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As filed with the Securities and Exchange Commission on December 8, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MEDICAL GRAPHICS CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1316712
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
350 Oak Grove Parkway
Saint Paul, Minnesota 55127
(612) 484-4874
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
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Glenn D. Taylor
President, Chief Executive Officer
Medical Graphics Corporation
350 Oak Grove Parkway
Saint Paul, Minnesota 55127
(612) 484-4874
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
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COPIES TO:
Thomas G. Lovett IV, Esq.
Kristin L. Johnson, Esq.
Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Telephone: (612) 371-3211
Approximate date of commencement of proposed sale to public: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: /X/
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earliest effective
registration statement for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
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Proposed Proposed
Maximum Maximum
Amount to be Offering Aggregate Amount of
Title of Each Class of Registered Price Offering Registration
Securities to be Registered Per Unit Price Fee
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<S> <C> <C> <C> <C>
Common Stock, $.05 par value . . . . 727,272(1) $4.1875(2) $3,045,452(2) $923
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(1) Includes 363,636 shares subject to a right to purchase by the Selling
Shareholders
(2) Estimated solely for the purpose of determining the registration fee
and based on the closing price of the Company's Common Stock on the
Nasdaq SmallCap Market on December 3, 1997 pursuant to Rule 457(c).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 8, 1997
PROSPECTUS
MEDICAL GRAPHICS CORPORATION
727,272 SHARES OF
COMMON STOCK
This Prospectus relates to the sale of up to 727,272 shares (the
"Shares") of Common Stock of Medical Graphics Corporation (the "Company")
which may be offered from time to time by the shareholders named herein (the
"Selling Shareholders"). The Company will not receive any proceeds from the
sale of the Shares by the Selling Shareholders. See "Use of Proceeds."
The Company will bear all expenses of the offering hereunder,
including the underwriting discounts and commissions incurred in connection
with the sale of the Shares by the Selling Shareholders. The Company's
Common Stock is traded on the Nasdaq SmallCap Market under the symbol "MGCC."
The last reported sale price of the Company's Common Stock on December 3,
1997 was $4.1875 per share, as reported by Nasdaq.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
The Selling Shareholders have advised the Company that they intend
to sell the Shares from time to time in transactions on the Nasdaq SmallCap
Market at prices prevailing at the time of the sale or otherwise as set forth
below. The Selling Shareholders have also advised the Company that, as of
the date hereof, they have made no arrangement with any brokerage firm for
the sale of the Shares. See "Plan of Distribution."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS_____________, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy and
information statements and other information can be inspected and copied at
the public facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C., and the Commission's regional offices located at
7 World Trade Center, 14th Floor, New York, New York 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. Electronic filings made through the Electronic Data Gathering
Analysis and Retrieval System are also publicly available through the
Securities and Exchange Commission's Web Site (http://www.sec.gov).
The Company has filed with the Commission a registration statement
under the Securities Act of 1933 with respect to the shares offered hereby.
This Prospectus does not contain all information set forth in such
registration statement. For further information with respect to the Company
and the shares offered hereby, reference is made to such registration
statement, including the exhibits and financial schedules filed as part
thereof. Such information may be inspected at the Chicago regional office of
the Commission at Northwestern Atrium Center, 500 West Madison, Suite 1400,
Chicago, Illinois 60661 and at the public reference facilities at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies thereof may be obtained from the
Commission at prescribed prices.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with
the Commission, are incorporated by reference in this Prospectus: (i) the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1996, as amended by Amendment No. 1 on Form 10-KSB/A dated May 15, 1997; (ii)
the Company's Proxy Statement dated May 2, 1997 for the 1997 Annual Meeting
of Shareholders on May 22, 1997; and (iii) the Company's Quarterly Reports on
Form 10-QSB for the quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997. All documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15 of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of securities contemplated
hereby shall also be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded hereby to the extent that
a statement contained herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request
of such person, a copy of any or all of the documents which are incorporated
by reference into this Prospectus, other than exhibits to such documents
(unless such exhibits are specifically incorporated by reference in such
documents.) Requests for such copies should be directed to Tana DeBoer,
Medical Graphics Corporation, 350 Oak Grove Parkway, Saint Paul, Minnesota
55127, telephone number (612) 766-3315.
