<PAGE>
As filed with the Securities and Exchange Commission on November 16, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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MEDICAL GRAPHICS CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1316712
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
350 Oak Grove Parkway
Saint Paul, Minnesota 55127
(651) 484-4874
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
---------------
Richard E. Jahnke
President, Chief Executive Officer
Medical Graphics Corporation
350 Oak Grove Parkway
Saint Paul, Minnesota 55127
(651) 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
Approximate date of commencement of proposed sale to public: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration
statement for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Amount to be Offering Aggregate Amount of
Title of Each Class of Registered Price Offering Registration
Securities to be Registered Per Unit Price Fee
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<S> <C> <C> <C> <C>
Common Stock, $.05 par value . . . . . . . . . . . . . . 3,140,908 $0.8125(1) $1,123,958(1) $313(2)
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</TABLE>
(1) Estimated solely for the purpose of determining the registration fee and
based on the closing price of the Company's Common Stock on the Nasdaq
SmallCap Market on November 12, 1998 pursuant to Rule 457(c). Pursuant to
Rule 429(b), the Prospectus contained in this Registration Statement is a
combined Prospectus that relates to Registration Statements Nos. 333-32467
and 333-41721.
(2) The Company paid a total of $522 for the registration of 666,667 shares
with Registration No. 333-32467 and $923 for the registration of 1,090,908
shares with Registration No. 333-41721. In both cases, such shares have
been adjusted for the Company's June Registration No. 3-for-2 stock split.
Accordingly, the fee being paid with this filing reflects only the
1,383,333 new shares being covered by this Registration Statement.
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>
MEDICAL GRAPHICS CORPORATION
3,140,908 SHARES OF
COMMON STOCK
These shares of our common stock, $.05 par value (the "Common Stock"),
are being sold by FAMCO II LLC, Special Situations Fund III, L.P., Special
Situations Private Equity Fund L.P., Special Situations Cayman Fund L.P., and
Compumedics Sleep Pty Ltd, the selling shareholders. The Company will not
receive any part of the proceeds from the sale.
Our Common Stock is listed on the Nasdaq SmallCap Market under the
symbol "MGCC". The reported last sale price of the Common Stock on November
12, 1998, was $0.8125 per share.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK AND YOU SHOULD PURCHASE SHARES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON PAGE
3 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS CRIMINAL OFFENSE.
NOVEMBER __, 1998
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS
AND IN DOCUMENTS INCORPORATED HEREIN BY REFERENCE.
ABOUT 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 sells a wide-ranging line of diagnostic systems with
patented hardware and software sold under the MedGraphics trade name. The
Company's products include 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 (651)
484-4874.
THE OFFERING
The Selling Shareholders are offering 3,140,908 shares of Common Stock.
These Shares were issued by the Company on September 30, 1998, February 10,
1998, January 30, 1998 and November 12, 1997 pursuant to Stock Purchase
Agreements dated September 30, 1998 and November 10, 1998 between the Company
and the Selling Shareholders (the "Agreements").
<TABLE>
<S> <C>
Common Stock offered by Selling Shareholders................ 3,140,908
Common Stock outstanding as of November 16, 1998(1)......... 5,607,736
Nasdaq SmallCap Symbol...................................... MGCC
</TABLE>
(1) Excludes 1,500,000 shares of Common Stock issuable upon the conversion of
the Company's Class A Stock and excludes shares of Common Stock issuable upon
exercise of outstanding warrants and stock options.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Common
Stock. See "Use of Proceeds."
RISK FACTORS
This offering involves substantial investment risk and the Shares should be
purchased only by persons who can afford the loss of their entire investment.
See "Risk Factors."
-------------------------------------
THE FOLLOWING UNITED STATES REGISTERED TRADEMARKS APPEAR IN THIS PROSPECTUS
AND ARE OWNED BY THE COMPANY: MEDGRAPHICS AND CPX EXPRESS. WINDOWS IS A
TRADEMARK OF MICROSOFT CORPORATION.
-------------------------------------
2
<PAGE>
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
The Company experienced net losses of $1,274,000 for the nine months
ended September 30, 1998 and net losses of $4,962,000 and $9,071,000 for the
fiscal years ended December 31, 1997 and 1996, 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.
