<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
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
/ / 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 transaction 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 27, 1999
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 27, 1999, 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 three directors to serve for a period of three years;
2. To approve an amendment to the Company's Articles of Incorporation to
increase the Company's authorized shares of capital stock from
10,000,000 to 25,000,000;
3. To approve an amendment to the Company's 1987 Stock Option Plan (the
"1987 Plan"); and
4. 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 April 23, 1999 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, 1998.
By Order of the Board of Directors,
Richard E. Jahnke,
President and Chief Executive Officer
Saint Paul, Minnesota
Dated: April 30, 1999
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 27, 1999
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 1999 Annual
Meeting of Shareholders to be held on Thursday, May 27, 1999 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 May 3, 1999.
Shareholders of record at the close of business on April 23, 1999 will be
entitled to vote at the Annual Meeting and any adjournment thereof. As of April
23, 1999, the Company had 5,613,620 shares of its common stock, $0.05 par value
issued, outstanding and entitled to be voted at the Annual Meeting. In
addition, on April 23, 1999, 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 is entitled to one vote per share on all matters being presented at the
Annual Meeting. Each holder of Class A Stock is entitled to 3.375 votes 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 (i) for the
nominees for directors as proposed herein; (ii) for the increase in authorized
shares of the Company; (iii) for the amendment to the Company's 1987 Plan; and
in the best judgment of the persons named in the proxy as to any other matters
that 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 5,613,620 shares and 444,445 shares,
respectively, were outstanding as of April 23, 1999. Management believes that
as of April 23, 1999, no person beneficially owned more than five percent of the
voting power combined outstanding common stock and Class A Stock of the Company,
except as set forth in the table below.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS OF BENEFICIALLY VOTING
BENEFICIAL OWNER OWNED SECURITIES
-------------------- ---------------- ----------
<S> <C> <C>
John D. Wunsch 2,190,136 (1) 30.7
FAMCO II LLC
Family Financial Strategies,
Inc.
Interchange Tower, Suite 850
600 South Highway 169
Minneapolis, MN 55426
Austin W. Marxe and 727,272 (2) 10.2
AWM Investment Company, Inc.
153 East 53 Street
New York, NY 10022
Heartland Advisors, Inc. 680,700 (3) 9.6
790 North Milwaukee Street
Milwaukee, WI 53202
Mark W. Sheffert 480,500 (4) 6.4
3650 IDS Center
Minneapolis, MN 55402
</TABLE>
(1) Includes 444,445 shares of the Company's Class A Stock, and 663,636 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. Mr.
Wunsch's total also includes 20,000 shares subject to exercisable options
held by Mr. Wunsch.
(2) Of the 1,429,422 shares beneficially owned by Austin W. Marxe and AWM
Investment Company, Inc. ("AWM"), 272,727 shares are owned by the Special
Situations Fund III L.P. (the "Fund"), 90,909 shares are owned by the
Special Situations Cayman Fund, L.P. (the "Cayman Fund"), and 363,636
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 13G,
filed with the Securities and Exchange Commission on January 8, 1999.
(3) 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/A, dated
as of February 2, 1999, filed with the Securities and Exchange Commission.
(4) See "Security Ownership of Directors and Management."
