<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 1O-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 4, 1998
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number : 0-26226
MICROFIELD GRAPHICS, INC.
(Exact name of small business issuer as specified in its charter)
OREGON 93-0935149
(State or other jurisdiction (I. R .S. Employer
of incorporation or organization) Identification No.)
7216 SW DURHAM RD.
PORTLAND, OR 97224
(Address of principal executive offices and zip code)
(503) 620-4000
(Issuer's telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days:
Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock as of April
30, 1998 was 3,626,280 shares.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
MICROFIELD GRAPHICS, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
- ------------------------------- ----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet -April 4, 1998
and January 3, 1998 3
Consolidated Statement of Operations -Quarter Ended
April 4, 1998 and March 29, 1997 4
Consolidated Statement of Cash Flows -Quarter
Ended April 4, 1998 and March 29, 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION
- ----------------------------
Item 2. Change in Securities and Use of Proceeds 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
2
<PAGE>
MICROFIELD GRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 4, January 3,
1998 1998
---------------- ------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,875,045 $ 909,184
Accounts receivable, net of
of $19,864 and $24,680 1,891,498 1,027,902
Inventories (Note 3) 913,473 712,000
Prepaid expenses and other 289,027 216,427
-------------- ----------------
Total current assets 4,969,043 2,865,513
Property and equipment, net (Note 4) 356,033 384,251
Other assets 67,890 72,444
-------------- ----------------
$ 5,392,966 $ 3,322,208
-------------- ----------------
-------------- ----------------
Current liabilities:
Current portion of debt $ 883,328 $ 1,083,333
Accounts payable 776,203 606,556
Accrued payroll and payroll taxes 104,940 193,757
Unearned income 58,782 53,745
Accrued liabilities 239,742 164,483
-------------- ----------------
Total current liabilities 2,062,995 2,101,874
Long-term debt, net of current portion 69,450 90,278
-------------- ----------------
2,132,445 2,192,152
Shareholders' equity:
Common stock, 25,000,000 shares
authorized, 3,621,191 and
3,210,213 shares
issued and outstanding 14,262,754 12,185,527
Accumulated deficit (11,002,233) (11,055,471)
-------------- ---------------
Total shareholders' equity 3,260,521 1,130,056
-------------- ---------------
$ 5,392,966 $ 3,322,208
-------------- ---------------
-------------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
MICROFIELD GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
April 4, March 29,
1998 1997
----------------- ---------------
<S> <C> <C>
Sales $ 2,557,924 $ 1,185,367
Cost of goods sold 1,424,107 640,560
---------------- -------------
Gross profit 1,133,817 544,807
Operating expenses
Research and development 210,318 218,887
Marketing and sales 635,765 758,066
General and administrative 209,650 211,807
---------------- -------------
1,055,733 1,188,760
---------------- -------------
Income (loss) from operations 78,084 (643,953)
Other income (expense)
Interest income (expense), net (24,140) 1,735
Other income, net - 4,682
---------------- -------------
Income (loss) before provision for income 53,944 (637,536)
Provision for income taxes 705 457
---------------- -------------
Net income (loss) $ 53,239 $ (637,993)
---------------- -------------
---------------- -------------
Net income (loss) per share
Basic $ .02 (0.20)
--------------- -------------
--------------- -------------
Diluted .02 (0.20)
---------------- -------------
---------------- -------------
Shares used in per share calculations
Basic 3,283,809 3,195,575
---------------- -------------
---------------- -------------
Diluted 3,505,440 3,195,575
---------------- -------------
---------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
MICROFIELD GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------
April 4, March 29,
1998 1997
----------------- ----------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 53,239 $ (637,993)
Adjustments to reconcile income (loss) to
operating cash flows:
Depreciation and amortization 47,787 75,112
Gain on sale and leaseback of property - (1,626)
Changes in assets and liabilities:
Accounts receivable (863,596) 26,192
Inventories (201,473) 79,444
Prepaid expenses and other (72,600) 48,893
Accounts payable 169,647 (215,205)
Accrued payroll and payroll taxes (88,817) (64,124)
Unearned income 5,037 3,858
Accrued liabilities 75,259 (33,633)
----------------- -------------------
Net cash used in operating activities (875,517) (719,082)
Cash flows from investing activities:
Acquisition of property and equipment (15,015) (24,046)
Purchases of other assets - -
----------------- -------------------
Net cash used in investing activities (15,015) (24,046)
Cash flows from financing activities:
Payments on equipment line of credit (20,834) (6,944)
Payments on capital lease obligations - (51,493)
Proceeds from (payments on) operating line of credit (200,000) 400,000
Proceeds from sale of common stock 1,997,952
Proceeds from exercise of common stock options
and warrants 79,275 -
---------------- -------------------
Net cash provided by financing 1,856,393 341,563
Net increase in cash and cash equivalent 965,861 (401,565)
Cash and cash equivalents, beginning of period 909,184 1,867,856
---------------- -------------------
Cash and cash equivalents, end of period $ 1,875,045 $ 1,466,291
---------------- -------------------
---------------- -------------------
Supplemental disclosure of cash flow information
Cash paid for:
Interest 30,690 $ 13,439
---------------- -------------------
---------------- -------------------
Income taxes 705 456
---------------- -------------------
---------------- -------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
MICROFIELD GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Microfield Graphics, Inc. (the "Company") for the quarters ended April 4,
1998 and March 29, 1997 have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. The financial
information as of January 4, 1998 is derived from the Company's Annual Report
on From 10-KSB. The accompanying financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles and should be read in conjunction with the Company's audited
financial statements and notes thereto for the year ended January 3, 1998. In
the opinion of Company management, the unaudited consolidated financial
statements for the interim periods presented include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the results for such interim periods. Operating results for the quarter
ended April 4, 1998 are not necessarily indicative of the results that may be
expected for the full year or any portion thereof.