At September 30, 1998, the Company had a working capital line of credit
with a bank that provides for total borrowings, based on available
collateral, of up to $4,100,000, at the discretion of the lender, and expires
March 31, 2000. Total borrowings outstanding under the credit agreement are
secured by the Company's accounts receivable and inventories. The credit
agreement contains certain restrictive covenants as well as limitations on
capital expenditures and payment of dividends. The credit line allows the
Company to borrow up to 80% of eligible domestic accounts receivable, 40% of
eligible domestic inventory (not to exceed $1,500,000), and 90% of eligible
foreign accounts receivable.
During 1997, the Company also entered into financing arrangements with
certain vendors which provide for payment of outstanding balances in equal
monthly installments for up to 36 months.
The Company has no material commitments for 1998 capital expenditures.
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 at least 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 a number of 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.
3
<PAGE>
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.
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.
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. 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. The Company believes its principal competitors in
its traditional markets are SensorMedics Corporation, a subsidiary of
ThermoElectron Corporation ("SensorMedics"), and Erich Jaeger GmbH & Co. The
Company believes that its principal competitors in the sleep market are
SensorMedics, Healthdyne Technologies, Inc. and Nellcor Puritan Bennett.
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.
This competition has exerted, and is likely to continue to exert, downward
pressure on the prices the Company is able to charge for its products. There
can be no assurance that the Company will be able to offset such downward
price pressure through corresponding cost reductions. Any failure to offset
such pressure could have an adverse effect on the business, results of
operations or financial condition of the Company.
DEPENDENCE ON 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. The success of the Company will also depend on its ability to
attract and retain capable sales and marketing personnel.
4
<PAGE>
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, the Company makes up a
significant portion of Compumedics' business. Although the Company has no
reason to believe such would occur, if Compumedics fails for any reason to
deliver its product on a timely basis or otherwise to the Company, the
Company would suffer adverse effects such as failure to recoup its capital
investment or a return on its investment and a short-term negative impact on
the Company's reputation in the marketplace.
ABSENCE OF DIVIDENDS
The Company has never paid, and does not plan to pay, any dividends on
its Common Stock in the foreseeable future.
ANTIDILUTION PROVISIONS OF CLASS A STOCK
The Class A Stock issued by the Company in March and April 1997
contained antidilution provisions under which the conversion price of the
Class A Stock is adjusted in the event the Company issues securities a price
less than the conversion price of the Class A Stock. As a result of the
Company's issuance of Common Stock in September 1998, the conversion
provisions of the Class A Stock were adjusted so that the Class A Stock is
convertible into Common Stock at a price of $1.00 per share. Certain of the
Company's outstanding warrants have similar provisions. In the event that the
Company issues equity securities in the future at a price less than $1.00 per
share, unless waived, the antidilution provisions of the Class A Stock would
result in the conversion price being lowered to the price at which the
Company issued equity securities.
5
<PAGE>
RECENT DEVELOPMENTS
RECENT FINANCING
In September 1998, the Company closed on a private offering with FAMCO
II LLC ("FAMCO"), a private institutional investor, and Compumedics Sleep Pty
Ltd ("Compumedics"), an Australian manufacturer of sleep diagnostic products
and a supplier to the Company. In the offering, the Company sold 550,000
shares of its Common Stock at a price of $1.00 per share. FAMCO purchased
300,000 shares for $300,000 in cash and Compumedics purchased 250,000 shares
through conversion into Common Stock of $250,000 of accounts payable by the
Company to Compumedics.
The Company's 444,445 shares of Class A Stock issued to FAMCO in March
and April 1997 were originally convertible one-for-one into 444,445 shares of
the Company's Common Stock. As a result of the Company's June 1998 3-for-2
stock split, this conversion right was adjusted to 666,667 shares. The
Class A Stock also contains anti-dilution provisions and, as a result of the
September 1998 offering, the 444,445 shares of Class A Stock held by FAMCO
are now convertible into 1,500,000 shares of Common Stock.
YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. The
Company's computer equipment, software, devices and products with imbedded
technology that are time-sensitive may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
STATE OF READINESS
In late 1997, the Audit Committee of the Board of Directors of the
Company directed the Company's management to initiate a Year 2000 compliance
plan. By March 1998, management implemented a formal program to address the
Company's Year 2000 compliance by forming a Year 2000 staff consisting of
personnel from cross-functional areas of the Company, including information
systems, marketing, research and development, technical support, quality
assurance and regulatory affairs and administration (the "Y2K Project Team").
A Project Manager, who reports to the Audit Committee of the Board, leads
the Y2K Project Team to ensure that it meets time deadlines, objectives and
documents remedial action.
As part of its compliance plan, the Company's Y2K Project Team is taking
inventory of the Company's operations and dividing areas for assessment into
three categories:
- VITAL - computer-controlled systems, programs, equipment and products
that the Company needs to function day-to-day;
- CRITICAL - those systems which must be repaired or replaced prior to
the millennium but are not necessary for the Company's day-to-day
operations; and
- MARGINAL - those systems for which repair and replacement are not
material to the Company's operations.
The Y2K Project Team has also identified five areas covering the entire
scope of the Company's business and has committed to completing an 8-step
program for each area. The diagram below identifies the five areas as well
as the current and projected schedule of the 8-step program for each area.
6
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Company OEM Products Internal Business Vendors &
Products Programming Information Suppliers
Systems
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<S> <C> <C> <C> <C> <C>
Team Formation & Completed Completed Completed Completed Completed
Assignment
- ------------------------------------------------------------------------------------------------------------------------
Inventory Assessment Completed 80% Completed 90% 35%
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Compliance Completed 80% Completed 90% 35%
Assessment
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Risk Assessment Completed Completed Completed 90% 0%
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Resolution & Completed 80% Completed 30% 0%
Remediation
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Validation Completed 80% Completed 30% 0%
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Contingency Plans Completed Completed Completed 30% 0%
- ------------------------------------------------------------------------------------------------------------------------
Certification & Completed 10% 10% 20% 5%
Sign-off
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</TABLE>
With respect to the Company's relationships with third parties, the
Company relies both domestically and internationally upon various vendors,
governmental agencies, utility companies, telecommunications service
companies, delivery service companies and other service providers. Although
these service providers are outside of the Company's control, the Company has
mailed letters to those with whom it believes its relationships are material
and has verbally communicated with some of its strategic business partners to
determine the extent to which electronic interfaces with such entities are
vulnerable to Year 2000 issues and whether products and services purchased
from or by such entities are Year 2000 ready. As of November 1, 1998, the
Company had received responses from 5% of such third parties, and all of the
companies that have responded have provided written assurances indicating
that their Year 2000 issues will be addressed on a timely basis. The Company
intends to complete follow-up activities, including but not limited to phone
surveys and mailings, with significant vendors and service providers as part
of completing validation of these parties' compliance.
COSTS TO ADDRESS YEAR 2000 ISSUES
To date, the Company has not incurred any material expenditures in
connection with identifying or evaluating Year 2000 compliance issues. The
Company has incurred the majority of its costs from the recent installation
of updated internal computer systems as well as the labor cost and
opportunity cost of time spent by employees of the Company evaluating Year
2000 compliance matters generally. Because the Company upgraded its internal
computer systems as part of its regularly planned software and hardware
upgrade efforts, it does not consider the costs related thereto to be charges
for Year 2000 compliance. The Company
7
<PAGE>
presently estimates the cumulative labor costs of its Year 2000 compliance
efforts to be approximately $50,000. With respect to future costs, the
Company estimates it will spend approximately $25,000 for remediation and
validation of products and programs which the Company presently knows are not
compliant and another $50,000 for future staff time for such remediation. In
addition, the Company estimates that it may spend no more than another
$100,000 on remediation and validation of products and programs which have
not yet been assessed. The Company believes that these estimates are
reasonable and presently expects such to be within the Company's fiscal 1999
budget. At this time, the Company does not possess information necessary to
estimate the overall potential financial impact of Year 2000 compliance
issues relating to its Year 2000 compliance program. Such impact, including
the effect of a Year 2000 business disruption, could have a material adverse
impact on the Company's financial condition and results of operations.
