SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box: |_| Confidential, for Use of the
|_| Preliminary Proxy Statement Commission Only (as permitted
|X| Definitive Proxy Statement by Rule 14a-6(e)(2))
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to |_| Rule 240.14a-11(c) or |_| Rule
240.14a-12
Medical Graphics Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| $125 per Exchange Act Rule o-11(c)(1)(ii), 14a-6(i)(1) or Item 22(a)(2) of
Schedule 14A
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
MEDICAL GRAPHICS CORPORATION
350 OAK GROVE PARKWAY
SAINT PAUL, MINNESOTA 55127
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 13, 1998
TO THE SHAREHOLDERS:
You are cordially invited to attend the Annual Meeting of
Shareholders of Medical Graphics Corporation, a Minnesota corporation (the
"Company"), to be held on Wednesday, May 13, 1998, at 1:00 p.m. local time, at
the Company's offices at 350 Oak Grove Parkway, Saint Paul, Minnesota for the
following purposes:
1. To elect two directors to serve for a period of three years;
2. To approve an increase in the number of shares reserved under the
Company's 1987 Stock Option Plan (the "1987 Plan") from 900,000 to
950,000;
3. To approve an increase in the number of shares reserved under the
Company's Non-Employee Director Compensation Plan (the "Director
Plan") from 250,000 to 450,000;
4. To ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998;
and
5. To act upon such other business as may properly come before the
Annual Meeting, or any adjournment or adjournments thereof.
Shareholders of record at the close of business on March 30, 1998
are entitled to notice of and to vote at the Annual Meeting or any adjournment
or adjournments thereof.
Accompanying this Notice of Annual Meeting is a Proxy Statement, form of
Proxy and the Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1997.
By Order of the Board of Directors,
Mark W. Sheffert,
Chairman
Saint Paul, Minnesota
Dated: April 13, 1998
WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE SIGN, DATE AND RETURN YOUR PROXY IN
THE REPLY ENVELOPE PROVIDED.
<PAGE>
MEDICAL GRAPHICS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
MAY 13, 1998
PROXY STATEMENT
This Proxy Statement is submitted in support of a proxy solicitation by
the Board of Directors of Medical Graphics Corporation (the "Company"), 350 Oak
Grove Parkway, Saint Paul, Minnesota 55127, in connection with the 1998 Annual
Meeting of Shareholders to be held on Wednesday, May 13, 1998 at 1:00 p.m. local
time, at the Company's offices, Saint Paul, Minnesota. The Company expects that
the Notice of Annual Meeting, Proxy Statement and form of proxy will be mailed
to shareholders on or about April 13, 1998.
Shareholders of record at the close of business on March 30, 1998 will
be entitled to vote at the Annual Meeting and any adjournment thereof. As of
March 30, 1998, the Company had 3,352,495 shares of its Common Stock, $0.05 par
value (the "Common Stock"), issued, outstanding and entitled to be voted at the
Annual Meeting. In addition, on March 30, 1998, the Company had 444,445 shares
of Class A Stock (the "Class A Stock") issued, outstanding and entitled to be
voted at the Annual Meeting. The Common Stock and Class A Stock are the only
classes of voting securities of the Company. Each holder of outstanding shares
of the Common Stock and Class A Stock is entitled to one vote per share on all
matters being presented at the Annual Meeting. There is no cumulative voting. If
a shareholder abstains from voting as to any matter, then the shares held by
such shareholder shall be deemed present at the Annual Meeting for purposes of
determining a quorum and for purposes of calculating the vote with respect to
such matter, but shall not be deemed to have been voted in favor of such matter.
If a broker returns a "non-vote" proxy, indicating a lack of authority to vote
on such matter, then the shares covered by such non-vote shall be deemed present
at the Annual Meeting for purposes of determining a quorum but shall not be
deemed to be represented at the meeting for purposes of calculating the vote
with respect to such matter.
The enclosed proxy, when properly signed and returned to the Company,
will be voted by the persons named therein at the Annual Meeting as directed
therein. Proxies in which no designation is made with respect to the various
matters of business to be transacted at the Annual Meeting will be voted for the
nominees for directors as proposed herein; for the increase in shares for the
Company's 1987 Plan; for the increase in shares in the Company's Director Plan;
for the ratification of the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the current year; and in the best judgment of the
persons named in the proxy as to any other matters which may properly come
before the Annual Meeting.
A proxy may be revoked at any time prior to its being exercised at the
Annual Meeting by written notification to the Secretary of the Company. Personal
attendance at the Annual Meeting is not sufficient to revoke a proxy unless a
written notice of proxy termination is filed with an officer of the Company at
the Annual Meeting.
The solicitation expenses incurred herein will be borne by the Company,
and this solicitation will be distributed by mail to the shareholders. Some of
the officers, directors and regular management employees of the Company may also
solicit proxies on behalf of management in person or by facsimile transmission
or telephone. No additional compensation will be paid to such persons therefore;
however, any costs thereof will be borne by the Company. The Company will
reimburse brokerage firms, banks, and other custodians, nominees and fiduciaries
for their expenses reasonably incurred in forwarding solicitation material to
the beneficial owners of the Common Stock.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The only voting securities of the Company are shares of Common Stock and
shares of Class A Stock, of which 3,352,495 shares and 444,445 shares,
respectively, were outstanding as of March 30, 1998. Management believes that as
of March 30, 1998, no person beneficially owned more than five percent of the
combined outstanding Common Stock and Class A Stock of the Company, except as
set forth in the table below.
Number of Shares of
Name and Address of Medical Graphics Percent of
Beneficial Owner Common Stock Class
Austin W. Marxe and
AWM Investment Company, Inc.
153 East 53 Street
New York, NY 10022 975,348(1) 25.7
John D. Wunsch
Family Financial Strategies, Inc.
Interchange Tower, Suite 850
600 South Highway 169
Minneapolis, MN 55426 701,369(2) 18.4
FAMCO II LLC
c/o Family Financial Strategies, Inc.
Interchange Tower, Suite 850
600 South Highway 169
Minneapolis, MN 55426 686,869(3) 18.1
Heartland Advisors, Inc.