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<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS AND IN DOCUMENTS INCORPORATED HEREIN BY REFERENCE.
THE COMPANY
Medical Graphics Corporation (the "Company") designs and produces
innovative non-invasive diagnostic systems for the prevention, early
detection, and cost-effective treatment of heart and lung disease. Medical
Graphics Corporation has grown from providing computerized lung function test
graphics to providing a wide-ranging line of diagnostic systems featuring
patented hardware and software sold under the MedGraphics trade name. The
Company's products consist of breath analysis technology integrated with
computer and applications-specific software. More than 4,000 MedGraphics
systems have been sold to customers for use in over 50 countries. The
Company's primary products include pulmonary function, body plethysmography,
cardiopulmonary exercise testing systems, and sleep disorder diagnostic
systems. Most of the Company's revenues are generated from sales into the
hospital cardiopulmonary market and the office-based physician market.
The Company was incorporated in 1977 under the laws of the State of
Minnesota. Its principal executive offices are located at 350 Oak Grove
Parkway, Saint Paul, Minnesota 55127 and its telephone number is (612)
484-4874.
THE OFFERING
The Shares being offered by the Selling Shareholders consist of
727,272 shares of Common Stock. Of the Shares offered hereunder, 363,636
shares were issued by the Company on November 12, 1997 pursuant to a Stock
Purchase Agreement dated November 10, 1997 between the Company and the
Selling Shareholders (the "Agreement") and, the remaining 363,636 shares are
subject to a right to purchase by the Selling Shareholders, under certain
conditions, until February 23, 1998.
Common Stock offered by Selling Shareholders(1) . . . . . . . . 727,272
Common Stock outstanding after offering (1)(2). . . . . . . . . 3,332,747
Nasdaq SmallCap Symbol. . . . . . . . . . . . . . . . . . . . . MGCC
(1) Includes 363,636 shares that may be purchased pursuant to a Stock Purchase
Agreement dated November 10, 1997.
(2) Excludes 444,445 shares of Common Stock issuable upon the conversion of the
Company's Class A Stock and excludes shares of Common Stock issuable upon
exercise of outstanding warrants and stock options.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Common Stock. See "Use of Proceeds."
RISK FACTORS
This offering involves substantial investment risk and the Shares
should be purchased only by persons who can afford the loss of their entire
investment. See "Risk Factors."
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THE FOLLOWING UNITED STATES REGISTERED TRADEMARKS APPEAR IN THIS
PROSPECTUS AND ARE OWNED BY THE COMPANY: MEDGRAPHICS AND CPX EXPRESS.
IN ADDITION, THE FOLLOWING COMPANY TRADEMARKS APPEAR IN THIS
PROSPECTUS: PF/Dx, preVent, BREEZE, 1085 Series, CardiO(2), CPX/D AND
CPX/MAX/D. Cardio-KEY IS A TRADEMARK OF ErgometRx CORPORATION. Pentium IS A
TRADEMARK OF INTEL CORPORATION. Windows IS A TRADEMARK OF MICROSOFT
CORPORATION.
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RISK FACTORS
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING MATTERS IN CONNECTION
WITH AN INVESTMENT IN THE SHARES IN ADDITION TO THE OTHER INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS. INFORMATION
CONTAINED IN OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS CONTAINS
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, WHICH CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE,"
"ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON
OR COMPARABLE TERMINOLOGY. THE FOLLOWING MATTERS CONSTITUTE CAUTIONARY
STATEMENTS IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO SUCH FORWARD-LOOKING
STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING
STATEMENTS.
RECENT OPERATING LOSSES; LIQUIDITY
In 1995, 1996 and the nine months ended September 30, 1997, the Company
experienced net losses of $1,731,000, $9,071,000 and $4,378,000,
respectively. The financial restructuring plan, implemented in the first
quarter of 1997, has not returned the Company to a profitable level and there
can be no assurance that the Company can achieve profitability. In November
1997, the Company obtained $1,500,000 from the sale of Common Stock and,
under the stock purchase agreement, may require the investors thereunder to
purchase an additional $1,500,000 of Common Stock. See "Recent Developments
- - November 1997 Financing." While management believes that its cash and cash
equivalents, borrowing available under its line of credit and the proceeds
available from the sale of additional shares of its Common Stock will be
sufficient to fund the Company's operations through December 1998, there can
be no assurance that the Company's operations will perform as anticipated by
management.