RISKS OF YEAR 2000 ISSUES
Because the Company is still in the discovery and evaluation phase of
assessing its overall Year 2000 exposure, it cannot at this time state with
certainty that the Year 2000 issues will not have a material adverse impact
on its financial condition, results of operations and liquidity. Although
the Company considers them unlikely, the Company believes that the following
several situations, not in any particular order, make up the Company's "most
reasonably likely worst case Year 2000 scenarios:"
1. CUSTOMER LITIGATION.
The Company has developed a program to advise all customers of Year 2000
compliance of its products and has identified upgrade and replacement
products for its customers affected by Year 2000 compliance issues. These
efforts pertain not only to the Company's internally developed products but
also to externally acquired products. Although the Company believes that its
efforts will ensure no disruption in the business or operations of its
customers, the possibility exists that some customers may experience problems
that may motivate such customers to commence litigation against the Company
for restitution and damages that may be related to such problems.
2. DISRUPTION OF SUPPLY MATERIALS.
Several months ago, the Company began an ongoing process of surveying
its vendors with regard to their Year 2000 readiness and is now in the
process of assessing and cataloging the first responses to the survey. The
Company is hopeful of receiving adequate responses from critical vendors and
many non-critical vendors by January 31, 1999. The Company presently expects
to work with vendors that show a need for assistance or that provide
inadequate responses, and in many cases expects that survey results will be
refined significantly by such work. Where ultimate survey results show that
the need arises, the Company will use its best efforts to arrange for back-up
vendors before the changeover date.
3. DISRUPTION OF THE COMPANY'S INTERNAL COMPUTER SYSTEMS.
The Company has completed a scheduled upgrade of its current hardware
and software systems and such process has required Year 2000 compliance in
all areas. Year 2000 testing occurred as the upgrade process proceeded and,
in addition, will continue to occur prior to the changeover date. For this
reason, the Company considers that disruption of its internal computer
systems is unlikely.
8
<PAGE>
4. DISRUPTION OF THE COMPANY'S NON-COMPUTER SYSTEMS.
The Company is currently conducting a comprehensive assessment of all
non-computer systems, including utility, telecommunications, delivery and
other services. Although the Company intends to work with any third party
providers of such services to ensure that there will be no disruption in the
Company's operations, the Company believes that if any disruptions do occur,
such will be dealt with promptly and will be no more severe with respect to
correction or impact than would be an unexpected breakdown of such services
and related equipment.
CONTINGENCY PLANS
While the Company recognizes the need for contingency planning, it has
not yet developed any specific contingency plans for potential Year 2000
disruptions. The aforementioned 8-step program, however, does include
contingency planning by the Y2K Project Team and such plans, as developed,
will be carefully reviewed by the Company. The Company believes that details
of such plans will depend on the Company's final assessment of the problem as
well as the evaluation and success of its remediation efforts. Future
disclosures will include contingency plans as they become available.
USE OF PROCEEDS
The Company will not receive any proceeds from sales of the Shares by
the Selling Shareholders.
SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock by the Selling
Shareholders as of November 16, 1998.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES MAXIMUM NUMBER OF SHARES TO BE BENEFICIALLY
---- BENEFICIALLY OWNED SHARES TO BE SOLD (1) OWNED AFTER THE OFFERING(1)
PRIOR TO OFFERING --------------------- ---------------------------
------------------
NUMBER PERCENT NUMBER PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
FAMCO II LLC (2) 2,163,636(3) 30.4 2,163,636 -0- *
600 South Highway 169, Suite 850
St. Louis Park, MN 55426
Compumedics Sleep Pty Ltd 250,000 4.5 250,000 -0- *
ACN 006854 897
1 Marine Parade
Abbotsford, VIC 3067
Australia
Special Situations Fund III, L.P. (4) 806,427(5) 14.4 272,727 533,700 9.5
153 East 53rd Street, 51st Floor
New York, NY 10022
Special Situations Private Equity Fund 363,636(5) 6.5 363,636 -0- *
L.P.(4)
153 East 53rd Street, 51st Floor
New York, NY 10022
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES MAXIMUM NUMBER OF SHARES TO BE BENEFICIALLY
---- BENEFICIALLY OWNED SHARES TO BE SOLD (1) OWNED AFTER THE OFFERING(1)
PRIOR TO OFFERING --------------------- ---------------------------
------------------
NUMBER PERCENT NUMBER PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Special Situations Cayman Fund L.P.(4) 292,959(5) 5.2 90,909 202,050 3.6
153 East 53rd Street, 51st Floor
New York, NY 10022
</TABLE>
(1) Assumes the sale of all the shares offered by this Prospectus.