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
2
<PAGE>
The following table sets forth, as of April 23, 1999, 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 THAT MAY BE
ACQUIRED WITHIN SIXTY PERCENT OF
NAMES OF DIRECTORS, NOMINEES DAYS OF VOTING
AND THE NAMED EXECUTIVES SHARES OWNED (1) APRIL 23, 1999 TOTAL SHARES SECURITIES
---------------------------- ---------------- --------------------- ------------ ----------
<S> <C> <C> <C> <C>
Anthony J. Adducci 44,750 18,250 63,000 *
Gerald T. Knight 47,000 25,918 72,918 1.0
W. Edward McConaghay 10,500 28,584 39,084 *
John C. Penn 9,500 26,250 35,750 *
Mark W. Sheffert 52,500 428,000 480,500 6.4
Glenn D. Taylor -0- 33,334 33,334 *
Donald C. Wegmiller 25,500 26,668 52,168 *
Richard Jahnke 6,000 50,000 56,000
John D. Wunsch 2,170,136 20,000 2,190,136 30.7
Terrance J. Kapsen 46,026 22,500 68,526
Dale H. Johnson 8,000 20,000 28,000 *
Michael G. Snow 1,000 15,000 16,000 *
Rex T. Fasching -0- 30,000 30,000 *
David B. Viele 450 -0- 450 *
Anthony A. Curro -0- -0- -0- *
All current directors and executive 2,420,912 730,670 3,146,582 39.9
officers as a Group
(13 persons)
</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 - 30,500 shares held
in the Adducci Revocable Trust of which Mr. Adducci is Co-Trustee and
12,750 shares held in trust for Mr. Adducci's daughter; W. Edward
McConaghay - 3,000 shares held by Mr. McConaghay's wife ; John D. Wunsch -
444,445 shares of the Company's Class A Stock, and 663,636 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.
3
<PAGE>
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 2001), 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. Anthony J. Adducci, Gerald T. Knight and W. Edward McConaghay
are the Class B directors whose terms expire at the Annual Meeting. The other
directors of the Company will continue in office for their existing terms.
Richard E. Jahnke and John D. Wunsch are the Class A directors. Mark W.
Sheffert, John C. Penn and Donald C. Wegmiller are the Class C directors. The
Board of Directors has nominated Messrs. Knight and McConaghay for election to
the Board at the Annual Meeting for terms expiring at the annual meeting in
2002.
Proxies solicited by the Board of Directors will, unless otherwise
directed, be voted to elect Messrs. Knight and McConaghay. 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.
In addition to Mr. Knight and Mr. McConaghay, the term of Anthony J.
Adducci ends at the Annual Meeting. Mr. Adducci has decided not to stand for
reelection at the Annual Meeting of Shareholders. Mr. Adducci has served the
Company as a director since 1981. The Company wishes to thank Mr. Adducci for
his many years of faithful service.
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 B (TERM ENDING IN 2002)
- - --------------------------------------------------------------------------------
Gerald T. Knight Executive Vice President and Chief
Director since October 1990 Executive Officer of Fingerhut
Age -- 51 Companies, Inc.
Mr. Knight 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. Mr. Knight served as Chairman of the Board at Medical
Graphics Corporation from May 1995 to December 1995.
4
<PAGE>
- - --------------------------------------------------------------------------------
W. Edward McConaghay President and Chief Executive Officer
Director since March 1994 of Telident, Inc.
Age -- 50
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.
NAME, BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS AND SELECTED
OTHER INFORMATION CONCERNING CONTINUING DIRECTORS
- - --------------------------------------------------------------------------------
CLASS A (TERM ENDING IN 2001)
- - --------------------------------------------------------------------------------
Richard E. Jahnke President and Chief Executive Officer
Director since August 1998 Medical Graphics Corporation
Age -- 50
Richard E. Jahnke, 50, has served as the Company's President and Chief
Operating Officer since August 1998. From 1993 to March 1998, Mr. Jahnke
serve as President and Chief Operating Officer at CNS, Inc. a consumer health
care products company. From 1991 to 1993, he was Executive Vice President and
Chief Operating Officer of Lemna Corporation, which manufactures and sells
waste water treatment systems. From 1986 to 1991, Mr. Jahnke was general
manager of the government operations division of ADC Telecommunications, an
electronic communications systems manufacturer. From 1982 to 1986, he was
Director of Marketing and Business and Technical Development at BMC
Industries, Inc. From 1972 to 1982, he held various positions of increasing
responsibility in engineering, sales and marketing management at 3M Company.
- - --------------------------------------------------------------------------------
John D. Wunsch President and Chief Executive Officer
Director since March 1997 Family Financial Strategies, Inc.
Age -- 50
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., an integrator of 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 August 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.
