<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / 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 Section240.14a-11(c) or
Section240.14a-12
MICROFIELD GRAPHICS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed per Exchange Act Rules 14a-6(i)(4) and 0-11.
/ / 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.
<PAGE>
MICROFIELD GRAPHICS, INC.
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 3, 1997
The Annual Meeting of Shareholders of Microfield Graphics, Inc., an Oregon
corporation (the "Company"), will be held on Tuesday, June 3, 1997 at 10:00
a.m., Pacific time, at the Company's offices, 7216 SW Durham Road, Portland, OR
97224, for the following purposes:
1. To elect three directors to serve until the next Annual Meeting of
Shareholders and until their successors are duly elected and qualified
(Proposal No.1);
2. To approve an amendment to the Company's 1995 Stock Incentive Plan to
increase the aggregate number of shares of Common Stock that may be
issued thereunder to a total of 550,000 shares, an increase of 250,000
shares (Proposal No. 2)
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business on March 28, 1997 are
entitled to notice of and to vote at the meeting.
YOU ARE RESPECTFULLY REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT IN THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. You may
attend the meeting in person even though you send in your proxy; retention of
the proxy is not necessary for admission to or identification at the meeting.
By Order of the Board of Directors:
Randall R. Reed
CHIEF FINANCIAL OFFICER AND SECRETARY
Portland, Oregon
May 2, 1997
<PAGE>
MICROFIELD GRAPHICS, INC.
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 3, 1997
------------------------
SOLICITATION AND REVOCABILITY OF PROXY
The enclosed Proxy is solicited on behalf of the Board of Directors of
Microfield Graphics, Inc., an Oregon corporation (the "Company"), for use at the
Annual Meeting of Shareholders to be held on Tuesday, June 3, 1997 at 10:00
a.m., Pacific time, or at any adjournment thereof, for the purposes set forth
herein and in the accompanying notice of Annual Meeting of Shareholders. All
expenses associated with this solicitation will be borne by the Company. The
solicitation of proxies by mail may be followed by personal solicitation of
certain shareholders by officers or regular employees of the Company or by W. F.
Doring and Company. Copies of solicitation materials will be furnished to
fiduciaries, custodians and brokerage houses for forwarding to beneficial owners
of the shares of the Company's Common Stock held in their names.
The two persons named as proxies on the enclosed proxy card, John B. Conroy
and William P. Cargile, were designated by the Board of Directors. All properly
executed proxies will be voted (except to the extent that authority to vote has
been withheld), and where a choice has been specified by the shareholder as
provided in the proxy card, it will be voted in accordance with the
specification so made. Proxies submitted without specification will be voted FOR
Proposal No. 1 to elect the nominees for director proposed by the Board of
Directors and FOR Proposal No. 2 to approve an amendment to the Company's 1995
Stock Incentive Plan to increase the aggregate number of shares of Common Stock
that may be issued thereunder to a total of 550,000 shares, an increase of
250,000 shares.
A proxy may be revoked by a shareholder prior to its exercise by written
notice to the Secretary of the Company, by submission of another proxy bearing a
later date or by voting in person at the Annual Meeting of Shareholders. Such
notice or later proxy will not affect a vote on any matter taken prior to the
receipt thereof by the Company.
The mailing address of the principal executive offices of the Company is
7216 SW Durham Road, Portland, Oregon 97224. This Proxy Statement, the
accompanying Notice of Annual Meeting, the Proxy Card and a copy of the
Company's Annual Report to Shareholders are first being mailed on or about May
2, 1997 to shareholders of record on March 28, 1997 of the Company's Common
Stock.
VOTING AT THE MEETING
Shareholders of record at the close of business on March 28, 1997 (the
"record date") are entitled to notice of, and to vote at, the meeting. The
Company has one class of voting securities outstanding, designated Common Stock.
At the record date, 3,195,575 shares of the Company's Common Stock were
outstanding and entitled to vote. The Common Stock does not have cumulative
voting rights.