(2) FAMCO is managed by Family Financial Strategies, Inc., of which John
Wunsch, a director of the Company, is the Chief Executive Officer. As a
result of this affiliation, Mr. Wunsch may be deemed to beneficially own
all shares owned by FAMCO and may be deemed to hold shared voting and
investment power with respect to such shares owned by FAMCO.
(3) Includes (i) 1,500,000 shares of Common Stock issuable upon conversion of
Class A Stock purchased in a private placement on March 31, 1997 and April
15, 1997, (ii) 363,636 shares purchased in November 1997 and February 1998
(as adjusted for the Company's June 1998 3-for-2 stock split), and (iii)
300,000 shares purchased in September 1998.
(4) Austin W. Marxe is the principal owner and President of AWM Investment
Company, Inc. ("AWM"). AWM is the sole general partner of MGP Advisers
L.P. ("MGP"), a registered investment adviser. MGP is a general partner of
and investment adviser to Special Situations III, L.P. AWM is also a
registered investment adviser and general partner of Special Situations
Cayman Fund L.P. This disclosure is based on a Schedule 13G/A's, dated as
of November 24, 1997, filed with the Securities and Exchange Commission, as
adjusted for the Company's June 1998 3-for-2 stock split.
(5) Includes 727,272 shares purchased in the aggregate by the Special
Situations funds in November 1997 and January 1998, as adjusted for the
Company's June 1998 3-for-2 stock split.
* Indicates less than one percent.
10
<PAGE>
PLAN OF DISTRIBUTION
The Selling Shareholders may offer their shares at various times in one
or more of the following transactions:
- - on the Nasdaq SmallCap Market, where our Common Stock is listed;
- - in the over-the-counter market;
- - in transactions other than on such exchanges or in the over-the-counter
market;
- - in connection with short sales of the Shares;
- - by pledge to secure debts and other obligations;
- - in connection with the writing of non-traded and call options, in hedge
transactions and in settlement of other transactions in standardized or
over-the-counter options; or
- - in a combination of any of the above transactions.
The selling shareholders may sell their shares at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices.
The selling shareholders may use broker-dealers to sell their shares. If
this happens, broker-dealers will either receive discounts or commissions
from the selling shareholders, or they will receive commissions from
purchasers of shares for whom they acted as agents.
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.
11
<PAGE>
CLASS A STOCK. The Class A Stock has a liquidation preference of $3.375
per share. Each Class A share is currently convertible into 3.375 shares 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
Our outside general counsel, Lindquist & Vennum P.L.L.P. of Minneapolis,
Minnesota, will issue an opinion about the legality of the shares for us and
the Selling Shareholders.
EXPERTS
The financial statements incorporated in this prospectus by reference
from the Company's 1997 Annual Report on Form 10-KSB have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which
is incorporated herein by reference, and has been so incorporated in reliance
upon the report of such firm given upon their authority as an expert 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.
12
<PAGE>
WHERE YOU CAN FIND INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, DC, New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also
available to the public from our web site at www.medgraphics.com or at the
SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference
is considered to be part of this prospectus, and later information that we
file with the SEC will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future filings
made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until the Selling Shareholders sell all the Shares.
This prospectus is part of registration statements we filed with the SEC
(Registration Nos. 333-32467, 333-41721 and 333-______).
- - Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997;
- - Quarterly Reports on Form 10-QSB for the fiscal quarters ended March 31,
1998, June 30, 1998 and September 30, 1998;
- - Proxy Statement dated April 13, 1998 for the 1998 Annual Meeting of
Shareholders on May 13, 1998.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Chief Financial Officer
Medical Graphics Corporation
350 Oak Grove Parkway
Saint Paul, MN 55127
(651) 484-4874
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. The Selling Shareholders
will not make an offer of these shares in any state where the offer is not
permitted. You should not assume that the information in this prospectus or
any supplement is accurate as of any date other than the date on the front of
those documents.