- - --------------------------------------------------------------------------------
CLASS C (TERM ENDING IN 2000)
- - --------------------------------------------------------------------------------
Mark W. Sheffert Chairman and Chief Executive Officer
5
<PAGE>
Director since January 1997 of Manchester Companies, Inc.
Age -- 51
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 December 1994, 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 Presidents 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., LifeRate Systems, Inc.and Fourth Shift, Inc.
- - --------------------------------------------------------------------------------
John C. Penn Vice Chairman and Chief Executive
Director since December 1996 Officer
Age -- 59 Satellite Industries, Inc. and
Satellite 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 the previous 26
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 -- 60
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. Mr. Wegmiller serves on the
Board of Directors of Possis Medical, Inc., Minnesota Power, SelectCare and
LecTec Corporation.
- - --------------------------------------------------------------------------------
BOARD OF DIRECTORS' COMMITTEES AND MEETINGS
The Board of Directors held seven meetings during the Company's fiscal year
ended December 31, 1998. All directors and nominees for director attended at
least eighty percent of the meetings held during 1998 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.
6
<PAGE>
The Company has three standing committees of the Board of Directors, as follows:
<TABLE>
<CAPTION>
NAME OF COMMITTEE MEMBERSHIP
- - ----------------- ----------
<S> <C>
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
</TABLE>
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 1998, the Audit Committee
held one meeting, the Compensation Committee held two meetings and the
Nominating Committee held no meetings.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE TITLE
- - ---- --- -----
<S> <C> <C>
Mark W. Sheffert 51 Chairman
Richard E. Jahnke 50 President and Chief Executive Officer
Dale H. Johnson 54 Chief Financial Officer
Terrance J. Kapsen 48 Vice President - Cardiorespiratory Business
Rex T. Fasching 58 Vice President - Operations
Michael G. Snow 49 Vice President - Research and Development/QARA
</TABLE>
- - --------------
Biographical information on Mark W. Sheffert and Richard E. Jahnke is provided
elsewhere in this Proxy Statement under "Election of Directors."
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
7
<PAGE>
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.
Terrance J. Kapsen has been a Vice President of the Company since December 1981,
most recently as Vice President - Cardiorespiratory Business since 1998. 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. Mr. Kapsen holds a B.S. degree in Biology from St. John's 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.
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>
Richard E. Jahnke 1998 96,923 -0- - -0- 400,000 -0-
President and Chief
Executive Officer
8
<PAGE>
Glenn D. Taylor (4) 1998 156,154 -0- - -0- -0- -0-
Former Chief Executive 1997 127,885 -0- - -0- 150,000 -0-
Officer
Anthony A. Curro (5) 1997 124,616 -0- - -0- 15,000 -0-
Former Vice President - 1996 117,021 -0- - -0- -0- 295
Sales 1995 101,832 -0- - -0- -0- 1,153
David B. Viele (6) 1998 114,230 5,000 - -0- -0- -0-
Former Vice President - 1997 38,923 -0- -0- 15,000 -0-
Marketing 1996 59,209 8,769 -0- -0- -0-
Terrance J. Kapsen 1998 114,231 -0- - -0- 10,000 -0-
Vice President - 1997 109,536 -0- - -0- -0- 254
Cardiorespiratory Business 1996 111,283 -0- - -0- -0- 1,649
Dale H. Johnson 1998 103,846 -0- - -0- 10,000 -0-
Chief Financial Officer 1997 86,923 -0- - -0- 30,000 -0-
Rex T. Fasching 1998 103,846 -0- - -0- 10,000 -0-
Vice President - Operations 1997 91,385 -0- - -0- 37,500 -0-
Michael G. Snow 1998 103,846 -0- - -0- 10,000 -0-
Vice President - 1997 99,308 -0- - -0- -0- -0-
Research and Development 1996 85,128 -0- - -0- -0- 343
</TABLE>
- - ------------
(1) The compensation reported represents perquisites paid for by the Company,
including
(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.
(4) Mr. Taylor resigned his position at the Company effective July 30, 1998.
(5) Mr. Curro resigned his position at the Company effective July 31, 1998.
(6) Mr. Viele resigned his position at the Company effective December 31, 1998.