790 North Milwaukee Street
Milwaukee, WI 53202 585,200(4) 15.4
Mark W. Sheffert
350 Oak Grove Parkway
Saint Paul, MN 55127 230,000(5) 5.8
Catherine A. Anderson
1690 World Trade Center
30 East Seventh Street
Saint Paul, MN 55101 220,000(5)(6) 5.6
(1) Of the 975,348 shares beneficially owned by Austin W. Marxe and AWM
Investment Company, Inc. ("AWM"), 537,618 shares are owned by the
Special Situations Fund III L.P. (the "Fund"), 195,306 shares are owned
by the Special Situations Cayman Fund, L.P. (the "Cayman Fund"), and
242,424 shares are beneficially owned by the Special Situations Private
Equity Fund, L.P. (the "Equity Fund"). Austin W. Marxe is the principal
owner and President of AWM. AWM is the sole general partner of MGP, a
registered investment adviser, and the general partner and investment
adviser to the Fund and the Cayman Fund. This disclosure is based on a
Schedule 13D, dated as of February 10, 1998, filed with the Securities
and Exchange Commission.
(2) Includes 444,445 shares of the Company's Class A Stock, convertible
share-for-share into Common Stock, and 242,424 shares of Common Stock,
all owned by FAMCO II LLC which is managed by Family Financial
Strategies, Inc., of which Mr. Wunsch is the Chief Executive Officer.
Mr. Wunsch disclaims beneficial ownership of such shares. Also includes
14,500 shares subject to exercisable options held by Mr. Wunsch.
<PAGE>
(3) Includes 444,445 shares of Class A Stock, convertible share-for-share
into Common Stock. This disclosure is based on a Schedule 13D dated
February 11, 1998 filed with the Securities and Exchange Commission.
(4) Shares are held in investment advisory accounts of Heartland Advisors,
Inc. As a result, various persons have the right to receive or the power
to direct the receipt of dividends from, or the proceeds from the sale
of, the shares. The interests of one such account, Heartland Value Fund,
a series of Heartland Group, Inc., a registered investment company,
relates to more than 5% of the class. This disclosure is based on a
Schedule 13G, dated as of February 3, 1998, filed with the Securities
and Exchange Commission.
(5) In connection with her resignation as a member of the Board of Directors
in March 1997 and her agreement to serve as a consultant to the Company,
Catherine A. Anderson agreed to vote her shares in favor of the
directors nominated by the Board of Directors of the Company at any
Annual or Special Meeting held prior to July 1, 1999 and granted Mark W.
Sheffert and John C. Penn the right to vote all shares held by her or
which may be acquired in the future in favor of such directors. The
shares shown for Mr. Sheffert and Mr. Penn in the tables above and below
do not include Ms. Anderson's 90,000 shares and 130,000 shares issuable
upon a currently exercisable warrant. Mr. Sheffert and Mr. Penn disclaim
any beneficial ownership with respect to such shares owned by Ms.
Anderson.
(6) Excludes 16,000 shares held outright by Ms. Anderson's husband. Each
disclaims beneficial ownership of the other's shares.
SECURITY OWNERSHIP OF DIRECTORS
AND MANAGEMENT
The following table sets forth, as of March 30, 1998, shares of voting
securities of the Company owned by each current director and nominee for
director, by each executive officer of the Company named in the Summary
Compensation Table below (the "Named Executives") and by all current directors
and executive officers of the Company as a group. Except as described below,
each of the persons listed below has sole voting and investment power with
respect to the shares shown.
<TABLE>
<CAPTION>
Shares of Medical
Number of Shares Graphics Common
of Medical Stock Which May Percent of
Names of Directors, Nominees Graphics Common Be Acquired Within Voting
and the Named Executives Stock Owned(1) Sixty Days(2) Total Shares Securities
<S> <C> <C> <C> <C>
Anthony J. Adducci 23,500 14,500 38,000 1.0
Gerald T. Knight 26,000 21,168 47,168 1.2
W. Edward McConaghay 6,000 23,834 29,834 *
John C. Penn 1,000 21,500 22,500 *
Mark W. Sheffert 30,000 200,000 230,000 5.8
Glenn D. Taylor -0- 33,334 33,334 *
Donald C. Wegmiller 15,000 21,168 36,168 *
John D. Wunsch 686,869 14,500 701,369 18.4
Anthony A. Curro -0- 10,000 10,000 *
Terrance J. Kapsen 30,684 13,000 43,684 1.1
Eric W. Sivertson(3) 14,201 -0- 14,201 *
<PAGE>
All current Directors and
Executive Officers as a Group
(14 persons) 110,434 405,671 516,105 12.3
</TABLE>
(1) The number of shares shown includes shares as to which the nominees and
all current directors and executive officers as a group have disclaimed
beneficial ownership, as follows: Anthony J. Adducci - 15,000 shares
held in the Adducci Revocable Trust of which Mr. Adducci is Co-Trustee
and 8,500 shares held in trust for Mr. Adducci's daughter; W. Edward
McConaghay - 2,000 shares held by Mr. McConaghay's wife outright; John
D. Wunsch - 444,445 shares of the Company's Class A Stock, convertible
share-for-share into Common Stock, and 242,424 shares of Common Stock,
all owned by FAMCO II LLC which is managed by Family Financial
Strategies, Inc., of which Mr. Wunsch is the Chief Executive Officer;
and 712,369 shares disclaimed by all current directors and executive
officers as a group.
(2) Shares shown include shares subject to stock options and shares issuable
upon exercise of warrants. Mr. Sheffert holds a warrant to purchase
150,000 shares.
(3) Mr. Sivertson resigned as a director and as President and Chief
Executive Officer of the Company effective January 21, 1997.
ELECTION OF DIRECTORS
PROPOSAL NO. 1
The number of members of the Board of Directors is currently set at
eight, and the directors are divided into Class A (currently consisting of two
directors whose term ends in 1998), Class B (currently consisting of three
directors whose term ends in 1999) and Class C (currently consisting of three
directors whose term ends in 2000). The members of each class are elected to
serve three-year terms with the term of office of each class ending in
successive years. Glenn D. Taylor and John D. Wunsch are the Class A directors
whose terms expire at the Annual Meeting. The other directors of the Company
will continue in office for their existing terms. Anthony J. Adducci, Gerald T.