Each share of Common Stock outstanding on the record date is entitled to one
vote per share at the Annual Meeting. If a quorum is present at the Annual
Meeting: (i) the three nominees for election as directors who receive the
greatest number of votes cast will be elected directors; and (ii) Proposal No. 2
to amend the Company's 1995 Stock Incentive Plan to increase the aggregate
number of shares of Common Stock that may be issued thereunder to a total of
550,000 shares will be approved if it receives the affirmative vote of the
majority of the votes cast by holders of shares of Common Stock present in
person or represented by proxy at the Annual Meeting.
With respect to the election of directors, directors are elected by a
plurality of the votes cast and only votes cast in favor of a nominee will have
an effect on the outcome. Therefore, abstention from voting or nonvoting by
brokers will have no effect thereon. With respect to voting on Proposal No. 2,
abstention from voting will have the same effect as voting against the proposal.
Broker non-votes are counted for
<PAGE>
purposes of determining whether a quorum exists at the Annual Meeting but are
not counted and have no effect on the results of the vote on Proposal No. 2.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of February 28, 1997 as to (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director or nominee for director
of the Company, (iii) each of the executive officers named in the Summary
Compensation Table below and (iv) all directors and executive officers as a
group. Except as otherwise noted, the Company believes the persons listed below
have sole investment and voting power with respect to the Common Stock owned by
them.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------
FIVE PERCENT SHAREHOLDERS, DIRECTORS, DIRECTOR SHARES BENEFICIALLY APPROXIMATE
NOMINEES AND CERTAIN EXECUTIVE OFFICERS OWNED (1) PERCENTAGE OWNED
- -------------------------------------------------------------------------------- ---------------------- ----------------
<S> <C> <C>
State Farm Mutual Automobile ................................................... 410,348 12.8%
Insurance Company
One State Farm Plaza
Bloomington, Illinois 61710
John. B. Conroy (2)(3).......................................................... 147,033 4.6%
William P. Cargile (2)(4)....................................................... 98,125 3.1%
Samuel W. Mallicoat (2)......................................................... 95,848 3.0%
Scott D. McVay (2)(5)........................................................... 31,974 1.0%
Donald H. Zurstadt (2)(6)....................................................... 18,172 *
All directors and executive officers as a group (7 persons) (7)................. 434,756 13.3%
</TABLE>
- ------------------------
* Less than 1%
(1) Shares to which the person or group has the right to acquire within 60 days
after February 28, 1997 are deemed to be outstanding in calculating the
percentage ownership of the person or group but are not deemed to be
outstanding as to any other person or group.
(2) The address of Messrs. Conroy, Mallicoat, Cargile, Zurstadt and McVay is c/o
Microfield Graphics, Inc., 7216 SW Durham Road, Portland, Oregon 97224.
(3) Includes 93,939 shares held by Mr. Conroy's wife and 22,500 shares subject
to options exercisable within 60 days after February 28, 1997.
(4) Includes 3,125 shares subject to options exercisable within 60 days after
February 28, 1997.
(5) Includes 25,624 shares subject to options exercisable within 60 days after
February 28, 1997.
(6) Includes 8,663 shares subject to options exercisable within 60 days after
February 28, 1997.
(7) Includes 68,912 shares subject to options exercisable within 60 days after
February 28, 1997.
2
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
In accordance with the Company's Bylaws, the Board of Directors shall
consist of no fewer than three and no more than eleven directors, the specific
number to be determined by resolution adopted by the Board of Directors. The
Board of Directors has set the number of directors at three.
Each director will serve until the next annual meeting of shareholders and
until his successor is duly elected and qualified.
NOMINEES FOR DIRECTOR
The names and certain information concerning the nominees for director are
set forth below. Shares represented by the proxies will be voted for the
election to the Board of Directors of the persons named below unless authority
to vote for a particular director or directors has been withheld in the proxy.
In the event of the death or unavailability of any nominee or nominees, the
proxy holders will have discretionary authority under the proxy to vote for a
substitute nominee. Proxies may not be voted for more than three nominees. The
Board of Directors has nominated the persons named in the following table to be
elected as directors.
