executive Officer of HealthSpan. From 1986 to 1988, he served as Chairman of
the Board of the American Hospital Association.
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</TABLE>
The Board of Directors held six meetings during the Company's fiscal
year ended December 31, 1995. All directors and nominees for director
attended at least eighty percent of the meetings held during 1995 of the
Board of Directors and all Committees on which the director served; provided,
that Mr. Adducci attended seventy-one percent of such meetings and Mr. Bakken
attended sixty percent of such meetings. Directors who are not employees of
the Company receive $750 for each meeting of the Board attended and $250 for
each Committee meeting attended.
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BOARD OF DIRECTORS' COMMITTEES AND MEETINGS
The Company has three standing committees of the Board of Directors, as
follows:
<TABLE>
<CAPTION>
NAME OF COMMITTEE MEMBERSHIP
- ----------------- ----------
<S> <C>
Audit Committee.......................... Donald C. Wegmiller and
Gerald T. Knight
Compensation Committee................... Wayne G. Faris,
Anthony J. Adducci and
W. Edward McConaghay
Nominating Committee..................... Earl E. Bakken and
Donald C. Wegmiller
</TABLE>
The Audit Committee is responsible for reviewing the services provided
by the Company's independent auditors and comments made by the independent
auditors in letters of recommendation to management, and reviewing internal
accounting controls and procedures and discussing the same with the Company's
Vice President -- Finance and Administration. The Compensation Committee is
responsible for reviewing and approving compensation to be paid to officers,
key employees and directors. The Nominating Committee is responsible for
director nominations and will not consider nominations recommended by
shareholders. The Audit and Compensation Committees held one meeting and
three meetings, respectively, in 1995, while the Nominating Committee did not
meet.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Catherine A. Anderson 49 Founder and Chairman
Eric W. Sivertson 45 President and Chief Executive Officer
Russell G. Acorn 35 Vice President -- Research and Development
Terrance J. Kapsen 45 Executive Vice President -- Global Sales
Brian P. King 48 Vice President -- Finance and Administration, Treasurer
William J. O'Connor 56 Vice President -- Sales and Marketing to April 21, 1995
Michael G. Snow 46 Vice President -- Quality and Regulatory Affairs
Douglas H. Ward 46 Vice President -- Operations
</TABLE>
- ------------
CATHERINE A. ANDERSON. Biographical information on Ms. Anderson is provided
elsewhere in this Proxy Statement under "Election of Directors."
-11-
<PAGE>
ERIC W. SIVERTSON. Biographical information on Mr. Sivertson is provided
elsewhere in this Proxy Statement under "Election of Directors."
RUSSELL G. ACORN. Mr. Acorn joined the Company as Vice President -- Research
and Development in October 1991. From February 1988 to September 1991, Mr.
Acorn was Product Development Manager for Spacelabs, Inc. From May 1986 to
February 1988, he was Research and Development Engineer for Newport Medical
Instruments. Earlier, he supervised the respiratory therapy department at
Maricopa Medical Center. Mr. Acorn is a graduate of the DeVry Institute of
Technology and Mansfield University and has degrees in electrical engineering
and respiratory therapy.
TERRANCE J. KAPSEN. Mr. Kapsen has been a Vice President of the Company
since December 1981. From December 1981 to July 1985, he served as Vice
President of Technical Services. In July 1985, he became Vice President of
Sales, and in July 1989 he became Vice President of Marketing. In March
1992, Mr. Kapsen was named Vice President of Medical Programs. His title was
later changed to Vice President -- Marketing, Cardiology and Primary Care and
then to Vice President -- Marketing. From July 1993 to July 1994, Mr. Kapsen
served as Senior Vice President -- Sales. In July of 1994, Mr. Kapsen was
named Vice President of Medical Affairs and in July 1995 Executive Vice
President -- Global Sales. Prior to joining the Company and from 1973 to
1980, Mr. Kapsen was an Assistant Scientist at the University of Minnesota
working in the area of pulmonary medicine and also served as a department
supervisor.
BRIAN P. KING. Mr. King served as a Vice President of the Company since
December 1981 and Treasurer since March 1981. He managed the operations area
of the Company from early 1993 to April 1995. Prior to joining the Company
and from 1976 to 1980, he was employed at Jostens, Inc. in various financial
positions, including controller of the yearbook division. From 1972 to 1976
he worked for International Paper Company where his last position was
manufacturing manager of the consumer plastics division. He holds a B.S. in
engineering and an M.B.A. from Cornell University. Mr King resigned from his
position at the Company effective April 3, 1996.
WILLIAM J. O'CONNOR. Mr. O'Connor joined the Company as Vice President --
Sales and Marketing in July 1994. In May 1995, Mr. O'Connor resigned from
his position at the Company.