DEPENDENCE UPON DISTRIBUTORS TO MARKET AND SELL PRODUCTS OUTSIDE THE UNITED
STATES
The Company markets its products outside the United States into over 50
countries through approximately 37 international sales organizations that
operate primarily as distributors who carry a limited inventory of the
Company's products. These organizations sell the Company's products in
specific geographic areas, generally on an exclusive basis. Conducting
business in foreign countries involves certain risks not ordinarily
associated with domestic business including governmental laws or restrictions
that could adversely affect pricing of, and the Company's ability to, market
its products.
ACCEPTANCE BY MEDICAL COMMUNITY
Early detection and prevention of heart and lung diseases is becoming
more commonplace as health care reform and cost containment efforts increase.
Physicians and health plan administrators are becoming more motivated to use
non-invasive diagnostic testing to detect early signs of disease and reverse
the disease process by therapeutic treatments, rather than relying on
invasive and expensive procedures to treat disease after it has already
progressed. Thus, the demand for therapeutic and diagnostic products, such
as the Company's, is being affected by trends in the medical profession and
its approach to the treatment of illness, as well as third party payment and
reimbursement policies.
PRODUCT SOFTWARE CONVERSION
In 1996, the Company experienced a significant increase in research and
development expenses due primarily to increased expenditures, including the
use of independent contractors, to convert its equipment product software
systems to a Windows environment. The Company expects, but can give no
assurances that, it will be able to begin shipping products with
Windows-based software late in the fourth quarter of 1997. The Company
believes that the software conversion will be integral to its ability to
remain competitive and successful.
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COMPETITION
The principal competitive factors in the diagnostic and therapeutic
markets are quality of system performance, software which is technologically
advanced and easy-to-use, and customer service. These markets are
characterized by intense competition. Some companies with which the Company
competes have greater financial, human and technological resources than
Medical Graphics Corporation. This competitive marketplace has in some
circumstances led to price discounting to which the Company has responded in
kind, and may do so again in the future.
The medical device industry in which the Company operates is
characterized by relatively rapid technological change. Accordingly, the
Company must continually implement improvements in its core technologies and
products. The Company's success depends on its ability to anticipate changes
in technology and industry standards, to develop and successfully introduce
new and enhanced products on a timely basis and to promote market acceptance
of such products. The Company believes its principal competitors are
SensorMedics Corporation, a subsidiary of ThermoElectron Corporation
("SensorMedics"), and Erich Jaeger GmbH & Co. KG. The Company believes that
its principal competitors in the sleep market will be SensorMedics,
Healthdyne Technologies, Inc. and Nellcor Puritan Bennett.
DEPENDENCE ON KEY EMPLOYEES
The Company is highly dependent upon the services of its present
officers, and the loss of any of them could have a material adverse effect on
the Company. None of the Company's officers are bound by employment
agreements with the Company. The success of the Company will also depend on
its ability to attract and retain capable sales and marketing personnel.
INTENSE COMPETITION; RAPID TECHNOLOGICAL AND MARKET CHANGES
The medical device industry is characterized by rapidly evolving
technology and increased competition. Competitors of the Company include
large medical companies, some of which have greater financial and technical
resources and broader product lines than the Company. The Company believes
that the principal competitive factors in its markets are product features,
price, quality, customer service, performance, market reputation, breadth of
product offerings and effectiveness of sales and marketing efforts. There are
a number of companies that currently offer, or are in the process of
developing, products that compete with products offered by the Company. Some
of these competitors may have greater capital resources, research and
development staffs and experience in the medical device industry, including
experience with respect to regulatory compliance in the development,
manufacturing and sale of medical products similar to those offered by the
Company. There can be no assurance that some of these competitors will not
succeed in developing technologies and products that are more effective than
those currently used or produced by the Company or that would render some
products offered by the Company obsolete or non-competitive. Competition
based on price is expected to become an increasingly important factor in
customer purchasing patterns as a result of cost containment pressures on,
and consolidation in, the health care industry. Such competition has exerted,
and is likely to continue to exert, downward pressure on the prices the
Company is able to charge for its products. There can be no assurance that
the Company will be able to offset such downward price pressure through
corresponding cost reductions. Any failure to offset such pressure could have
an adverse effect on the business, results of operations or financial
condition of the Company.