Knight and W. Edward McConaghay are the Class B directors. Mark W. Sheffert,
John C. Penn and Donald C. Wegmiller are the Class C directors. The Board of
Directors has nominated Messrs. Taylor and Wunsch for election to the Board at
the Annual Meeting for terms expiring at the annual meeting in 2001.
Proxies solicited by the Board of Directors will, unless otherwise
directed, be voted to elect Messrs. Taylor and Wunsch. If a shareholder of
record returns a proxy withholding authority to vote the proxy with respect to
any of the nominees, then the shares of the Common Stock covered by such proxy
shall be deemed present at the Annual Meeting for purposes of determining a
quorum and for purposes of calculating the vote with respect to such nominee or
nominees, but shall not be deemed to have been voted for such nominee or
nominees. The affirmative vote of a majority of the outstanding shares of the
Common Stock is necessary to elect each nominee. Cumulative voting is not
permitted. In the unlikely event that any of the nominees is not a candidate for
election at the Annual Meeting, the persons named in the accompanying form of
proxy will vote for such other persons as the Board of Directors may designate.
The Board of Directors has no reason to believe that any nominee will not be a
candidate for election.
Certain biographical information furnished by the Company's Board of
Directors is set forth below.
NAME, BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS AND SELECTED
OTHER INFORMATION CONCERNING NOMINEES
- --------------------------------------------------------------------------------
CLASS A (TERM ENDING IN 2001)
- --------------------------------------------------------------------------------
Glenn D. Taylor President and Chief Executive Officer
Director since March 1997 Medical Graphics Corporation
Age -- 45
Mr. Taylor has been President and Chief Executive Officer of Medical Graphics
Corporation since March 1997. He served as President and Chief Operating Officer
of Avecor Cardiovascular, Inc., a manufacturer of cardiopulmonary bypass and
long term respiratory support devices, from 1996 to March 1997. From 1993 to
1996, he served as General Manager Medical Products Division of Graphic Controls
Corporation, a manufacturer of products used to record, archive and retrieve
medical
<PAGE>
information. From 1989 to 1992, he served as General Manager of ENSR Health
Sciences a health professional consulting firm in Alameda, California. From 1986
to 1989, he was Vice President of Corporate Development of MedChem Products,
Inc., a manufacturer of viscoelastics in Woburn, Massachusetts. During the
previous nine years, Mr. Taylor served in marketing and sales capacities for
various medical device and pharmaceutical companies.
- --------------------------------------------------------------------------------
John D. Wunsch President and Chief Executive Officer
Director since March 1997 Family Financial Strategies, Inc.
Age -- 49
Mr. Wunsch has been President and Chief Executive Officer of Family Financial
Strategies, Inc., a registered investment advisory firm, since January 1, 1997.
Family Financial Strategies, Inc., specializing in services to high net worth
families, manages a diversified investment strategy including several equity
pools and direct investments in real estate, venture capital, energy and other
non-traditional investments throughout the country. From 1990 to January 1997,
he served as President of Perrybell Investments, Inc., a registered investment
advisory firm. Mr. Wunsch is a director of ADC Telecommunications, Inc. and
Telident, Inc.
NAME, BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS AND SELECTED
OTHER INFORMATION CONCERNING DIRECTORS
- --------------------------------------------------------------------------------
CLASS B (TERM ENDING IN 1999)
- --------------------------------------------------------------------------------
Anthony J. Adducci President of Technology Enterprises
Director since 1980
Age -- 60
Mr. Adducci has been President of Technology Enterprises, a private venture
capital firm, since June 1981. Prior to June 1981, Mr. Adducci was a founder and
served as Executive Vice President of Cardiac Pacemakers, Inc., a manufacturer
of cardiac pacemakers located in Arden Hills, Minnesota.
- --------------------------------------------------------------------------------
Gerald T. Knight Senior Vice President and Chief
Director since October 1990 Financial Officer of Fingerhut Companies, Inc.
Age -- 50
Mr. Knight served as Chairman of the Board at Medical Graphics Corporation from
May 1995 to December 1995. He has been Senior Vice President and Chief Financial
Officer of Fingerhut Companies, Inc. since June 1997. From April 1992 to May
1997 he was Vice President -- Finance and Chief Financial Officer of The Toro
Company, a manufacturer of turf maintenance and irrigation equipment. From
December 1990 to March 1992, Mr. Knight was Executive Director -- Finance and
Corporate Controller of NeXT Computer, Inc., a manufacturer of computer
workstations. From November 1985 through December 1990 he served in several
executive level financial positions for The Pillsbury Company. During the
previous fifteen years, Mr. Knight served in a number of financial positions
with General Electric Company.
- --------------------------------------------------------------------------------
W. Edward McConaghay President and Chief Executive Officer of
Director since March 1994 Telident, Inc.
Age -- 49
Mr. McConaghay has been the President, Chief Executive Officer and a Director of
Telident, Inc., specializing in enhanced 9-1-1 response technology, since April
1, 1997. He was President and Chief Executive Officer of Digital Technics, a
telecommunications firm, from 1996 to 1997. During 1995 he was a principal in
Key Indicators, a consulting firm specializing in new product and market
development for information and technology based businesses. He was Senior Vice
President of Sales and Marketing for Deluxe Corporation, a Minnesota check and
business forms printing company, from December 1993 to January 1995. From 1983
to 1993, he served in various management positions at Northern Telecom, Inc.
<PAGE>
- --------------------------------------------------------------------------------
CLASS C (TERM ENDING IN 2000)
- --------------------------------------------------------------------------------
Mark W. Sheffert Chairman and Chief Executive Officer
Director since January 1997 of Manchester Companies
Age -- 50
Mr. Sheffert has over 25 years of financial and financial services experience.