STOCK OPTION GRANTS AND EXERCISES TABLES
The following tables summarize stock option grants and exercises during
fiscal 1998 to or by the Named Executives.
OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------------------------------------------
Number of
Securities Underlying % of total Options Exercise or
Options Granted Granted to Employees Base Price Expiration
Name (#) in Fiscal 1998 ($/Sh)(1) Date
- - -------------------- --------------------- -------------------- ------------ ----------
<S> <C> <C> <C> <C>
9
<PAGE>
Richard Jahnke 200,000 43.2 1.25 12/15/08
200,000 43.2 2.25 08/03/08
Glenn D. Taylor -0- -0- -0- -0-
Anthony A. Curro -0- -0- --- ---
David B. Viele -0- -0- --- ---
Terrance J. Kapsen 10,000 2.1 1.00 12/15/03
Dale H. Johnson 10,000 2.1 1.00 12/15/03
Rex T. Fasching 10,000 2.1 1.00 12/15/03
Michael G. Snow 10,000 2.1 1.00 12/15/03
- - -----------
</TABLE>
(1) All stock options were granted with an exercise price equal to the fair
market value of the common stock on the date of grant, which was the
closing price of the common stock as reported on the Nasdaq SmallCap Market
on such date.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND
OPTION VALUES AT END OF FISCAL 1998
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Unexercised Options In-the-Money Options
Shares at December 31, 1998 (#) at December 31, 1998($)(1)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($)(1) Unexercisable Unexercisable
- - ---------------------- ------------ ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Richard Jahnke -0- - 50,000/350,000 -0- / -0-
Glenn D. Taylor -0- - -0- / -0- -0- / -0-
Anthony A. Curro -0- - -0- / -0- -0- / -0-
David B. Viele -0- - 5,000/15,000 -0- / -0-
Terrance J. Kapsen -0- - 22,500/32,500 -0- / 1,880
Dale H. Johnson -0- - 10,000/40,000 -0- / 1,880
Rex T. Fasching -0- - 30,000/47,500 -0- / 1,880
Michael G. Snow -0- - 15,000/25,000 -0- / 1,880
- - ----------
</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, 1998.
EMPLOYMENT AGREEMENTS
Other than as stated below, the Company does not have employment agreements
with its Named Executives.
10
<PAGE>
In December 1998, the Company into an employment agreement with Richard
Jahnke. Under the terms of the employment agreement, Mr. Jahnke serves as
President and Chief Executive Officer of the Company for an annual base salary
of $240,000. Mr. Jahnke will also be entitled to bonuses in accordance with an
incentive compensation plan to be mutually agreed upon each year between Mr.
Jahnke and the board of directors.. Mr Jahnke also received options to
purchase 200,000 shares of common stock at a price of $1.25 per share which
vest over three year period and option to purchase 200,000 shares at a price of
$2.25 per share which vest in July 2008, subject to earlier vesting upon the
achievement of performance goals agreed upon between Mr. Jahnke and the Company.
The employment agreement has a term of two years. In the event Mr. Jahnke's
employment is terminated without case prior to a change in control, the Company
will pay Mr. Jahnke's salary for a period of 12 months together with unpaid
bonuses or incentive amounts earned by Mr. Jahnke. In the event that Mr.
Jahnke's employment is terminated after a change in control without cause, the
Company will pay Mr. Jahnke's salary for a period of 24 months together with
unpaid bonuses or incentive amounts earned by Mr. Jahnke.
The Company entered into a Compensation and Benefits Assurance Agreement
(the "Employment Agreement") with Messrs. Kapsen and Snow effective December 16,
1996. The Employment Agreement assures Messrs. Kapsen and Snow of continued
employment 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 these
individual's employment ends for any reason specified as being a Qualifying
Termination, as such term is defined in the Agreement, they are entitled to
unpaid salary, vacation pay and expenses, severance pay, health insurance
coverage and outplacement services for periods specified in the Employment
Agreement.