DEPENDENCE ON NEW PRODUCT DEVELOPMENT
As existing products of the Company become more mature and their
existing markets more saturated, the importance to the Company of developing
or acquiring new products will increase. The development of any such products
will entail considerable time and expense, including research and development
costs or acquisition costs and the time and expense required to obtain
necessary regulatory approvals which could
5
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adversely affect the business, results of operations or financial condition
of the Company. There can be no assurance that such development activities
will yield products that can be commercialized profitably or that any product
acquisitions can be consummated on commercially reasonable terms or at all.
Any failure to acquire or develop new products to supplement more mature
products could have an adverse effect on the business, results of operations
or financial condition of the Company.
DEPENDENCE UPON ORIGINAL EQUIPMENT MANUFACTURING RELATIONSHIP
In April 1997 the Company entered into an original equipment
manufacturing agreement with CompuMedics Sleep PTY, LTD (CompuMedics), an
Australian corporation which specializes in the development, design,
manufacture and sale of computer-based medical equipment for monitoring and
diagnosing patients. Under the terms of the agreement, Medical Graphics has
non-exclusive U.S. rights to relabel and distribute CompuMedics' current and
future sleep diagnostic products.
The Company is dependent upon CompuMedics to deliver its inventory of
sleep systems as its sole source. In addition, entry into a new market is
requiring the Company to incur some expense, including marketing promotions,
acquisition of inventory items, employee training, and time invested by key
employees. Although, the Company expects to generate new revenues with this
product line in excess of its investment, if the Company fails in its attempt
to enter the sleep market, the adverse affects would be failure to recoup a
capital investment or a return on its investment and a possible short-term
negative impact on the Company's reputation in the marketplace.
FAILURE TO MEET 1998 NASDAQ SMALLCAP MARKET REQUIREMENTS
In August 1997, the Company's Common Stock began trading on the Nasdaq
SmallCap market. On August 25, 1997, the Securities and Exchange Commission
approved new Nasdaq rules that require issuers of SmallCap securities to
either (i) maintain net tangible assets (assets, excluding goodwill, less
liabilities) of at least $2.0 million, (ii) achieve net income of at least
$500,000 in the most recent fiscal year or in two of the three most recently
completed fiscal years or (iii) have a market capitalization of $35 million.
This new requirement becomes applicable to Nasdaq SmallCap issuers,
including the Company, on February 25, 1998. The Company currently does not
meet any of these three criteria. At September 30, 1997, the Company's net
tangible assets were $308,000. As a result of the Company's November 1997
private equity placement, the Company's net tangible assets as of September
30, 1997, on a pro forma basis, were $1,778,000. See "Recent Developments -
November 1997 Financing."
Although the Company believes that it will be in compliance with the
$2.0 million net tangible assets requirements by February 25, 1998, either
through income from operations or by raising additional equity, there can be
no assurance that the Company will be able be to attain the required net
tangible assets or meet either of the other requirements for continuing
inclusion in the Nasdaq SmallCap Market. If the Company is unable to
achieve the minimum requirement for continued inclusion of the Nasdaq
SmallCap Market, then its security would trade on the Nasdaq "Bulletin Board"
or in the over-the-counter market. This could have an adverse effect on the
liquidity of the Company's Common Stock.
ABSENCE OF DIVIDENDS
The Company has never paid, and does not plan to pay, any dividends on
its Common Stock in the foreseeable future.
6
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RECENT DEVELOPMENTS
GENERAL OVERVIEW
Medical Graphics Corporation designs and produces innovative,
non-invasive diagnostic systems for the prevention, early detection and
cost-effective treatment of heart and lung disease. Medical Graphics
Corporation has grown from providing computerized lung function test graphics
to providing a wide-ranging line of diagnostic systems featuring patented
hardware and software sold under the MedGraphics trade name.
