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As filed with the Securities and Exchange Commission on July 30, 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.
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
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Proposed Proposed
Maximum Maximum
Amount to be Offering Aggregate Amount of
Title of Each Class of Registered Price Offering Price Registration
Securities to be Registered Per Unit Fee
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<S> <C> <C> <C> <C>
Common Stock, $.05 par value . . . . . . . . . . . . . . . . . . . . . 444,445(1) $3.875(2) $1,723,271(2) $522
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(1) Issuable upon conversion of outstanding convertible Class A Stock.
(2) Estimated solely for the purpose of determining the registration fee and
based on the closing bid and asked prices of the Company's Common Stock on
the Nasdaq National Market on July 23, 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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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED _______, 1997
PROSPECTUS
MEDICAL GRAPHICS CORPORATION
444,445 SHARES OF
COMMON STOCK
This Prospectus relates to the sale of up to 444,445 shares (the "Shares")
of Common Stock of Medical Graphics Corporation (the "Company") which may be
offered from time to time by the shareholder named herein (the "Selling
Shareholder"). All 444,445 of the Shares being offered may be obtained by the
Selling Shareholder by conversion of Class A Stock (the "Class A Stock") held by
the Selling Shareholder which has a conversion price of $3.375 per share. The
Company will not receive any proceeds upon the conversion of the Class A Stock
or from the sale of the Shares by the Selling Shareholder. 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 Shareholder. The Company's Common Stock is traded on
the Nasdaq National Market under the symbol "MGCC." The last reported sale
price of the Company's Common Stock on July 22, 1997 was $3.875 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 Shareholder has advised the Company that it intends to sell the
Shares from time to time in transactions on the Nasdaq National Market at prices
prevailing at the time of the sale or otherwise as set forth below. The Selling
Shareholder has also advised the Company that, as of the date hereof, it has
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 Report on Form
10-QSB for the quarter ended March 31, 1997. All documents filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15 of the 1934 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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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 444,445 Shares being offered by the Selling Shareholders consist of
444,445 Shares which may be purchased in whole or in part by the Selling
Shareholders pursuant to convertible Class A Stock which currently has a
conversion price of $3.375. The Class A Stock was issued by the Company on March
31, 1997 and April 15, 1997 in a private placement of 444,445 shares of the
Class A Stock.
Common Stock offered by Selling Shareholders . . . . . . . . . . . 444,445
Common Stock outstanding after offering (1). . . . . . . . . . . . 3,045,000
NASDAQ Symbol. . . . . . . . . . . . . . . . . . . . . . . . . . . MGCC
(1) Assumes the conversion of all shares of the Class A Stock. Excludes shares
of common stock issuable upon exercise of outstanding warrants and stock
options.
USE OF PROCEEDS
The Company will not receive any proceeds in connection with the conversion
of Class A Stock into Common Stock or 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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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 OR
INCORPORATED BY REFERENCE IN 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.
OPERATING LOSSES
In 1995, 1996 and the three months ended March 31, 1997, the Company
experienced net losses of $1,731,000, $9,071,000 and $2,327,000, respectively.
The Company anticipates that it will continue to experience losses through the
second quarter of 1997. There is no assurance that the Company will achieve
profitability at that or any other point in time.
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.
MEDICAL PROFESSION
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 in the third
quarter of 1997. The Company believes that the software conversion will be
integral to its ability to remain competitive and successful.
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
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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.
ABSENCE OF DIVIDENDS
The Company has never paid, and does not plan to pay, any dividends on its
Common Stock in the foreseeable future.
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.
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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 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
The Company entered into an original equipment manufacturing agreement in
April 1997 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, inventory
items, employee training, and time invested by key employees. However, the
Company expects to generate new revenues with this product 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 return
on its investment and a possible short-term negative impact on the Company's
reputation in the marketplace.
FAILURE TO MEET CURRENT NASDAQ NATIONAL MARKET REQUIREMENTS
Under the Rules of the Nasdaq National Market, an issuer that has
sustained losses in each of its past two years must maintain net tangible assets
(assets, excluding goodwill, less liabilities) of at least $2,000,000. At March
31, 1997, the Company had net tangible assets of $1,379,000 which is less than
the minimum net tangible asset requirement. In addition, for the quarter ended
June 30, 1997, the Company reported a loss of $864,000, and the Company's net
tangible assets as of June 30, 1997 were $1,481,000. In June 1997, the
Nasdaq advised the Company that it was not in compliance with the net
tangible assets requirement and indicated that it intended to delist the
Company from the Nasdaq National Market. The Company has requested an
exemption from the net tangible asset requirements and requested an oral
hearing with respect to this issue. If the Company does not receive an
exemption and does not otherwise raise additional capital in any amount
sufficient to achieve compliance with the Nasdaq net tangible assets
requirements, the Company's Common Stock could be delisted from the Nasdaq
National Market. In this event, the Company intends to apply for quotation
on the Nasdaq SmallCap Market, which may have an adverse effect on the
liquidity of the Company's securities.
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.
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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.
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 CardiO(2) 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
CardiO(2) includes a full 12-lead ECG system while the other systems are
designed to be used in conjunction with stand-alone ECG systems. The
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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 CardiO(2) 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
PSNQuest-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 20 percent each year, and is a
logical extension of the MedGraphics product line since sleep disorders are
frequently related to cardiorespiratory problems.