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE POSITION WITH THE COMPANY
- ------------------------- --- ---------------------------------------------
<S> <C> <C>
John B. Conroy........... 58 Chairman of the Board, President and Chief
Executive Officer
Samuel W. Mallicoat...... 51 Director
William P. Cargile....... 55 Director
</TABLE>
There is no family relationship among any of the directors or executive
officers of the Company.
JOHN B. CONROY joined the Company in May 1986 and was appointed President
and elected a Director that same month. Mr. Conroy was designated Chief
Executive Officer by the Board of Directors in January 1987, and appointed
Chairman of the Board of Directors in June 1996. Mr. Conroy previously held
executive management positions with a number of computer industry companies, has
served as a Director of several, and holds a BSEE from New York University.
SAMUEL W. MALLICOAT is a co-founder of the Company and served as its
President from November 1984 through May 1986. Mr. Mallicoat was Vice President,
Engineering, from December 1987 until April 1990, at which time he became Vice
President, Research and Development. Mr. Mallicoat resigned as Vice President,
Research and Development and as Chairman of the Board effective November 1,
1996. Prior to his resignation as Chairman, Mr. Mallicoat had served as Chairman
of the Board since the Company's inception. Mr. Mallicoat holds a BSEE from
Oregon State University.
WILLIAM P. CARGILE was elected to the Board of Directors in February 1989.
Mr. Cargile was a General Partner of Crosspoint Venture Partners from April 1983
until December 1995, at which time he became a Venture Partner of Crosspoint
Venture Partners.
BOARD MEETINGS AND COMMITTEES
The Board of Directors met five times during 1996. Each director attended at
least 75% of the meetings of the Board of Directors and all committees of which
he was a member. The standing committees of the Board of Directors are the Audit
Committee, the Compensation Committee and the Executive Stock Committee. The
Company does not have a nominating committee.
The Audit Committee makes recommendations concerning the engagement of the
independent public accountants, reviews with the independent public accountants
the plans and results of the audit engagement, approves professional services
provided by the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit fees
and reviews the adequacy of the Company's internal accounting controls. The
Audit Committee consists of
3
<PAGE>
Messrs. Conroy and Cargile. The Compensation Committee determines compensation
for the Company's executive officers. The Compensation Committee consists of
Messrs. Conroy and Cargile. The Audit Committee met once during 1996. The
Compensation Committee met once during 1996.
The Executive Stock Committee has authority to grant options to directors
and executive officers of the Company. The Executive Stock Committee for 1996
consisted of Messrs. Cargile and Mallicoat, each of whom is expected to remain
on the Executive Stock Committee during 1997, and will qualify as a non-employee
director for purposes of Rule 16b-3 of the Securties Exchange Act of 1934,
during 1997. The Executive Stock Committee did not meet during 1996.
COMPENSATION OF DIRECTORS
The 1995 Stock Incentive Plan provides for the automatic grant of an option
to purchase 10,000 shares of Common Stock to each person who becomes a
non-employee director of the Company after April 24, 1996, provided that the
person has not previously served as a director of the Company. A "non-employee
director" is a director who is not an employee of the Company or any of its
subsidiaries. The plan also provides for the grant of an automatic option to
purchase an additional 3,000 shares of Common Stock to each incumbent
non-employee director who continues in office as a non-employee director
following an annual meeting of shareholders, starting with the 1997 Annual
Meeting.
Directors do not receive any fees for serving on the Company's Board of
Directors or any committee thereof, but are reimbursed for reasonable expenses
incurred in attending meetings.
AMENDMENT TO THE 1995 STOCK INCENTIVE PLAN
(PROPOSAL NO. 2)
The Company maintains the 1995 Stock Incentive Plan (the "1995 Plan") for
the benefit of its employees and others who provide services to the Company. The
Board of Directors believes the grant of stock options to these individuals
aligns their interests with shareholder interests and provides them with
incentives to exert their best efforts on behalf of the Company. On January 27,
1997 the Company's Board of Directors approved an amendment to the 1995 Plan to
increase the aggregate number of shares of Common Stock that may be issued
thereunder to a total of 550,000 shares, an increase of 250,000 shares. SEE
SUMMARY OF 1995 STOCK INCENTIVE PLAN, AS AMENDED, CONTAINED IN THE APPENDIX TO
THIS PROXY STATEMENT.