The Company sells products in three separate areas: (i) pulmonary
function analysis systems; (ii) gas exchange testing systems; and (iii) sleep
diagnostic systems.
PULMONARY FUNCTION TESTING SYSTEM.
The Company's pulmonary function analysis systems measure lung function
and lung capacity in diagnosing both restrictive and obstructive lung
diseases. The Company's principal pulmonary function testing systems are its
pulmonary function testing labs and its body plethysmography systems.
The PF/Dx System is a complete pulmonary function testing lab which
helps health care professionals diagnose lung diseases and manage treatment
of their patients. The PF/Dx System currently consists of a nitrogen
analyzer, a gas chromatograph, an IBM-compatible computer with Pentium
processor, a full-color monitor, a printer and other peripherals.
Applications include screening asthma patients, assessing pre-operative and
post-operative risk of heart and lung surgery patients, evaluating lung
damage from occupational exposures and documenting outcomes and responses to
therapy. The PF/Dx System's compact design and mobility options attract a
wide variety of customers, including cardiopulmonary laboratories in
hospitals, office-based clinics, occupational medicine clinics, asthma
centers and clinical research centers. The PF/Dx System utilizes the preVent
Pneumotach, a mouthpiece/flow device with a snap-in, snap-out design which
helps prevent the transmission of infectious diseases. The preVent
Pneumotach is attached by tubing to the PF/Dx System for the measurement of
patients' lung function. The PF/Dx System's unique features also include the
Company's proprietary BREEZE software, which is designed to operate in a
simple, easy-to-use manner.
The Company's 1085 Series offers four body plethysmography systems for
lung function testing. A body plethysmograph is an enclosed chamber in which
the patient sits and performs diagnostic pulmonary function testing. Body
plethysmography is the most sensitive method for identifying lung diseases,
including difficult-to-detect diseases such as asthma. The systems are
comprised of a hexagon-shaped acrylic chamber, a nitrogen analyzer, a
diffusion analyzer, an IBM-compatible computer with Pentium processor, a
full-color monitor, a printer and other peripherals. Applications include
diagnosing lung diseases and managing their treatment, assessing surgical
risk of lung transplant and lung reduction surgery candidates and evaluating
the impact of neuromuscular disease on breathing. Included in the 1085 Series
systems is the preVent pneumotach for helping to prevent the transmission of
infectious diseases between patient tests. The system's design optimizes
patient comfort with clear-view acrylic enclosures and enables testing of a
broad population including pediatric patients and individuals using
wheelchairs.
GAS EXCHANGE TESTING SYSTEMS
The Company's gas exchange testing systems measure exercise capacity and
diagnose heart and lung disease. The Company's principal gas exchange
testing systems are its cardiopulmonary exercise testing systems and its
cycle ergometers.
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The Company's cardiopulmonary exercise systems both measure a patient's
fitness or conditioning level and help physicians diagnose heart and lung
diseases by measuring the gas exchange of the patient's lungs in conjunction
with the electrical activity of the patient's heart. These systems help
detect and quantify the degree of impairment in the heart or lungs or in the
level of conditioning by measuring the amount of oxygen consumed during
exercise.
MedGraphics cardiopulmonary exercise testing systems are sold in four
different models. They include the CardiO2 System, CPX/D System, CPX/MAX/D
System and CPXEXPRESS System. The systems consist of an oxygen analyzer, a
carbon dioxide analyzer, the preVent Pneumotach, an IBM-compatible computer
with Pentium processor, a full-color monitor, a printer and other
peripherals. The CardiO2 includes a full 12-lead ECG system while the other
systems are designed to be used in conjunction with stand-alone ECG systems.
The systems are used for differential diagnosis of cardiovascular and
pulmonary disease, screening for early signs of cardiac and pulmonary
dysfunction, establishing exercise prescriptions and training programs, and
evaluating the efficacy of prescribed therapy. Test results are displayed in
easy-to-interpret graphs and summary reports. Customers include hospital
cardiopulmonary laboratories, cardiology and pulmonary office-based clinics,
cardiac rehabilitation units, human performance laboratories and health clubs.