He is the founder of Manchester Companies, Inc. ("MCI") whose business is
investment banking, management consulting, corporate renewal and commercial
finance. Prior to founding MCI in January 1995, Mr. Sheffert was a founder and
managing partner of Sheffert & Wein, Inc. ("SWI") a private investment and
management consulting firm specializing in the acquisition and turn-around of
operationally/financially distressed companies. Before founding SWI in October
1990, Mr. Sheffert was a senior executive with First Bank System for over eight
years where he served in various high-level management capacities and was
eventually named one of two President's of First Bank System. Before joining
First Bank System, Mr. Sheffert was Chief Operating Officer and Director of
North Central Life Insurance Company. Mr. Sheffert serves on the Board of
Directors of Telident, Inc. and LifeRate Systems, Inc..
- --------------------------------------------------------------------------------
John C. Penn Vice Chairman and Chief Executive Officer
Director since December 1996 Satellite Industries, Inc. and Satellite
Age -- 58 Shelters, Inc.
Mr. Penn has served as Vice Chairman and Chief Executive Officer of Satellite
Industries, Inc., a manufacturer of portable restroom facilities and also of
Satellite Shelters, Inc., a distributor of relocatable buildings, since March
1998. From 1990 to March 1998, Mr. Penn served as President and Chief Executive
Officer of CDI Management Corp. From 1988 to 1990, he served as President and
Chief Executive Officer of Benson Optical Company. During 1987, he served as
Director Business Reorganization Group of Coopers & Lybrand and during 1986 he
founded John Penn & Associates, a bankruptcy and acquisition consulting firm.
During the previous 24 years, he served in various senior operations capacities
for various companies. Mr. Penn serves and has served on the Board of Directors
of several privately held corporations.
- --------------------------------------------------------------------------------
Donald C. Wegmiller President of Management Compensation
Director since 1988 Group/HealthCare Compensation
Age -- 59
Mr. Wegmiller has been President of Management Compensation Group/HealthCare
Compensation, an executive and physician compensation consulting firm for
healthcare organizations, since 1993. From 1992 to 1993, he was Vice Chairman
and President of HealthSpan Health System, a Minneapolis-based diversified
health services organization. From 1978 to 1992, he was President and Chief
Executive Officer of HealthSpan. From 1986 to 1988, he served as Chairman of the
Board of the American Hospital Association.
- --------------------------------------------------------------------------------
<PAGE>
BOARD OF DIRECTORS' COMMITTEES AND MEETINGS
The Board of Directors held seven meetings during the Company's fiscal
year ended December 31, 1997. All directors and nominees for director attended
at least eighty percent of the meetings held during 1997 of the Board of
Directors and all Committees on which the director served. Directors who are not
employees of the Company received an option to purchase 1,500 shares of Common
Stock for each meeting of the Board attended and an option to purchase 500
shares of Common Stock for each Committee meeting attended.
The Company has three standing committees of the Board of Directors, as follows:
NAME OF COMMITTEE MEMBERSHIP
- ----------------- ----------
Audit Committee........... Gerald T. Knight (Chair), John C. Penn and John D.
Wunsch
Compensation Committee.... Donald C. Wegmiller (Chair), Anthony J. Adducci and
W. Edward McConaghay
Nominating Committee...... John C. Penn (Chair) and Mark W. Sheffert
The Audit Committee is responsible for reviewing the services provided
by the Company's independent auditors and comments made by the independent
auditors in letters of recommendation to management, and reviewing internal
accounting controls and procedures and discussing the same with the Company's
Chief Financial Officer. The Compensation Committee is responsible for reviewing
and approving compensation to be paid to officers, key employees and directors.
The Nominating Committee is responsible for director nominations and will not
consider nominations recommended by shareholders. In 1997, the Audit Committee
did not meet while the Compensation Committeesheld one meeting. The Nominating
Committee did not meet in 1997 individually because directors nominated in 1997
were nominated by the full Board.
EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE TITLE
- ---- --- -----
Mark W. Sheffert 50 Chairman
Glenn D. Taylor 45 President and Chief Executive Officer
Dale H. Johnson 53 Chief Financial Officer
Anthony A. Curro 38 Vice President - Sales
Rex Fasching 57 Vice President - Operations
Mike Snow 48 Vice President - Research and Development
Terrance J. Kapsen 47 Vice President - Business Development
David B. Viele 45 Vice President - Marketing
- -------------
Biographical information on Mark W. Sheffert and Glenn D. Taylor is provided
elsewhere in this Proxy Statement under "Election of Directors."
<PAGE>
Dale H. Johnson, CPA, joined the Company in January 1997 and was appointed Chief
Financial Officer in March 1997. Prior to joining the Company, he served as a
consultant to companies in financial distress from 1995 to 1997. From 1994 to
1995, he served as Chief Financial Officer to Larson Companies, a
privately-owned group of heavy truck dealerships. From 1991 to 1994, he served
as Chief Financial Officer to the National Marrow Donor Program. From 1971 to
1986, he served as Chief Financial Officer for the Pepsi subsidiary of MEI
Corporation. In 1986, MEI was acquired by PepsiCo, Inc., and thereafter Mr.
Johnson served as Area Chief Financial Officer to PepsiCo, Inc. During the
previous five years, he worked as an accountant with Arthur Andersen & Co. and
served as a finance officer in the United States Army. Mr. Johnson holds a B.A.
in Economics and Accounting from St. John's University and is a Certified Public
Accountant.
Anthony A. Curro joined the Company in March 1995 as Vice President of Sales.
Prior to joining the Company, he was National Sales Manager at Bicore Monitoring
Systems, Inc., a medical device company from 1992 to 1995. He holds a B.A.
in Liberal Arts from Fairleigh Dickinson University.
Rex T. Fasching joined the Company in January 1997 as a consultant and was named
Vice President of Operations in March 1997. Prior to joining the Company, Mr.
Fasching owned and operated a manufacturing consulting business from 1991 to
1997. From 1992 to 1995, he also served as Executive Vice President of ErgometRx
Corporation, a manufacturer of aerobic and anaerobic exercise testing and
training equipment and software. Mr. Fasching's other experiences during over 20
years in executive manufacturing management include purchasing two financially
distressed manufacturing companies, successfully turning them around to
profitability, and selling them.