In the absence of contrary specifications, the shares represented by proxies
will be voted FOR the following resolution approving the amendment to the 1995
Plan:
RESOLVED that the shareholders of Microfield Graphics, Inc. hereby
approve the amendment of first sentence of Paragraph 2 of the 1995 Plan
to read as follows:
"Subject to adjustment as provided below and in paragraph 13, the shares
to be offered under the Plan shall consist of Common Stock of the
Company, and the total number of shares of Common Stock that may be
issued under the Plan shall not exceed 550,000 shares."
The affirmative vote of the majority of the votes cast by holders of shares
of Common Stock present in person or represented by proxy at the Annual Meeting
and entitled to vote thereon is required to adopt the foregoing resolution.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
AMENDMENT TO THE 1995 STOCK INCENTIVE PLAN.
4
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the Company's executive officers are as
follows:
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION(S) WITH COMPANY
- ------------------------- --- ---------------------------------------------
<S> <C> <C>
John B. Conroy........... 58 Chairman of the Board, President and Chief
Executive Officer
Scott D. McVay........... 57 Vice President, Sales
Randall R. Reed.......... 40 Chief Financial Officer and Secretary
Michael W. Stansell...... 54 Vice President, Operations
Donald H. Zurstadt....... 55 Vice President, Engineering
</TABLE>
For information on the business background of Mr. Conroy, see "Nominees for
Director" above.
SCOTT D. MCVAY joined the Company in December 1993 as Vice President, Sales.
Mr. McVay was Vice President, Marketing, at Mass Memory Technology, a
manufacturer of PC storage products, from December 1992 to November 1993, and
Vice President, Worldwide Sales, at Emulex Corp., a manufacturer of
telecommunications and memory products, from April 1990 to June 1992. Mr. McVay
was Vice President of Sales and Marketing at Iomega from 1983 through 1987, and
held various positions at IBM over 19 years. Mr. McVay holds a BS and an MBA in
marketing from the University of Colorado.
RANDALL R. REED joined the Company in August 1985 as Controller and became
the Company's Chief Financial Officer and Secretary in April 1990. Mr. Reed was
a Tax Supervisor among other positions at Coopers and Lybrand from August 1981
to February 1985. Mr. Reed is a Certified Public Accountant and holds a BS in
business administration from Southern Oregon State College.
MICHAEL W. STANSELL joined the Company in November 1985 as Director of
Manufacturing and was appointed Vice President, Operations, in January 1987. Mr.
Stansell was a division manufacturing manager, among other positions, at
Tektronix Corporation from August 1965 through October 1985.
DONALD H. ZURSTADT joined the Company in September 1989 as Manager of
Engineering and was appointed Vice President, Engineering, in April 1990. Mr.
Zurstadt has held management and engineering positions with several computer
industry companies over the past 30 years including Tektronix, Inc., McDonnell
Douglas Automation Corporation and Digital Equipment Corporation. Mr. Zurstadt
holds a BA in physics from the University of Colorado.
5
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and other executive officers of the Company whose total annual salary
and bonus exceeded $100,000 (collectively, the "named officers") for fiscal
years 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
---------------------------------- UNDERLYING ALL OTHER
FISCAL OPTIONS COMPENSATION
YEAR SALARY ($)(1) BONUS ($) (#)(2) ($)(3)
------ ------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
John B. Conroy..................... 1996 205,539 -- 60,000 --
Chairman of the Board of 1995 186,538 50,000 -- --
Directors, President, and 1994 200,000 -- -- --
Chief Executive Officer
Samuel W. Mallicoat (4)............ 1996 110,000 -- -- --
Vice President, Research 1995 121,250 -- -- --
and Development and 1994 130,000 -- -- --
Director
Scott D. McVay (5)................. 1996 153,528 -- 10,000 --
Vice President, Sales 1995 143,053 10,000 -- --
1994 149,000 -- -- --
Donald H. Zurstadt................. 1996 106,628 -- 15,000 --
Vice President, Engineering 1995 95,289 -- -- --
1994 102,165 -- -- --
</TABLE>
- ------------------------
(1) All amounts shown as salary in 1995 include the effect of a voluntary 50
percent decrease in salaries paid during the seven weeks ended April 1,
1995.