USE OF PROCEEDS
The Company will not receive any proceeds from the conversion of the Class
A Shares into shares of Common Stock or from sales of the Shares by the Selling
Shareholder.
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SELLING SHAREHOLDER
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock by the Selling Shareholder as
of June 1, 1997, and as adjusted to reflect the sale of Shares obtained by the
Selling Shareholder through the conversion of the Class A Stock.
<TABLE>
<CAPTION>
Name NUMBER OF SHARES MAXIMUM NUMBER OF SHARES TO BE BENEFICIALLY
---- BENEFICIALLY OWNED SHARES TO BE SOLD (1)(2) OWNED AFTER THE OFFERING(1)(2)
PRIOR TO OFFERING (1) ------------------ ------------------------
-----------------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
FAMCO II LLC (3) 444,445 14.6 444,445 -0- *
</TABLE>
(1) Includes Shares to be acquired by the Selling Shareholder upon conversion
of the Class A Stock.
(2) Assumes the sale of all Shares offered hereunder.
(3) 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.
PLAN OF DISTRIBUTION
The Company has been advised that the Selling Shareholder may sell Shares
from time to time in one or more transactions (which may include block
transactions) on the NASDAQ National Market at market prices prevailing at the
time of the sale or at prices otherwise negotiated.
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
Shareholder has 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
Shareholder 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 Shareholder and such underwriters,
brokers or dealers may be considered "underwriters" as that term is defined by
the Securities Act of 1933, although the Selling Shareholder disclaims 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
10,000,000 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
9
<PAGE>
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.
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 as of and for the year ended December 31, 1996, and
Ernst & Young LLP as of and for the year ended December 31, 1995, independent
auditors, as stated in their reports, which are incorporated herein by
reference, and have 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.
10
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC registration fee . . . . . . . . . . . . . . . . . . . . $ 522
Accounting fees and expenses . . . . . . . . . . . . . . . . 2,000
Legal fees and expenses . . . . . . . . . . . . . . . . . . . 15,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 500
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . 18,022
-------
-------
Except for the SEC fee, all of the foregoing expenses have been estimated.
ITEM 15: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 302A.521 of the Minnesota Statutes requires, among other things,
the indemnification of persons made or threatened to be made a party to a
proceeding by reason of acts or omissions performed in their official capacity
as an officer, director, employee or agent of the corporation against judgments,
penalties and fines (including attorneys' fees) if such person is not otherwise
indemnified, acted in good faith, received no improper benefit, reasonably
believed that such conduct was in the best interests of the corporation, and, in
the case of criminal proceedings, had no reason to believe the conduct was
unlawful. In addition, Section 302A.521, subd. 3, of the Minnesota Statutes
requires payment by the corporation, upon written request, of reasonable
expenses in advance of final disposition in certain instances if a decision as
to required indemnification is made by a disinterested majority of the Board of
Directors present at a meeting at which a disinterested quorum is present, or by
a designated committee of the Board, by special legal counsel, by the
Shareholders or by a court.
The Company's Articles of Incorporation and Bylaws provide for the
indemnification of its directors, officers, employees, and agents in accordance
with, and to the fullest extent permitted by, the provisions of the Minnesota
Business Corporation Act, as amended from time to time.
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 Powers of Attorney (included on signature page hereof)
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
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<PAGE>
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe it meets all of the
requirements for filing a Form S-3 and has duly caused this 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 22nd day of
July, 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 on
the date and in the capacities indicated.
Signature
- ---------
\s\ Glenn D. Taylor Dated: July 22, 1997
- --------------------------------------------
Glenn D. Taylor, President,
Chief Executive Officer
(Principal Executive Officer) and Director
\s\ Dale H. Johnson Dated: July 22, 1997
- --------------------------------------------
Dale H. Johnson, Chief Financial
Officer (Principal Financial
Officer)
\s\ Mark W. Sheffert Dated: July 22, 1997
- --------------------------------------------
Mark W. Sheffert, Chairman
\s\ Anthony J. Adducci Dated: July 22, 1997
- --------------------------------------------
Anthony J. Adducci, Director
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<PAGE>
\s\ Gerald T. Knight Dated: July 22, 1997
- --------------------------------------------
Gerald T. Knight, Director
\s\ W. Edward McConaghay Dated: July 22, 1997
- --------------------------------------------
W. Edward McConaghay, Director
\s\ Donald C. Wegmiller Dated: July 22, 1997
- --------------------------------------------
Donald C. Wegmiller, Director
\s\ John C. Penn Dated: July 22, 1997
- --------------------------------------------
John C. Penn, Director
\s\ John D. Wunsch Dated: July 22, 1997
- --------------------------------------------
John D. Wunsch, Director
II-4
<PAGE>
[LETTERHEAD]
THOMAS G. LOVETT, IV.
612/371-3270
[email protected]
EXHIBIT 5.1
July 25, 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 July 25, 1997 relating to an offering of 444,445 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 Shareholders
have been validly issued and are fully paid and nonassessable, or, if
such shares will be sold upon conversion of outstanding Class A Stock
of the Company, will be legally issued, fully paid and nonassessable
when issued and paid for as contemplated by the respective warrants.
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.
<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 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
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
July 28, 1997
<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 444,445 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
July 25, 1997