Michael G. Snow was named Vice President of Research and Development in March
1997. He re-joined the Company in October 1995 as Vice President, Quality
Assurance/Regulatory Affairs after managing Respiratory Care Services and
Pulmonary Physiology and Research at California Pacific Medical Center for five
years. He has over 25 years experience in the cardiopulmonary field and has
authored over 50 scientific papers. Prior to joining the California Pacific
Medical Center, Mr. Snow served as Vice President of Research and Development at
the Company and held other technology-related positions with the Company since
1984. He majored in Quantitative Analysis/Business Administration at National
University in San Diego and holds an A.S. in Cardiopulmonary/Biomedical
Technology from Grossmont College. Mr. Snow is a former president of the
National Board for Respiratory Care, the national accreditation agency for the
Company's core market.
Terrance J. Kapsen has been a Vice President of the Company since December 1981,
most recently as Vice President Business Development since 1997. Mr. Kapsen has
had various sales, marketing and technology-related positions since joining the
Company in 1981. From 1973 to 1980, Mr. Kapsen was an Assistant Scientist at the
University of Minnesota working in the area of pulmonary medicine and also
served as a department supervisor.
David B. Viele was named Vice President of Marketing in August 1997 when he
re-joined the Company after one year at Nellcor Puritan Bennett, a medical
device company, at which he was Regional Sales Manager. Prior to joining
Nellcor, Mr. Viele served as Vice President of Sales and Director of Marketing
at the Company and held other sales-related positions with the Company since
June 1992. Mr. Viele has a B.A. in Biology from the University of California,
Santa Barbara.
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for
each of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and each of the Company's most highly paid executive
officers whose total annual salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>
Long Term Compensation
------------------------
Annual Compensation Awards
---------------------------------- ------------------------
Other Restricted Securities
Name and Annual Stock Underlying All Other
Principal Compen- Award(s) Options Compen-
Position Year Salary($) Bonus($) sation($)(1) ($) (#)(2) sation($)(3)
- ------------------------- ---- --------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Eric W. Sivertson(4) 1997 154,987 -0- -- -0- -0- -0-
Former Chief Executive 1996 225,961 -0- 326,997 75,000(5) 150,000(5) 653
Officer
Glenn D. Taylor 1997 127,885 -0- -- -0- 100,000 -0-
President and Chief
Executive Officer
Anthony A. Curro 1997 117,021 -0- -- -0- 10,000 295
Vice President-Sales 1996 101,832 -0- -- -0- -0- 1,153
1995 62,147 -0- -- -0- -0- -0-
Terrance J. Kapsen 1997 109,536 -0- -- -0- -0- 254
Vice President-Business 1996 111,283 -0- -- -0- -0- 1,649
Development 1995 90,666 -0- -- -0- 5,000 2,720
</TABLE>
- ------------
(1) The compensation reported represents perquisites paid for by the
Company, including $103,410 for relocation expenses which consisted
partly of rent and a loss incurred by Mr. Sivertson in the sale of his
home during relocation, as well as reimbursement of taxes incurred by
Mr. Sivertson for receipt of such perquisites and other awards.
(2) Represents securities underlying stock options granted, except as
otherwise noted, under the Company's 1987 Plan, as amended. The 1987
Plan does not provide for the granting of stock appreciation rights
("SARs").
(3) The compensation reported represents Company matching contributions
under the Company's Employee Savings Incentive Plan, a 401(k) retirement
plan. For Mr. Sivertson, the amount reported also includes payments for
life insurance that will benefit this executive directly.
(4) Mr. Sivertson resigned his position at the Company effective January 21,
1997.
(5) In connection with his hiring as Chief Executive Officer and President
of the Company in January 1996, Mr. Sivertson was granted 10,000 shares
of the Company's Common Stock, which were to vest over a five year
period. In connection with his entering into a Separation Agreement
dated April 18, 1997, the Company and Mr. Sivertson agreed that vesting
of all 10,000 shares would be accelerated and would occur immediately.
As of January 18, 1998, all of Mr. Sivertson's options expired.
<PAGE>
STOCK OPTION GRANTS AND EXERCISES TABLES
The following tables summarize stock option grants and exercises during
fiscal 1997 to or by the Named Executives.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------------------
Number of
Securities Underlying % of total Options Exercise or
Options Granted Granted to Employees Base Price Expiration
Name (#)(1) in Fiscal 1997 ($/Sh)(2) Date
- --------------------- --------------------- -------------- --------- ----
<S> <C> <C> <C> <C>
Eric W. Sivertson -0- -0- --- ---
Glenn D. Taylor 100,000 37.5% 3.38 03/19/02
Anthony A. Curro 10,000 3.7% 4.44 08/12/02
Terrance J. Kapsen -0- -0- --- ---
</TABLE>
- ------------
(1) Each stock option granted has a five-year term. The options granted vest
and become exercisable at 33% cumulative installments over a three-year
period beginning after the first year.
(2) All stock options were granted with an exercise price equal to the fair
market value of the Common Stock on the date of grant, which was the
closing price of the Common Stock as reported on the Nasdaq SmallCap
Market on such date.
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND
OPTION VALUES AT END OF FISCAL 1997
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Unexercised Options In-the-Money Options
Shares at December 31, 1997(#) at December 31, 1997($)(1)
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized($)(1) Unexercisable Unexercisable
- ------------------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Eric W. Sivertson -0- -0- -0- / -0- -0- / -0-
Glenn D. Taylor -0- -0- -0- / 100,000 -0- / -0-
Anthony A. Curro -0- -0- -0- / 10,000 -0- / -0-
Terrance J. Kapsen -0- -0- 13,000 / 2,000 -0- / -0-
</TABLE>
- ----------
(1) "Value" has been determined based upon the difference between the per
share option exercise price and the market value of the Common Stock at
the date exercised or December 31, 1997.
EMPLOYMENT AGREEMENTS
Other than as stated below, the Company does not have employment
agreements with its Named Executives.
The Company entered into a Compensation and Benefits Assurance Agreement
(the "Employment Agreement") with Mr. Kapsen effective December 16, 1996. The
Employment Agreement assures Mr. Kapsen of continued employment
<PAGE>
and certain benefits in the event of a Change in Control, as such term is
defined in the Employment Agreement. The term of the Employment Agreement
extends until December 16, 1998 at which time it automatically renews for an
additional two years and then again in successive two year periods unless
terminated by either party by written notice 90 days prior to the end of the
then current term. Under the terms of the Employment Agreement, if Mr. Kapsen's
employment ends for any reason specified as being a Qualifying Termination, as
such term is defined in the Agreement, Mr. Kapsen is entitled to unpaid salary,
vacation pay and expenses, severance pay, health insurance coverage and
outplacement services for periods specified in the Employment Agreement.