(2) The stock options awarded to Messrs. Conroy, Zurstadt, and McVay in 1995 at
$7.00 per share were cancelled and then repriced by vote of the Board of
Directors in August 1996 at the current market price on that date of $4.375
per share.
(3) The aggregate amount of perquisites and other personal benefits was less
than either $50,000 or 10% of the total of the annual salary and bonus
reported for each of the named officers.
(4) Amounts shown for Mr. Mallicoat include compensation for his services as
Vice President, Research and Development through November 1, 1996 when Mr.
Mallicoat resigned this position.
(5) Included in salary amounts for Mr. McVay are commissions of $22,913, $25,534
and $23,000, respectively, for 1996, 1995 and 1994.
6
<PAGE>
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Company's 1995 Stock Incentive Plan and the Company's 1986
Stock Option Plan during fiscal 1996 to the named officers. All current
executive officers as a group received options exercisable for 109,000 shares of
the Company's Common Stock during fiscal 1996. All employees who are not
currently executive officers of the Company received options exercisable for a
total of 157,000 shares of the Company's Common Stock during fiscal 1996.
Of the total of 266,000 options granted in 1996, 181,000 options were
replacements for options previously granted in 1995 that were cancelled and then
regranted by vote of the Board of Directors in August 1996 at the then-current
market price of $4.375. The compensation committee of the Board of Directors
voted to reprice the options primarily because the Company's share price had
fallen so substantially below the exercise price of the options, for an extended
period of time, that the options had lost the incentive effect for which they
were originally granted.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE
NAME GRANTED (2) FISCAL YEAR ($/SH.) EXPIRATION DATE
- ------------------------------------------------------- ----------- ------------ -------- ---------------
<S> <C> <C> <C> <C>
John B. Conroy......................................... 60,000 22.4% 4.375 August 16, 2001
Scott D. McVay......................................... 10,000 3.7% 4.375 August 16, 2001
Donald H. Zurstadt..................................... 15,000 5.6% 4.375 August 16, 2001
</TABLE>
- ------------------------
(1) Options granted in 1996 to the named officers are exercisable from time to
time in the following amounts: 1) 10/48ths of the shares immediately; 2)
thereafter an additional 1/48th of the shares, each month through October
10, 1999. Under the Company's 1995 Stock Incentive Plan and the Company's
1986 Stock Incentive Plan, the Board of Directors retains discretion,
subject to plan limits, to modify the terms of outstanding options. Options
are granted for a term of five years, subject to earlier termination as a
result of termination of employment, death or disability.
(2) The stock options awarded to Messrs. Conroy, McVay and Zurstadt, in 1995 at
$7.00 per share were cancelled and then regranted by vote of the Board of
Directors in August 1996 at the then- current market price of $4.375 per
share.
7
<PAGE>
OPTION EXERCISE AND HOLDINGS
The following table provides information concerning the exercise of options
during fiscal 1996 and unexercised options held as of the end of the fiscal year
with respect to the named officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN- THE-MONEY
ACQUIRED OPTIONS AT OPTIONS AT
ON VALUE FY-END (#) FY-END ($)(2)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/ GRANT EXPIRATION
NAME (#) ($)(1) UNEXERCISABLE UNEXERCISABLE DATE (3) DATE (3)
- ----------------------------------- -------- -------- -------------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John B. Conroy..................... 46,506 138,267 -- -- -- -- 12/91 12/96
-- -- 17,500 42,500 -- -- 8/96 8/01
Scott D. McVay..................... -- -- 18,554 9,962 16,012 8,597 12/93 12/98
-- -- 2,917 7,083 -- -- 8/96 8/01
Donald H. Zurstadt................. 4,755 16,982 -- -- -- -- 10/89 10/96
-- -- 2,774 396 2,394 342 6/93 6/98
-- -- 4,375 10,625 -- -- 8/96 8/01
</TABLE>
- ------------------------
(1) Market value of the underlying securities at exercise date, minus exercise
price of the options.