CYCLE ERGOMETERS
A cycle ergometer is a specially designed stationary exercise bicycle
which can operate at a broad spectrum of resistance levels. The Company
offers several models of cycle ergometers providing physicians and patients a
tool for more successful outcomes in clinical rehabilitation and athletic
training. The Company has four models of cycle ergometers that are used in
diagnostic, rehabilitation, training and sports medicine applications. Three
of the four models in the CardiO2 Cycle Series incorporate patented
CardiO-KEY technology, a "data key" capable of storing exercise protocols and
recording exercise session data. The data key is used to individualize
exercise sessions and monitor conditioning progress.
SLEEP DISORDER DIAGNOSTIC SYSTEM
In April 1997, The Company entered into an original equipment
manufacturing agreement with Compumedics Sleep PTY. LTD ("CompuMedics"), an
Australian Corporation engaged in the business of designing marketing and
distributing diagnostic sleep systems. Under the terms of the Agreement,
the Company received the non-exclusive right to distribute Compumedics'
products in the United States.
Medical Graphics' initial entry into the sleep market will be with the
PSQuest-TM- System consisting of a workstation/scoring computer and software,
a preamplifier module, patient interface box and cables, and a color printer.
The system's software operates under Windows NT to allow for local area
networking and monitoring of multiple patients on one screen.
The sleep market is growing in excess of 35 percent each year, and is a
logical extension of the MedGraphics product line since sleep disorders are
frequently related to cardiorespiratory problems.
NOVEMBER 1997 FINANCING
On November 10, 1997, the Company entered into a Stock Purchase
Agreement (the "Agreement") by and among the Company and FAMCO II LLC,
Special Situations Fund III, L.P., Special Situations Private Equity Fund
L.P. and Special Situations Cayman Fund L.P. (the "Investors"). Under the
terms of the Agreement, on November 12, 1997, the Investors purchased
121,212, 90,909, 121,212 and 30,303 shares, respectively, of the Company's
Common Stock at a per share purchase price of $4.125. In addition, under the
terms of the Agreement and subject to certain conditions, (i) the Company may
require the Investors to purchase an additional 121,212, 90,909, 121,212, and
30,303 shares, respectively on or prior to February 23,
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1998, or (ii) the Investors may at their options purchase such additional
shares on or prior to such date at a purchase price of $4.125 per share. If
neither the Company nor the Investors exercise their respective options, such
options expire without further effect.
USE OF PROCEEDS
The Company will not receive any proceeds from sales of the Shares by
the Selling Shareholders.
SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock by the Selling
Shareholders as of December 1, 1997.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES MAXIMUM NUMBER OF SHARES TO BE BENEFICIALLY
---- BENEFICIALLY OWNED SHARES TO BE SOLD (1) OWNED AFTER THE OFFERING(1)
PRIOR TO OFFERING --------------------- ---------------------------
------------------
NUMBER PERCENT NUMBER PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
FAMCO II LLC (2) 686,869(3) 19.4 242,424 444,445 12.6
600 South Highway 169, Suite 850
St. Louis Park, MN 55426
Special Situations Fund III, L.P. (4) 537,618(5) 17.6 181,818 355,800 11.6
153 East 53rd Street, 51st Floor
New York, NY 10022
Special Situations Private Equity 242,424(6) 7.8 242,424 -0- *
Fund L.P.(4)
153 East 53rd Street, 51st Floor
New York, NY 10022
Special Situations Cayman Fund L.P.(4) 195,306(7) 6.5 60,606 134,700 4.5
153 East 53rd Street, 51st Floor
New York, NY 10022
</TABLE>
(1) Assumes the sale of all Shares offered hereunder.
(2) FAMCO is managed by Family Financial Strategies, Inc., of which John
Wunsch, a Director of the Company, is the Chief Executive Officer.
As a result of this affiliation, Mr. Wunsch may be deemed to
beneficially own all shares owned by FAMCO and may be deemed to hold
shared voting and investment power with respect to such shares owned
by FAMCO.
(3) Includes 121,212 shares of Common Stock purchasable pursuant to a right
to purchase under the Agreement and 444,445 shares of Common Stock issuable
upon conversion of Class A Stock purchased in a private placement on
March 31, 1997 and April 15, 1997.