APPROVAL OF AN INCREASE IN THE NUMBER OF SHARES RESERVED
UNDER THE COMPANY'S 1987 STOCK OPTION PLAN
PROPOSAL NO. 2
INCREASE OF THE AUTHORIZED SHARES
The 1987 Plan authorizes the issuance of up to 900,000 shares of Common
Stock. At April 1, 1998, the Company had issued 233,187 shares under the Plan,
had outstanding options to purchase an additional 344,488 shares and had 322,325
shares reserved for future issuance. In order to reserve sufficient shares for
future options, the Board of Directors proposes that the number of shares
reserved under the 1987 Plan be increased from 900,000 to 950,000 shares. The
Board believes that granting fairly priced stock options to employees is an
effective means to promote the future growth and development of the Company.
Such options increase employees' proprietary interest in the Company's success
and enables the Company to attract and retain qualified personnel.
SUMMARY OF 1987 PLAN
A general description of the basic features of the 1987 Plan, assuming
the amendment described above is approved by the shareholders, is outlined
below. This summary is qualified in its entirety by the terms of the 1987 Plan,
a copy of which, in its amended form, may be obtained from the Secretary of the
Company.
GENERAL. The 1987 Plan provides for the granting to participating
eligible employees of the Company of the (a) options to purchase Common Stock
that qualify as "incentive stock options" within the meaning of Section 422 of
the Code ("Incentive Stock Options") and (b) options to purchase Common Stock
that do not qualify as incentive stock options ("NonQualified Options"). The
1987 Plan is administered by the Compensation Committee, which (other than with
respect to automatic grants of options to non-employee directors) selects the
participants to be granted options under the 1987 Plan, determines the amount of
grants to participants and prescribes discretionary terms and conditions of each
grant not otherwise fixed under the 1987 Plan. As of April 1, 1998, there were
approximately 123 employees of the Company who may be deemed to be eligible
employees under the 1987 Plan, of whom 110 were participants. The 1987 Plan will
terminate on March 11, 2002, and may be terminated before that date by action of
the Board. No options will be granted after the termination of the 1987 Plan.
The maximum number of shares of Company Common Stock that may be issued under
the 1987 Plan is currently 900,000 and is proposed to be increased to 950,000.
STOCK OPTIONS. Incentive Stock Options must be granted with an exercise
price equal to at least the fair market value of the Common Stock on the date of
grant (or, in the case of participants owning more than 10% of the total
combined voting power of all classes of stock of the Company, at least equal to
110% of the fair market value on the date of grant); Non-Qualified Options may
be granted with an exercise price less than 100% of the fair market value of the
Common Stock on the date of grant.
For Incentive Stock Options granted after December 31, 1986, the
aggregate fair market value (determined as of the time the Incentive Stock
Option is granted) of shares of Common Stock with respect to which Incentive
Stock Options become exercisable for the first time by a participant under the
1987 Plan during any calendar year may not exceed $100,000. On April 1, 1998,
the closing price of a share of Company Common Stock as reported by the Nasdaq
SmallCap Market was $4.75. Incentive Stock Options have a maximum term fixed by
the Compensation Committee, not to exceed 10 years from the date of grant (five
years in the case of an Incentive Stock Option granted to participants owning
more than 10% of the total combined voting power of all classes of stock of the
Company). Non-Qualified Options have a maximum term fixed by the Compensation
Committee, not to exceed 10 years from the date of grant. Stock options become
exercisable
<PAGE>
during their terms in the manner determined by the Compensation Committee. Stock
options may not be transferred other than by will or the laws of descent and
distribution, and during the lifetime of a participant they may be exercised
only by the participant.
FEDERAL INCOME TAX CONSEQUENCES. The following description of federal
income tax consequences is based on current statutes, regulations and
interpretations. The description does not include state or local income tax
consequences. In addition, the description is not intended to address specific
tax consequences applicable to an individual participant who receives an award.
INCENTIVE STOCK OPTIONS. There will not be any federal income tax
consequences to either the participant or the Company as a result of the grant
to a participant of an Incentive Stock Option under the 1987 Plan. The exercise
by a participant of an Incentive Stock Option also will not result in any
federal income tax consequences to the Company or the participant, except that
(i) an amount equal to the excess of the fair market value of the shares
acquired upon exercise of the Incentive Stock Option, determined at the time of
exercise, over the consideration paid for the shares by the participant will be
a tax preference item for purposes of the alternative minimum tax, and (ii) the
participant may be subject to an additional excise tax if any amounts are
treated as "excess parachute payments" within the meaning of the Code.
If a participant disposes of the shares acquired upon exercise of an
Incentive Stock Option, the federal income tax consequences will depend upon how
long the participant has held the shares. If the participant does not dispose of
the shares within two years after the Incentive Stock Option was granted, nor
within one year after the participant exercised the Incentive Stock Option and
the shares were transferred to the participant (the "Applicable Holding
Periods"), then the participant will recognize a long-term capital gain or loss.
If the Applicable Holding Periods are not satisfied, then any gain realized in
connection with the disposition of such stock will generally be taxable as
ordinary compensation income in the year in which the disposition occurred, to
the extent of the difference between the fair market value of such stock on the
date of exercise and the option exercise price. The Company is entitled to a tax
deduction to the extent, and at the time, the participant realizes compensation
income. The balance of any gain will be characterized as a capital gain. As part
of the Taxpayer Relief Act of 1997, Congress modified the maximum federal income
tax rate for most long-term capital gains recognized after May 6, 1997. Under
the new law, capital gains resulting from property held for more than 18 months
will be taxed at a reduced maximum rate of 20%. Capital gains resulting from
property held for less than 18 months but more than one year will continue to be
taxed at a maximum rate of 28%, and capital gains resulting from property held
for less than one year will continue to be taxed at ordinary income rates.