MICHAEL G. SNOW. Mr. Snow re-joined the Company in October 1995 as Vice
President, Quality Assurance/Regulatory Affairs after managing Respiratory
Care Services and Pulmonary Physiology and Research at California Pacific
Medical Center for five years. He has over 25 years experience in the
cardiopulmonary field and has authored over 50 scientific papers. Prior to
joining the California Pacific Medical Center, Mr. Snow served as Vice
President of Research and Development at the Company and held other
technology-related positions with the Company since 1984. He majored in
Quantitative Analysis/Business Administration at National University in San
Diego and holds an A.S. in Cardiopulmonary/Biomedical Technology from
Grossmont College. Mr. Snow is a former president of the National Board for
Respiratory Care, the national accreditation agency for the Company's core
market.
DOUGLAS H. WARD. Mr. Ward joined the Company in April 1995 as Vice
President, Operations. He was previously the Director of Operations for the
Dade Diagnostics division of Baxter Healthcare Corporation and held various
positions with Baxter since 1979. Prior to his employment at Baxter,
Mr. Ward worked for American Hospital Supply for sixteen years. He holds a
B.A. from National-Louis University and an M.B.A. from Golden State
University.
-12-
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each of
the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and each of the Company's most highly paid executive
officers whose total annual salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------------------------ ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL OPTIONS/ ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) SARS(#)(1) COMPENSATION ($)(2)
- ------------------ ---- ---------- --------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Catherine A. Anderson 1995 $208,047 -0- -0- $1,818
Chairman and Chief 1994 194,250 $13,126 -0- 1,750
Executive Officer, 1993 175,000 -0- 25,000 1,676
President and Chief
Operating Officer
Brian P. King (3) 1995 $104,289 -0- 5,000 $1,455
Vice President -- Finance 1994 105,050 $ 6,188 5,000 1,415
and Administration, 1993 98,325 8,500 5,000 1,434
Treasurer
William J. O'Connor (3) 1995 $126,923 -0- -0- -0-
Vice President -- Sales 1994 66,346 -0- -0- -0-
and Marketing
Douglas H. Ward 1995 $110,769 $10,000 10,000 -0-
Vice President -- Operations
</TABLE>
- ------------
(1) Represents securities underlying stock options granted, except as otherwise
noted, under the Company's 1987 Plan, as amended. The 1987 Plan does not
provide for the granting of stock appreciation rights ("SARs").
(2) The compensation reported represents Company matching contributions under
the Company's Employee Savings Incentive Plan, a 401(k) retirement plan.
(3) Mr. King and Mr. O'Connor have resigned from their positions at the
Company.
STOCK OPTION GRANTS AND EXERCISES TABLES
The following tables summarize stock option grants and exercises during
fiscal 1995 to or by the executive officers named in the Summary Compensation
Table above. Because the 1987 Plan does not provide for the granting of
SARs, no SARs were granted or exercised during fiscal 1995.
-13-
<PAGE>
OPTION/SAR GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED (#)(1) FISCAL 1995 PRICE ($/SH)(2) DATE
- ---- -------------- ------------- ---------------- ----------
<S> <C> <C> <C> <C>
Catherine A. Anderson -0- -0-
Brian P. King 5,000 9.3% $4.88 08/31/05
William J. O'Connor -0- -0-
Douglas H. Ward 10,000 18.6% $5.00 04/17/05
</TABLE>
- ------------
(1) Each stock option was granted under the 1987 Plan, has a ten-year term and
vests and becomes exercisable in cumulative installments of 30% one year
from the date of grant, 30% two years from the date of grant and 40%
three years from the date of grant. The stock options were granted on
August 31, 1995 for Mr. King and April 17, 1995 for Mr. Ward.
(2) All stock options were granted with an exercise price equal to the fair
market value of the Common Stock on the date of grant, which was the
closing price of the Common Stock as reported on the Nasdaq National
Market System on such date.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1995 AND
OPTION/SAR VALUES AT END OF FISCAL 1995
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED ON REALIZED DECEMBER 31, 1995 (#) DECEMBER 31, 1995 ($)(1)
NAME EXERCISE (#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------ -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Catherine A. Anderson 8,000 15,075 135,000/10,000 $21,800/-0-
Brian P. King 3,000 6,750 19,500/5,500 $7,200/-0-
William J. O'Connor -0- -0- -0-/-0- -0-/-0-
Douglas H. Ward -0- -0- -0-/10,000 -0-/-0-
</TABLE>
(1) "Value" has been determined based upon the difference between the per share
option exercise price and the market value of the Common Stock at the date
exercised or December 31, 1995.
CERTAIN TRANSACTIONS
During the Company's fiscal year ended December 31, 1995, the Company paid
$96,000 in royalties to ErgometRx Corporation ("ErgometRx") under a five-year
agreement between the Company
-14-
<PAGE>
and ErgometRx, to obtain an exclusive license to manufacture and sell in
certain markets exercise ergometers utilizing ErgometRx proprietary
technology. The agreement establishes no minimum quantity of ergometers
required to be sold by the Company. Stephen T. Anderson, a former director of
the Company and the husband of Catherine A. Anderson, founded and currently
serves as the President of ErgometRx. The Company is also a shareholder of
ErgometRx.