(4) Austin W. Marxe is the principal owner and President of AWM Investment
Company, Inc. ("AWM"). AWM is the sole general partner of MGP Advisers
L.P. ("MGP"), a registered investment adviser. MGP is a general partner
of and investment adviser to Special Situations Fund III, L.P. AWM is
also a registered investment adviser and general partner of Special
Situations Cayman Fund L.P. This disclosure is based on Schedule 13G/A's,
dated as of November 24, 1997, filed with the Securities and Exchange
Commission.
(5) Includes 90,909 shares of Common Stock purchasable pursuant to a right
to purchase granted under the Agreement.
(6) Includes 121,212 shares of Common Stock purchasable pursuant to a
right to purchase granted under the Agreement.
(7) Includes 30,303 shares of Common Stock purchasable pursuant to a right to
purchase granted under the Agreement.
* Indicates less than one percent.
PLAN OF DISTRIBUTION
The Company has been advised that the Selling Shareholders may sell
Shares from time to time in one or more transactions (which may include block
transactions) on the Nasdaq SmallCap Market at market prices prevailing at
the time of the sale or at prices otherwise negotiated.
9
<PAGE>
The Shares may, without limitation, be sold by one or more of the
following: (i) a block trade in which the broker or dealer so engaged will
attempt to sell the securities as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (ii) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; and (iii) ordinary brokerage
transactions and transactions in which the broker solicits purchasers.
The Company has been advised that, as of the date hereof, the Selling
Shareholders have made no arrangement with any broker for the sale of the
Shares. Underwriters, brokers or dealers may participate in such
transactions as agents and may, in such capacity, receive brokerage
commissions from the Selling Shareholders or purchasers of such securities.
Such underwriters, brokers or dealers may also purchase Shares and resell
such Shares for their own account in the manner described above. The Selling
Shareholders and such underwriters, brokers or dealers may be considered
"underwriters" as that term is defined by the Securities Act of 1933,
although the Selling Shareholders disclaim such status. Any commissions,
discounts or profits received by such underwriters, brokers or dealers in
connection with the foregoing transactions may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933.
DESCRIPTION OF SECURITIES
COMMON STOCK. The Company has one class of Capital Stock registered
pursuant to Section 12 of the Securities Exchange Act of 1934 (the "Exchange
Act"), Common Stock, $.05 par value. The Company is authorized to issue up
to 9,500,000 shares of Common Stock. No share of Common Stock is entitled to
preference over any other share, and each share is equal to any other share
in all respects. Holders are entitled to one vote for each share held of
record at each meeting of shareholders. In any distribution of capital
assets, whether voluntary or involuntary, holders are entitled to receive pro
rata the assets remaining after creditors have been paid in full. Holders of
Common Stock have no preemptive rights. The outstanding shares are, and the
Common Stock offered hereby upon payment therefore will be, fully paid and
nonassessable.
CUMULATIVE VOTING. There is no cumulative voting for the election of
directors. Accordingly, the owners of a majority of shares of Common Stock
outstanding may elect all of the directors, if they choose to do so, and the
owners of the balance of such shares will not be able to elect any directors.
DIVIDEND POLICY. The Company has adopted the policy of retaining all of
its earnings to finance the growth of its business and, accordingly, does not
anticipate payment of any dividends in the foreseeable future.
CLASS A STOCK. The Class A Stock has a liquidation preference of $3.375
per share. Each Class A share is currently convertible into one share of
Common Stock and has voting rights equal to the Common Stock into which it is
convertible. The Company has a total of 444,445 shares of Class A Stock
outstanding of 500,000 shares authorized for issuance.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Lindquist & Vennum P.L.L.P., Minneapolis,
Minnesota.
EXPERTS
The financial statements incorporated in this prospectus by reference
from the Company's 1996 Annual Report on Form 10-KSB have been audited by
Deloitte & Touche LLP, independent auditors, as of and for the year ended
December 31, 1996, and Ernst & Young LLP, independent auditors, as of and for
the year ended December 31, 1995, as stated in their reports, which are
incorporated herein by reference, and have
10
<PAGE>
been so incorporated in reliance upon the reports of such firms given upon
their authority as experts in accounting and auditing.