(2) Market value of the underlying securities at December 28, 1996, $2.125 per
share, minus exercise price of the unexercised options.
(3) The Company elected to add these columns for clarification.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers and directors, and persons who own
more than ten percent of a registered class of the Company's equity securities
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission ("SEC"). Executive officers, directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on its review of the
copies of such forms received by it, or written representations from certain
reporting persons, the Company believes that, during 1996, all executive
officers, directors and greater than 10% shareholders complied with all
applicable filing requirements.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP audited the Company's financial statements for the year
ended December 28, 1996 and has been selected to do the same for 1997.
Representatives of Price Waterhouse LLP will be present at the Annual Meeting
and will be available to respond to appropriate questions. They do not expect to
make any statement but will have the opportunity to make a statement if they
wish.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals of shareholders intended to be presented at the Company's 1998
Annual Meeting of Shareholders must be received by the Company at its principal
office no later than January 5, 1998 to be considered for inclusion in the proxy
statement and form of proxy relating to that meeting.
8
<PAGE>
COPIES OF FORM 10-KSB
All shareholders are entitled to a copy of the Company's Form 10-KSB filed
with the Securities and Exchange Commission. If you would like a copy, one will
provided without charge upon request to: Investor Relations, Microfield
Graphics, Inc., 7216 SW Durham Rd., Portland, OR 97224.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If any
other matters properly come before the meeting, the persons named in the
enclosed form of Proxy will have the discretionary authority to vote in
accordance with their best judgment.
By Order of the Board of Directors:
Randall R. Reed
CHIEF FINANCIAL OFFICER AND SECRETARY
Dated: May 2, 1997
9
<PAGE>
APPENDIX TO PROXY STATEMENT
SUMMARY OF 1995 STOCK INCENTIVE PLAN, AS AMENDED
BACKGROUND. The Company's 1995 Stock Incentive Plan (the "1995 Plan") was
adopted by the Board of Directors in May 1995 and approved by the shareholders
of the Company in June 1995. The 1995 Plan was amended in 1996 and the
amendments were approved by the shareholders of the Company at the 1996 Annual
Meeting. The 1995 Plan provides for the award of incentive stock options to key
employees and the award of nonqualified stock options, stock appreciation
rights, bonus rights and other incentive grants to employees, independent
contractors and consultants. The total number of shares of the Company's Common
Stock that may be issued under the 1995 Plan before giving effect to Proposal
number 2, will not exceed 300,000.
SHARES AVAILABLE FOR GRANT. On January 27, 1997 the Company's Board of
Directors approved an amendment to the 1995 Plan to increase the aggregate
number of shares of Common Stock that may be issued thereunder to a total of
550,000 shares, an increase of 250,000 shares. This amendment to the 1995 Plan
is subject to shareholder approval, as presented in Proposal No. 2 in this Proxy
Statement
ELIGIBILITY. All employees, officers and directors of the Company and its
subsidiaries are eligible to participate in the 1995 Plan. Also eligible are
non-employee agents, consultants, advisors, persons involved in the sale or
distribution of the Company's products and independent contractors of the
Company or any subsidiary.
As of February 28, 1997 the persons eligible to participate in the 1995 Plan
included 5 officers, 2 non-officer directors and 37 employees of the Company.
During the fiscal year ended December 28, 1996, options to purchase 227,000
shares of Common Stock were granted under the 1995 Plan (including 143,000
options previously granted that were repriced in August 1996) at exercise prices
of between $3.625 and $6.25 per share. As of December 28, 1996, options to
purchase 155,706 shares of Common Stock were outstanding at exercise prices of
of between $3.625 and $6.00 per share, 1,294 shares of Common Stock had been
issued upon exercise of options, and 104,000 shares of Common Stock were
available for future grants under the 1995 Plan, (354,000 shares if Proposal No.
2 to amend the 1995 Plan is approved by the shareholders of the Company).
