<PAGE>
As filed with the Securities and Exchange Commission on December 8, 1997
Registration No. 333-32467
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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)
--------------------
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)
--------------------
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
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>
SUBJECT TO COMPLETION, DATED DECEMBER 8, 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 . 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 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 Shareholder has advised the Company that it intends 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 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>
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>
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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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 Shareholder consist of 444,445
Shares that may be purchased in whole or in part by the Selling Shareholder
pursuant to convertible Class A Stock which is currently convertible at a
ratio of one share of Common Stock per one share of Class A Stock. 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 Shareholder (1).................... 444,445
Common Stock outstanding after offering (1)......................... 3,413,556
Nasdaq SmallCap Symbol.............................................. MGCC
(1) Assumes the conversion of all 444,445 shares of the Class A Stock into
Common Stock. Excludes shares of common stock issuable upon exercise of
outstanding warrants and stock options and up to 363,636 shares that may be
purchased pursuant to a Stock Purchase Agreement dated November 10, 1997.
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."
------------------------------------------
THE FOLLOWING UNITED STATES REGISTERED TRADEMARKS APPEAR IN THIS
PROSPECTUS AND ARE OWNED BY THE COMPANY: MEDGRAPHICS AND CPX EXPRESS.
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IN ADDITION, THE FOLLOWING COMPANY TRADEMARKS APPEAR IN THIS PROSPECTUS:
PF/DX, PREVENT, BREEZE, 1085 SERIES, CARDIO2, 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.
-------------------------------------
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,
4
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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.
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.
* 1
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.
5
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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
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
6
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** 1 The Company has never paid, and does not plan to pay, any dividends on
its Common Stock in the foreseeable future.
7
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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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1997, 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 the conversion of the Class
A Shares into shares of Common Stock or from sales of the Shares by the Selling
Shareholder.
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 December 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>
FAMCO II LLC (3) 686,869 19.4 444,445 242,424 7.8
600 South Highway 169, Suite 850
St. Louis Park, MN 55426
</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 SmallCap 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.
10
<PAGE>
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 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
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
5.1 Opinion and Consent of Lindquist & Vennum P.L.L.P., counsel to the Company (1)
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 (1)
(1) Previously Filed.
</TABLE>
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the 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
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the registration statement, has been signed below by
the following persons on the date and in the capacities indicated.
Signature
\s\ Glenn D. Taylor Dated: December 4, 1997
- --------------------------------------------
Glenn D. Taylor, President,
Chief Executive Officer
(Principal Executive Officer) and Director
\s\ Dale H. Johnson Dated: December 4, 1997
- --------------------------------------------
Dale H. Johnson, Chief Financial
Officer (Principal Financial
Officer)
\s\ Mark W. Sheffert* Dated: December 4, 1997
- --------------------------------------------
Mark W. Sheffert, Chairman
\s\ Anthony J. Adducci* Dated: December 4, 1997
- --------------------------------------------
Anthony J. Adducci, Director
\s\ Gerald T. Knight* Dated: December 4, 1997
- --------------------------------------------
Gerald T. Knight, Director
\s\ W. Edward McConaghay* Dated: December 4, 1997
- --------------------------------------------
W. Edward McConaghay, Director
\s\ Donald C. Wegmiller* Dated: December 4, 1997
- --------------------------------------------
Donald C. Wegmiller, Director
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<PAGE>
\s\ John C. Penn* Dated: December 4, 1997
- --------------------------------------------
John C. Penn, Director
\s\ John D. Wunsch * Dated: December 4, 1997
- --------------------------------------------
John D. Wunsch, Director
*By: \s\ Glenn D. Taylor Dated: December 4, 1997
- --------------------------------------------
Glenn D. Taylor, Attorney-in-fact
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<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-32467 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
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 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
December 2, 1997
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