NON-QUALIFIED OPTIONS. An optionee will not realize taxable compensation
income upon the grant of a non-qualified stock option. As a general matter, when
an optionee exercises a non-qualified stock option, he or she will realize
taxable compensation income at that time equal to the difference between the
aggregate option price and the fair market value of the stock on the date of
exercise. The Company is entitled to a tax deduction to the extent, and at the
time, the participant realizes compensation income.
REGISTRATION WITH SEC
The Company has filed Registration Statements covering the existing
900,000 shares offered under the 1987 Plan with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended. If Proposal Two
is adopted, the Company intends to file a similar Registration Statement
covering the 50,000 additional shares available for issuance under the Stock
Plan.
VOTE REQUIRED
Shareholder approval of the amendment to the 1987 Plan requires the
affirmative vote by the holders of a majority of shares of Common Stock
represented at the Annual Meeting and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT AS SET FORTH IN PROPOSAL TWO.
<PAGE>
APPROVAL OF AN INCREASE IN THE NUMBER OF SHARES RESERVED UNDER
THE COMPANY'S NON-EMPLOYEE DIRECTOR COMPENSATION PLAN
PROPOSAL NO. 3
INCREASE OF THE AUTHORIZED SHARES
The Director Plan currently authorizes the issuance of up to 250,000
shares of Common Stock. At April 1, 1998, the Company had issued no shares under
the Plan, had outstanding options to purchase an additional 221,670 shares and
had 28,330 shares reserved for future issuance. In order to reserve sufficient
shares for future options, the Board of Directors proposes that the number of
shares reserved under the Director Plan be increased from 250,000 to 450,000
shares. The Board believes that granting fairly priced stock options to
non-employee directors is an effective means to promote the future growth and
development of the Company. Such options increase the directors' proprietary
interest in the Company's success and enables the Company to attract and retain
qualified directors. The Board therefore recommends that all shareholders vote
in favor of increasing the number of shares reserved under the Director Plan
from 250,000 to 450,000 shares.
SUMMARY OF THE DIRECTOR PLAN
A general description of the basic features of the Directors Plan,
assuming the amendment described above is approved by the shareholders, is
outlined below. This summary is qualified in its entirety by the terms of the
Director Plan, a copy of which, in its amended form, may be obtained from the
Secretary of the Company.
GENERAL. The Medical Graphics Corporation Non-Employee Director
Compensation Plan (the "Director Plan") was adopted by the Company's Board of
Directors (the "Board") on March 16, 1994 and by the Company's shareholders on
May 11, 1994. The Director Plan became effective upon shareholder approval. The
Director Plan is intended to aid the Company in attracting and retaining
independent directors capable of assuring the future success of the Company, to
offer such individuals incentives to put forth maximum efforts for the success
of the Company's business and to afford such individuals an opportunity to
acquire a proprietary interest in the Company. The Director Plan is not subject
to any provisions of the Employee Retirement Income Security Act of 1974 and is
not qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
A total of 150,000 shares of the Company's Common Stock, par value $.05
per share (the "Common Stock"), were originally available for the granting of
options under the Director Plan. Any non-employee director of the Company is
eligible to receive awards under the Director Plan. Options granted under the
Director Plan shall only be granted during a 10-year period beginning on the
effective date of the Director Plan. However, unless otherwise expressly
provided in the Director Plan or an applicable option agreement, any option
granted may extend beyond the end of such 10-year period.
ADMINISTRATION AND TYPE OF AWARD. The Director Plan permits the granting
of stock options that do not meet the requirements of Section 422 of the Code.
The Director Plan is administered by the Compensation Committee of the Board
consisting exclusively of three or more persons appointed by the Board of
Directors. The members of the Committee are appointed from time to time by the
Board. Grants of stock options and restricted stock ("Awards") under the
Director Plan and the amendment and nature of the awards to be granted shall be
automatic as described in Section 6 of the Director Plan, also previously
described above in the section "Board of Directors' Committees and Meetings."
Determinations and interpretations with respect to the Director Plan will be in
the sole discretion of the Committee, whose determinations and interpretations
will be binding on all interested parties.
Awards shall be granted for no cash consideration or for such minimal
cash consideration as may be required by applicable law. Options shall provide
that upon exercise thereof the holder will receive shares of Common Stock.
The exercise price per share under any stock option shall not be less
than 100% of the fair market value of the Company's Common Stock on the date of
the grant of such option. Options shall be exercised by payment in full of the
exercise price in cash (including check, bank draft or money order).
If any shares of Common Stock subject to any option are not purchased or
are forfeited, or if any such award terminates without the delivery of options
or other consideration, the shares previously used for such options will be
available
<PAGE>
for future awards under the Director Plan. All shares relating to options
granted will be counted against the aggregate number of shares available for
granting options under the Director Plan.
The Board may amend, alter or discontinue the Director Plan at any time.
FEDERAL INCOME TAX MATTERS. Options granted under the Director Plan have
tax consequences similar to Nonqualified Options under the Company's 1987 Plan
described above.
REGISTRATION WITH SEC
The Company has filed Registration Statements covering the existing
250,000 shares offered under the 1987 Plan with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended. If Proposal Three
is adopted, the Company intends to file a similar Registration Statement
covering the 200,000 additional shares available for issuance under the Stock
Plan.
VOTE REQUIRED
Shareholder approval of the amendment to the Director Plan requires the
affirmative vote by the holders of a majority of shares of Common Stock
represented at the Annual Meeting and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT AS SET FORTH IN PROPOSAL THREE.
CERTAIN TRANSACTIONS
In January 1997, the Company retained Manchester Business Services,
Inc., an organizational renewal firm of which Mark W. Sheffert is Chairman, to
design and implement a restructuring plan. In connection with the engagement of
Manchester, Mr. Sheffert was elected as a director of the Company. On March 25,
1997, Mr. Sheffert became Chairman of the Board of the Company. Under the
Retainer Agreement executed with Manchester, the Company agreed to pay
Manchester a monthly fee of $20,000, plus out-of-pocket expenses, for the twelve
month initial term of the agreement. The Company also agreed to indemnify
Manchester with respect to any legal action to which Manchester may be subject
in connection with providing the services contemplated by the Retainer
Agreement. In connection with the engagement of Manchester, Mr. Sheffert's
compensation, as amended in March 1997, consisted of the following: a stock
grant of 30,000 shares, an option for 50,000 shares at $3.375 and a five-year
warrant for 150,000 shares at $3.375. Subsequent to the engagement of Manchester
in March 1997, the Company obtained a new line of credit, received $3,000,000 of
cash from the issuance of equity securities, entered into agreements with
vendors which provide for payment of approximately $3,500,000 of accounts
payable in equal monthly installments for up to 36 months and reduced its work
force by approximately 25%. In addition, the Company received $1,500,000 of cash
from the issuance of equity securities in January and February 1998.