ADMINISTRATION. The Plan is administered by the Board of Directors, which
may promulgate rules and regulations for the operation of the Plan and generally
supervises the administration of the 1995 Plan. The Board of Directors may
delegate to a committee of the Board of Directors or specified officers of the
Company, or both, authority to administer the Plan, except that only the Board
of Directors may amend, modify or terminate the 1995 Plan. In 1995, the Board of
Directors delegated to Mr. Conroy authority to make grants under the Plan to
anyone other than directors and executive officers of the Company. In addition,
during 1995 the Board of Directors created an Executive Stock Committee with
authority to make grants under the Plan to directors and executive officers. The
Executive Stock Committee must consist of at least two directors who qualify as
non-employee directors under Rule 16b-3 under the 1934 Act.
MINIMUM OPTION PRICE. The purchase price of the Company's Common Stock upon
exercise of incentive stock options ("ISOs") must not be less than the fair
market value of the Common Stock at the date of the grant, in the case of
incentive stock options issued to holders of more than 10% of the outstanding
Common Stock, 110% of fair market value, or at a price at the discretion of the
Board of Directors, in the case of non-qualified stock options ("NQSO's"). The
maximum market value, on the date of grant, of the stock for which incentive
stock options are exercisable for the first time by an employee during any
calendar year may not exceed $100,000. As defined in the 1995 Plan, "fair market
value" shall mean the last reported sales price of the Company's Common Stock in
the Wall Street Journal on the day preceding the date such option is granted, or
if there has been no sale on that date, on the last preceding date on which a
sale occurred.
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DURATION OF OPTIONS. Subject to earlier termination of the option as a
result of termination of employment, death or disability, each option granted
under the 1995 Plan shall expire on the date specified by the Administrative
Committee, but in no event more than (i) ten years from the date of grant in the
case of ISOs generally, (iii) five years from the date of grant in the case of
ISOs granted to a holder of more than 10% of the outstanding Common Stock, and
(iii) the period of time as determined by the Board of Directors, in the case of
NQSOs.
MEANS OF EXERCISING OPTIONS. An option is exercised by giving written
notice to the Company, which notice must be accompanied by full payment of the
purchase price therefor, either (i) in cash or by certified check, (ii) at the
discretion of the Board of Directors, through delivery of shares of Common Stock
having a fair market value equal to the cash exercise price of the option, (iii)
at the discretion of the Board of Directors, by delivery of the optionee's
personal recourse promissory note in the amount of the cash exercise price of
the option, or (iv) at the discretion of the Board of Directors, by any
combination of (i), (ii) and (iii) above.
TERM AND AMENDMENT OF THE 1995 PLAN. The 1995 Plan will continue in effect
until all shares available for issuance under the 1995 Plan have been issued and
all restrictions on such shares have lapsed. The Board of Directors may amend
the 1995 Plan at any time, provided that no change in an award already granted
shall be made without the written consent of the holder of such award. The Board
of Directors may suspend or terminate the 1995 Plan at any time except with
respect to options, performance units and shares subject to restrictions then
outstanding under the 1995 Plan. Termination shall not affect any outstanding
options, any right of the Company to repurchase shares or the forfeitability of
shares issued under the 1995 Plan.
ASSIGNABILITY. No option granted under the 1995 Plan is assignable or
transferable by the optionee except by will or by the laws of descent and
distribution
STOCK BONUSES. The Board of Directors may award shares under the 1995 Plan
as stock bonuses, subject to the terms, conditions and restrictions determined
by the Board of Directors. No stock bonuses have been awarded as of February 28,
1997.
RESTRICTED STOCK. The Board of Directors may issue restricted shares of the
Company's Common Stock under the 1995 Plan for such consideration as determined
by the Board of Directors. No issuance of restricted stock has been made as of
February 28, 1997.
STOCK APPRECIATION RIGHTS. The Board of Directors may grant stock
appreciation rights under the 1995 Plan by the Board of Directors, subject to
such rules, terms and conditions as the Board of Directors prescribes. No stock
appreciation rights have been granted as of February 28, 1997.