INCREASE IN AUTHORIZED SHARES
(PROPOSAL NO. 2)
In 1999, the Board of Directors of the Company adopted a resolution,
subject to shareholder approval and ratification, approving an amendment to the
Company's Amended and Restated Articles of Incorporation, to increase the
aggregate number of shares of stock authorized for issuance from 10,000,000 to
25,000,000.
The following resolution will be presented to the shareholders for
approval.
RESOLVED, that Section 3.01of the Articles Incorporation of this
corporation be amended to read as follows:
"The aggregate number of shares of stock that this
corporation shall have the authority to issue is
25,000,000. All common stock issued shall have a
par value of $.05 per share."
As of April 23, 1999, of the 10,000,000 shares of stock currently
authorized, the Company had 5,613,620 shares of common stock outstanding, and
444,445 shares of Class A Stock convertible into 1,500,000 shares of common
stock, and 2,474,213 shares reserved for issuance pursuant to options, warrants,
convertible securities and other arrangements. If this proposal is adopted to
increase the Company's authorized shares of stock to 25,000,000, the Company
will have 15,418,051 shares of stock authorized and available for future
issuance.
11
<PAGE>
The proposed increase in the number of shares of stock authorized for
issuance by the Company is designed to ensure that shares of stock will be
available, if needed, for various corporate purposes including, but not limited
to, stock splits, stock dividends and other distributions. Although the Company
may seek equity capital during fiscal 1999, it currently has no arrangements,
commitments or understandings with respect to the issuance of any of the
additional shares that would be authorized by the proposed amendment; however,
the Board believes it is desirable to have the authorized capital of the Company
sufficiently flexible so that future business needs and corporate opportunities
may be dealt with by the Board of Directors without undue delay or the necessity
of holding a special shareholders' meeting. Additionally, the increased
authorized shares could be used by the Company to make a takeover attempt by a
third party more difficult, such as by using the shares to make a counter-offer
for the shares of the bidder or by selling shares to dilute the voting power of
the bidder. As of the date of this Proxy Statement, the Board is unaware of any
effort to accumulate the Company's shares of Common stock or to obtain control
of the Company by means of a merger, tender offer, solicitation in opposition to
management or otherwise.
If adopted by the shareholders, the proposed amendment will be accomplished
by the filing of Articles of Amendment with the Secretary of State of the State
of Minnesota, which would be expected to be accomplished promptly following
shareholder approval.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the Common stock of
the Company, voting at the meeting in person or by proxy, is required for the
approval of the increase in authorized shares of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR ADOPTION OF THIS PROPOSAL 2.
AMENDMENT TO THE COMPANY'S
1987 STOCK OPTION PLAN
(PROPOSAL NO. 3)
AMENDMENT TO INCREASE ANNUAL LIMITATION ON OPTION GRANTS.
The 1987 Plan authorizes the issuance of up to 1,425,000 shares of common
stock. Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") limits the Company's deduction for federal income tax purposes of
compensation in excess of $1 million per individual paid to the Company's Chief
Executive Officer and its four highest paid executive officers. Compensation
plans that have an annual cap on the number of shares that may be granted to any
given individual will not be subject to the deduction limit. The 1987 Plan
currently has an annual cap of 75,000 on the amount of shares subject to an
option grant. In December 1998, the Board of Directors amended the 1987 Plan,
subject to ratification and approval of the shareholders, to increase the annual
cap to 200,000 shares. By adopting this change, the Company may deduct any
compensation expense resulting from the grant or exercise of options issued
under the Plan without regard to the limitations under Code Section 162(m),
including options to the individuals described above.
SUMMARY OF 1987 PLAN
12
<PAGE>
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 (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 ("Non-Qualified 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 15, 1999, there were
approximately 119 employees of the Company who may be deemed to be eligible
employees under the 1987 Plan, of whom 77 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 1,425,000.
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 15, 1999, the
closing price of a share of Company Common stock as reported by the Nasdaq
SmallCap Market was $1.25. 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 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.
13
<PAGE>
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 12 months will be taxed at a maximum rate of 20% and capital gains
resulting from property held for less than one year will be taxed at a maximum
rate of 28%.