SECTION 16(a) REPORTING
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and all persons who beneficially own more than ten percent
of the outstanding shares of the Company's Common Stock to file with the
Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of such Common Stock. Officers, directors and
greater than ten percent beneficial owners are also required to furnish the
Company with copies of all Section 16(a) reports they file. To the Company's
knowledge, based upon a review of the copies of such reports furnished to the
Company and written representations that no other reports were required
during the fiscal year ended December 31, 1995, all Section 16(a) filing
requirements applicable to the Company's directors, executive officers and
greater than ten percent beneficial owners were satisfied.
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors recommends that the shareholders ratify the
appointment of Ernst & Young LLP as independent auditors for the Company for
the fiscal year ending December 31, 1996. Ernst & Young LLP has served as
independent auditors for the Company since 1979. Ernst & Young LLP provided
services in connection with the audit of the financial statements of the
Company for the fiscal year ended December 31, 1995, including the Company's
annual report on Form 10-KSB filed with the Securities and Exchange
Commission, and matters relating to accounting and financial reporting
generally.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting and will be given an opportunity to make a statement if they
so desire and to respond to appropriate questions. If the appointment of
Ernst & Young LLP is not ratified by the shareholders, the Board of Directors
is not obligated to appoint other auditors, but the Board of Directors will
give consideration to such unfavorable vote.
The Board of Directors recommends that you vote FOR ratification of the
appointment of Ernst & Young LLP as the Company's independent auditors.
SHAREHOLDER PROPOSALS
Any proposal by a shareholder which may properly be presented at the
next Annual Meeting of the Company's shareholders must be received at the
Company's principal executive offices, 350 Oak Grove Parkway, St. Paul,
Minnesota 55127, not later than December 1, 1996.
-15-
<PAGE>
OTHER BUSINESS
Management is not aware of any matters to be presented for action at the
Annual Meeting, except matters discussed in this Proxy Statement. If any
other matters properly come before the Annual Meeting, it is intended that
the shares represented by proxy will be voted in accordance with the judgment
of the persons named in the accompanying form of proxy.
By Order of the Board of Directors,
/s/ Wayne G. Faris
Wayne G. Faris,
Secretary
April 11, 1996
FORM 10-KSB
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB (EXCLUDING
EXHIBITS) FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE
FURNISHED, FREE OF CHARGE, TO SHAREHOLDERS OF RECORD ON APRIL 5, 1996 UPON
WRITTEN REQUEST TO:
Vice President -- Finance
Medical Graphics Corporation
350 Oak Grove Parkway
St. Paul, Minnesota 55127
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
-16-
<PAGE>
MEDICAL GRAPHICS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
MAY 23, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby constitutes and appoints
Catherine A. Anderson, Gerald T. Knight and Eric W. Sivertson, and each of them,
with full power of substitution, as proxies to vote all shares of capital stock
of Medical Graphics Corporation held by the undersigned at the Annual Meeting of
Shareholders of the company to be held on May 23, 1996, and at any adjournments
thereof, as designated below on the matters referred to and in their discretion
upon such other business as may properly come before the Annual Meeting.
(1) The proposal to increase the number of shares reserved under the
Company's 1987 Stock Option Plan by 100,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
(2) The proposal to extend the duration of the Company's 1987 Stock Option
Plan to five years from the date it is approved by the shareholders of
the Company.
/ / FOR / / AGAINST / / ABSTAIN
(3) The proposal to amend the 1987 Stock Option Plan to provide option
limitations pursuant to Section 162(m) of the Internal Revenue Code of
1986.
/ / FOR / / AGAINST / / ABSTAIN
(4) ELECTION OF DIRECTORS:
/ / FOR ALL nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary to vote for ALL nominees
below) listed below
Anthony J. Adducci, Gerald T. Knight and W. Edward McConaghay.
(INSTRUCTION: To WITHHOLD authority to vote for any individual nominee, write
that nominee's name on the space provided below)
- --------------------------------------------------------------------------------
<PAGE>
(5) The proposal to ratify the appointment of Ernst & Young LLP as
independent auditors of the company for the fiscal year ending December
31, 1996.
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY WILL BE VOTED AS SPECIFIED HEREIN. IF NO INSTRUCTIONS ARE
INDICATED, PROXIES WILL BE VOTED FOR THE ELECTION OF NOMINEES NAMED HEREIN AND
FOR THE OTHER PROPOSALS. Please sign exactly as your name appears below. When
shares are held by joint tenants, both must sign. Fiduciaries should indicate
title and authority.
Date: ______________________ , 1996
___________________________________
(Signature)
___________________________________
(Signature, if held jointly)
___________________________________
(Title or Authority)
PLEASE SIGN, DATE AND RETURN THIS
PROXY PROMPTLY IN THE ENVELOPE
PROVIDED.