On March 31, 1997, FAMCO II LLC ("FAMCO") agreed to purchase 444,445
shares of the Company's Class A Stock at a price of $3.375 per share of Class A
Stock. FAMCO purchased 148,148 shares on March 31, 1997 and the additional
296,297 shares on April 15, 1997. FAMCO is managed by Family Financial
Strategies, Inc. of which Mr. Wunsch is Chief Executive Officer. In connection
with this equity investment, Mr. Wunsch was elected as a director of the
Company.
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. Upon request of the Company as allowed under the
terms of the Agreement, on January 30, 1998 and February 10, 1998, the Investors
purchased an additional 121,212, 90,909, 121,212 and 30,303 shares,
respectively, at a per share purchase price of $4.125.
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and all persons who beneficially own more than ten percent of
the outstanding shares of the Company's Common Stock to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of such Common Stock. Officers, directors and greater than ten percent
beneficial owners are also required to furnish the Company with copies of all
Section 16(a) reports they file. To the Company's knowledge, based upon a review
of the copies of such reports furnished to the Company and written
representations that no other reports were required during the fiscal year ended
December 31, 1997, all Section 16(a) filing requirements applicable to the
Company's directors, executive officers and greater than ten percent beneficial
owners were satisfied, except with respect to John C. Penn, who filed on late
Form 5 for 1997.
RATIFICATION OF APPOINTMENT OF AUDITORS
PROPOSAL NO. 4
The Company engaged Deloitte & Touche LLP as its independent auditors
responsible for auditing the Company's financial statements. During the two year
period prior to the engagement of Deloitte & Touche LLP, the Company did not
consult with Deloitte & Touche LLP with respect to any matter with respect to
the application of accounting principles to any specific matters or in
connection with any accounting, auditing or financial statement reporting
issues. The Board of Directors recommends that the shareholders ratify the
appointment of Deloitte & Touche LLP as independent auditors for the Company for
the fiscal year ending December 31, 1998. Deloitte & Touche LLP provided
services in connection with the audit of the financial statements of the Company
for the fiscal years ended December 31, 1996 and 1997, including the Company's
annual report on Form 10-KSB filed with the Securities and Exchange Commission,
and matters relating to accounting and financial reporting generally.
Representatives of Deloitte & Touche LLP are expected to be present at
the Annual Meeting and will be given an opportunity to make a statement if they
so desire and to respond to appropriate questions. If the appointment of
Deloitte & Touche LLP is not ratified by the shareholders, the Board of
Directors is not obligated to appoint other auditors, but the Board of Directors
will give consideration to such unfavorable vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
SHAREHOLDER PROPOSALS
Any proposal by a shareholder which may properly be presented at the
next Annual Meeting of the Company's shareholders must be received at the
Company's principal executive offices, 350 Oak Grove Parkway, Saint Paul,
Minnesota 55127, not later than December 30, 1998.
OTHER BUSINESS
Management is not aware of any matters to be presented for action at the
Annual Meeting, except matters discussed in this Proxy Statement. If any other
matters properly come before the Annual Meeting, it is intended that the shares
represented by proxy will be voted in accordance with the judgment of the
persons named in the accompanying form of proxy.
<PAGE>
FORM 10-KSB
A copy of the company's annual report on form 10-KSB (excluding
exhibits) filed with the Securities and Exchange Commission has been furnished,
free of charge, to shareholders of record on March 30, 1998. Additional persons
wishing to receive a copy, free of charge, should submit a written request to:
Chief Financial Officer
Medical Graphics Corporation
350 Oak Grove Parkway
Saint Paul, Minnesota 55127
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
Mark W. Sheffert,
Chairman
April 13, 1998
<PAGE>
MEDICAL GRAPHICS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
MAY 13, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby constitutes and
appoints Mark W. Sheffert, John C. Penn and Glenn D. Taylor, and each of them,
with full power of substitution, as proxies to vote all shares of capital stock
of Medical Graphics Corporation held by the undersigned at the Annual Meeting of
Shareholders of the company to be held on May 13, 1998, and at any adjournments
thereof, as designated below on the matters referred to and in their discretion
upon such other business as may properly come before the Annual Meeting.
(1) ELECTION OF DIRECTORS:
/ / FOR ALL nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary to vote for ALL nominees listed below)
Glenn D. Taylor John D. Wunsch
(INSTRUCTION: To WITHHOLD authority to vote for any individual nominee, write
that nominee's name on the space provided below)
---------------------------------------------------------------
(2) The proposal to increase the number of shares reserved under the
Company's 1987 Stock Option Plan by 50,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
(3) The proposal to increase the number of shares reserved under the
Company's Non-employee Director Stock Option Plan by 200,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
(4) The proposal to ratify the appointment of Deloitte & Touche LLP as
independent auditors of the company for the fiscal year ending December
31, 1998.
/ / FOR / / AGAINST / / ABSTAIN
(5) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED HEREIN. IF NO INSTRUCTIONS ARE INDICATED,
PROXIES WILL BE VOTED FOR THE ELECTION OF NOMINEES NAMED HEREIN AND FOR THE
OTHER PROPOSALS. Please sign exactly as your name appears below. When shares are
held by joint tenants, both must sign. Fiduciaries should indicate title and
authority.
Date: _______________________, 1998
___________________________________
(Signature)
___________________________________
(Signature, if held jointly)
___________________________________
(Title or Authority)
PLEASE SIGN, DATE AND RETURN THIS
PROXY PROMPTLY IN THE ENVELOPE
PROVIDED.