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.
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 ADOPTION OF THIS PROPOSAL 3.
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 as amended, the Company agreed to
pay Manchester a monthly fee of $10,000, plus out-of-pocket expenses, during
1998. 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.
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"). Upon request of the Company as
allowed under the terms of the Agreement, on January 30, 1998 and February 10,
1998, the Investors
14
<PAGE>
purchased 181,818, 136,364, 181,818 and 45,455 shares, respectively, of the
Company's common stock, $.05 par value (the "Common stock"), at a per share
purchase price of $2.75.
On September 30, 1998, the Company entered into a Stock Purchase Agreement
(the "Agreement") by and among the Company and FAMCO II LLC and Compumedics
Sleep PTY (the "Investors"). Under the terms of the Agreement, the Investors
purchased 300,000 and 250,000 shares, respectively, of the Company's Common
stock at a purchase price of $1.00 per share. In addition, as a result of
this September 1998 issuance of 550,000 shares of common stock at $1.00 per
shares, the conversion provisions of the Class A stock issued to FAMCO II LLC in
1997 were adjusted so that the Class A stock became convertible into common
stock at a price of $1.00 per share. This increased the number of shares
issuable on conversion of the Class A stock from 666,666 to 1,500,000.
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 Mr. Sheffert who filed a late Form
5 amendment.
SHAREHOLDER PROPOSALS
Any shareholder desiring to submit a proposal for action at the 2000 Annual
Meeting of Shareholders and presentation in the Company's proxy statement with
respect to such meeting should arrange for such proposal to be delivered to the
Company's offices, 350 Oak Grove Parkway, Saint Paul, Minnesota 55127 addressed
to Investor Relations, no later than January 3, 2000 in order to be considered
for inclusion in the Company's proxy statement relating to the meeting. Matters
pertaining to such proposals, including the number and length thereof,
eligibility of persons entitled to have such proposals included and other
aspects are regulated by the Securities Exchange Act of 1934, Rules and
Regulations of the Securities and Exchange Commission and other laws and
regulations to which interested persons should refer.
On May 21, 1998 the Securities and Exchange Commission adopted an amendment
to Rule 14a-4, as promulgated under the Securities and Exchange Act of 1934, as
amended. The amendment to Rule 14a-4(c)(1) governs the Company's use of its
discretionary proxy voting authority with respect to a stockholder proposal
which is not addressed in the Company's proxy statement. The new amendment
provides that if a proponent of a proposal fails to notify the Company at least
45 days prior to the month and day of mailing of the prior year's proxy
statement, then the Company will be allowed to use its discretionary voting
authority when the proposal is raised at the meeting, without any discussion of
the matter in the proxy statement.
With respect to the Company's 2000 Annual Meeting of Shareholders, if the
Company is not provided notice of a shareholder proposal, which the shareholder
has not previously sought to include in the Company's proxy statement, by March
19, 2000, the Company will be allowed to use its voting authority as described
above.
15
<PAGE>
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.
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 April 23, 1999. 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,
Richard E. Jahnke
President and Chief Executive Officer
April 30, 1999
16
<PAGE>
MEDICAL GRAPHICS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
MAY 27, 1999
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 Richard E. Jahnke, 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 27, 1999, 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)
Gerald T. Knight, W. Edward McConaghay
(INSTRUCTION: To WITHHOLD authority to vote for any individual nominee,
write that nominee's name on the space provided below)
----------------------------------------------------------------------------
(2) The proposal to amend the Company's Articles of Incorporation to increase
the number of authorized shares of capital stock from 10,000,000 to
25,000,000.
/ / FOR / / AGAINST / / ABSTAIN
(3) The proposal to amend the Company's 1987 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
(4) 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: , 1999
-----------------------
----------------------------------
(Signature)
----------------------------------
(Signature, if held jointly)
----------------------------------
(Title or Authority)
PLEASE SIGN, DATE AND RETURN THIS
PROXY PROMPTLY IN THE ENVELOPE
PROVIDED.