CASH BONUS RIGHTS. The Board of Directors may grant cash bonus rights under
the 1995 Plan in connection with (i) options granted or previously granted, (ii)
stock bonuses awarded or previously awarded and (iv) shares sold or previously
sold under the 1995 Plan. Cash bonus rights will be subject to such rules, terms
and conditions as the Board of Directors prescribes. No cash bonus rights have
been granted as of February 28, 1997.
PERFORMANCE UNITS. The Board of Directors may grant performance units under
the 1995 Plan, consisting of monetary units which may be earned in whole or in
part if the Company achieves certain goals established by the Board of Directors
over a designated period of time, not more than 10 years. No performance units
have been granted as of February 28, 1997.
OPTION GRANTS TO NON-EMPLOYEE DIRECTORS. The 1995 Plan provides for the
automatic grant of an option to purchase 10,000 shares of Common Stock an
("Initial Grant") to each person who becomes a non-employee director after April
24, 1996, provided that the person has not previously served as a director of
the Company. A "non-employee director" is a director who is not an employee of
the Company or any of its subsidiaries. An Initial Grant takes effect on the
date that a person first becomes a non-employee director. The Plan also provides
for the automatic grant of an option to purchase an additional
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3,000 shares of Common Stock (an "Additional Grant") to each incumbent
non-employee director who continues to serve as a non-employee director
following an annual meeting of shareholders, provided that the non-employee
director has not received an Initial Grant in that calendar year. The Additional
Grant provision will first take effect in connection with the 1997 annual
meeting of shareholders. Additional grants are granted as of the annual meeting
date.
FEDERAL TAX EFFECTS OF ISOS. The Company intends that ISOs granted under
the 1995 Plan will qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). An
optionee acquiring stock pursuant to an ISO receives favorable tax treatment in
that the optionee does not recognize any taxable income at the time of the grant
of the ISO or upon exercise. The tax treatment of the disposition of ISO stock
depends upon whether the stock is disposed of within the holding period, which
is the later of two years from the date the ISO is granted or one year from the
date the ISO is exercised. If the optionee disposes of ISO stock after
completion of the holding period, the optionee will recognize as capital gains
income the difference between the amount received in such disposition and the
basis in the ISO stock, i.e. the option's exercise price. If the optionee
disposes of ISO stock before the holding period expires, it is considered a
disqualifying disposition and the optionee must recognize the gain on the
disposition as ordinary income in the year of the disqualifying disposition.
Generally, the gain is equal to the difference between the option's exercise
price and the stock's fair market value at the time the option is exercised and
sold (the "bargain purchase element"). While the exercise of an ISO does not
result in taxable income, there are implications with regard to the alternative
minimum tax ("AMT"). When calculating income for AMT purposes, the favorable tax
treatment granted ISOs is disregarded and the bargain purchase element of the
ISO will be considered as part of AMT income. Just as the optionee does not
recognize any taxable income on the grant or exercise of an ISO, the Company is
not entitled to a deduction on the grant or exercise of an ISO. Upon a
disqualifying disposition of ISO stock, the Company may deduct from taxable
income in the year of the disqualifying disposition an amount generally equal to
the amount that the optionee recognizes as ordinary income due to the
disqualifying disposition.
FEDERAL TAX EFFECTS OF NQSOS. If an option does not meet the statutory
requirements of Section 422 of the Internal Revenue Code and therefore does not
qualify as an ISO, the difference, if any, between the option's exercise price
and the fair market value of the stock on the date the option is exercised is
considered compensation and is taxable as ordinary income to the optionee in the
year the option is exercised, and is deductible by the Company for federal
income tax purposes in such year. Although an optionee will generally realize
ordinary income at the time the NQSO is exercised, if the stock issued upon
exercise of the option is considered subject to a "substantial risk of
forfeiture" and no "Section 83 Election" has been filed, then the optionee is
not taxed when the option is exercised, but rather when the forfeiture
restriction lapses. At that time, the optionee will realize ordinary income in
an amount equal to the difference between the option's exercise price and the
fair market value of the stock on the date the forfeiture restriction lapses.
The foregoing summary of federal income tax consequences of stock options
does not purport to be complete, nor does it discuss the provisions of the
income tax laws of any state or foreign country in which the optionee resides.
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