13
<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
23.1 Consent of Lindquist & Vennum P.L.L.P. (see Exhibit 5.1 above)
23.2 Consent of Deloitte & Touche LLP, independent auditors
24.1 Power of Attorney (included on the signature page hereof)
27.1 Financial Data Schedule
</TABLE>
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Form S-3 registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Saint Paul, State of Minnesota, on the 13th day of November, 1998.
MEDICAL GRAPHICS CORPORATION
By \s\ Richard E. Jahnke
-------------------------------------------
Richard E. Jahnke, President and
Chief Executive Officer
POWER OF ATTORNEY
The undersigned officers and directors of Medical Graphics Corporation
hereby constitute and appoint Richard E. Jahnke and Mark W. Sheffert, or
either of them, with power to act one without the other, our true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for us and in our stead, in any and all capacities to sign
any and all amendments (including post-effective amendments) to this
Registration Statement and all documents relating thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing necessary or advisable to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his or her substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities indicated on November 13, 1998.
Signature
- ---------
\s\ Richard E. Jahnke
- --------------------------------------------
Richard E. Jahnke, President,
Chief Executive Officer
(Principal Executive Officer) and Director
\s\ Dale H. Johnson
- --------------------------------------------
Dale H. Johnson, Chief Financial
Officer (Principal Financial
Officer)
\s\ Mark W. Sheffert
- --------------------------------------------
Mark W. Sheffert, Chairman
\s\ Anthony J. Adducci
- --------------------------------------------
Anthony J. Adducci, Director
II-2
<PAGE>
\s\ Gerald T. Knight
- --------------------------------------------
Gerald T. Knight, Director
\s\ W. Edward McConaghay
- --------------------------------------------
W. Edward McConaghay, Director
\s\ Donald C. Wegmiller
- --------------------------------------------
Donald C. Wegmiller, Director
\s\ John C. Penn
- --------------------------------------------
John C. Penn, Director
\s\ John D. Wunsch
- --------------------------------------------
John D. Wunsch, Director
II-3
<PAGE>
EXHIBIT 5.1
November 13, 1998
Medical Graphics Corporation
350 Oak Grove Parkway
Saint Paul, Minnesota 55127
Re: Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-3 to be filed by
Medical Graphics Corporation (the "Company") with the Securities and Exchange
Commission on November 16, 1998 relating to an offering of up to 3,140,908
shares of Common Stock, par value $.05 per share, to be offered by the
Selling Shareholders including 1,757,575 shares (as adjusted for the
Company's June 1998 3-for-2 stock split) that were registered pursuant to
prior registration statements, please be advised that as counsel to the
Company, upon examination of such corporate documents and records as we have
deemed necessary or advisable for the purposes of this opinion, it is our
opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of
Minnesota.
2. The shares of Common Stock being offered by the Selling Shareholders
have been validly issued and are fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus comprising a part of the Registration
Statement.
Very truly yours,
LINDQUIST & VENNUM P.L.L.P.
/s/ Lindquist & Vennum P.L.L.P.
II-4
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Medical Graphics Corporation on Form S-3 of our report dated February 13,
1998, appearing in the Annual Report on Form 10-KSB of Medical Graphics
Corporation for the year ended December 31, 1997 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
November 13, 1998 /s/ Deloitte & Touche LLP
II-5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED JUNE 30,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4,300
<ALLOWANCES> (143)
<INVENTORY> 5,028
<CURRENT-ASSETS> 9,379
<PP&E> 4,095
<DEPRECIATION> (3,560)
<TOTAL-ASSETS> 10,516
<CURRENT-LIABILITIES> 8,283
<BONDS> 0
0
0
<COMMON> 218
<OTHER-SE> 1,805
<TOTAL-LIABILITY-AND-EQUITY> 10,516
<SALES> 3,193
<TOTAL-REVENUES> 4,488
<CGS> 2,762
<TOTAL-COSTS> 4,902
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115
<INCOME-PRETAX> (529)
<INCOME-TAX> 0
<INCOME-CONTINUING> (529)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (529)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