INDEMNIFICATION
The Company's Articles of Incorporation eliminate or limit certain
liabilities of its directors and the Company's Bylaws provide for
indemnification of directors, officers and employees of the Company in
certain instances. Insofar as exculpation of, or indemnification for,
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers or persons controlling the Company pursuant to the
foregoing provisions, the Company has been informed that in the opinion of
the Securities and Exchange Commission such exculpation or indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
11
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS
Exhibit No. Description
- ----------- -----------
5.1 Opinion and Consent of Lindquist & Vennum P.L.L.P., counsel to the
Company
23.1 Consent of Lindquist & Vennum P.L.L.P. (see Exhibit 5.1 above)
23.2 Consent of Deloitte & Touche LLP, independent auditors
23.3 Consent of Ernst & Young LLP, independent auditors
24.1 Power of Attorney
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Form S-3 registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Saint Paul, State
of Minnesota, on the 4th day of December, 1997.
MEDICAL GRAPHICS CORPORATION
By \s\ Glenn D. Taylor
-------------------------------------------
Glenn D. Taylor, President and
Chief Executive Officer
POWER OF ATTORNEY
The undersigned officers and directors of Medical Graphics Corporation
hereby constitute and appoint Glenn D. Taylor and Mark W. Sheffert, or either
of them, with power to act one without the other, our true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for us and in our stead, in any and all capacities to sign
any and all amendments (including post-effective amendments) to this
Registration Statement and all documents relating thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing necessary or advisable to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his or her substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities indicated on December 4, 1997.
Signature
- ---------
\s\ Glenn D. Taylor
- ------------------------------------
Glenn D. Taylor, President,
Chief Executive Officer
(Principal Executive Officer) and Director
\s\ Dale H. Johnson
- ------------------------------------
Dale H. Johnson, Chief Financial
Officer (Principal Financial
Officer)
\s\ Mark W. Sheffert
- ------------------------------------
Mark W. Sheffert, Chairman
\s\ Anthony J. Adducci
- ------------------------------------
Anthony J. Adducci, Director
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<PAGE>
\s\ Gerald T. Knight
- ------------------------------------
Gerald T. Knight, Director
\s\ W. Edward McConaghay
- ------------------------------------
W. Edward McConaghay, Director
\s\ Donald C. Wegmiller
- ------------------------------------
Donald C. Wegmiller, Director
\s\ John C. Penn
- ------------------------------------
John C. Penn, Director
\s\ John D. Wunsch
- ------------------------------------
John D. Wunsch, Director
II-3
<PAGE>
EXHIBIT 5.1
December 4, 1997
Medical Graphics Corporation
350 Oak Grove Parkway
Saint Paul, Minnesota 55127
Re: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-3 to be filed by
Medical Graphics Corporation (the "Company") with the Securities and Exchange
Commission on December 8, 1997 relating to an offering of up to 727,272 shares
of Common Stock, par value $.05 per share, to be offered by the Selling
Shareholders, please be advised that as counsel to the Company, upon examination
of such corporate documents and records as we have deemed necessary or advisable
for the purposes of this opinion, it is our opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Minnesota.
2. The shares of Common Stock being offered by the Selling Shareholder
have been validly issued and are fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus comprising a part of the Registration
Statement.
Very truly yours,
LINDQUIST & VENNUM P.L.L.P.
/s/ Lindquist & Vennum P.L.L.P.
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<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Medical Graphics Corporation on Form S-3 relating to the sale of 727,272 shares
of common stock of our report dated April 4, 1997 (April 15, 1997 as to the
third paragraph of Note 11) on the 1996 financial statements, appearing in the
Annual Report on Form 10-KSB of Medical Graphics Corporation for the year ended
December 31, 1996 and to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
December 2, 1997 /s/ Deloitte & Touche LLP
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<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Medical Graphics
Corporation for the registration of 727,272 shares of its common stock and to
the incorporation by reference therein of our report dated February 16, 1996
with respect to the consolidated financial statements of Medical Graphics
Corporation included in its Annual Report (Form 10-KSB) for the year ended
December 31, 1996 filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
December 2, 1997
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