The Company's fiscal year is the 52- or 53-week period ending on the
Saturday closest to the last day of December. The Company's last fiscal year
was the 53 weeks ended January 3, 1998. The Company's first fiscal quarters
in fiscal 1998 and 1997 were the 13-week periods ended April 4, 1998, and
March 29, 1997, respectively.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 128, Earnings Per Share
which changes the standards for computing and presenting earnings per share
and supersedes Accounting Principles Board Opinion No. 15 Earnings per Share.
The FASB also issued SFAS 129 Disclosure of Information About Capital
Structure. Both of these statements are effective for financial statements
issued for fiscal years ending after December 15, 1997. The adoption of
these did not have a material impact on the Company's financial condition or
results of operations.
In June 1997, the FASB issued SFAS 130 Reporting Comprehensive Income
which establishes requirements for disclosure of comprehensive income. The
FASB also issued SFAS 131, Disclosures about Segments of an Enterprise and
Related Information, which defines how operating segments are determined and
requires disclosure of certain financial and descriptive information about
operating segments. Both of these statements are effective for financial
statements issued for fiscal years ending after December 15, 1997. The
adoption of these did not have a material impact on the Company's financial
condition or results of operations.
3. INVENTORIES
Inventories are stated at the lower of standard cost (which approximates
the first-in, first-out method) or market value, and consist of the following:
<TABLE>
<CAPTION>
April 4, January 3,
1998 1998
---------- -------------
<S> <C> <C>
Raw materials $752,221 $515,122
Work in process -- --
Finished goods 161,252 196,878
---------- ------------
$913,473 $712,000
---------- ------------
---------- ------------
</TABLE>
6
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
April 4, January 3,
1998 1998
------------- -------------
<S> <C> <C>
Machinery and equipment $ 820,920 $ 805,905
Capitalized leased assets 236,157 236,157
------------ ------------
1,057,077 1,042,062
Less accumulated
depreciation
and amortization 701,044 657,811
------------ ------------
$ 356,033 $ 384,251
------------ ------------
------------ ------------
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Microfield Graphics, Inc. (the "Company") develops, manufactures and
markets computer conferencing and telecommunications products to facilitate
group communications. The principal purpose of these products is to make
meetings more productive and cost effective by capturing ideas from all
meeting members (whether they are located locally or linked remotely through
a computer and an audio hookup) and making the information available to all
of the linked systems, where everyone involved can see and interact with the
information produced and presented. The Company's product lines incorporate
a series of digital whiteboards and digital whiteboard rear projection
systems under the brand name SoftBoard, along with a variety of application
software packages, supplies and accessories. Information written or drawn on
the SoftBoard surface is recorded and displayed on a personal computer
simultaneously and in color using the Company's proprietary technology. The
information is recorded in a computer file that can be replayed, printed,
faxed, e-mailed or saved for future applications. Optional proprietary
software allows the information to be communicated in real time to remote
computers over standard telephone lines, networks and the Internet.
The Company was incorporated in Oregon in 1986. The Company's executive
offices are located at 7216 SW Durham Road, Portland, OR 97224.
In July 1997 the Company entered into a General Purchase and Development
Agreement with Minnesota Mining and Manufacturing Company (3M), through which
3M will globally market advanced versions of the Company's SoftBoard family
of products. Under the terms of the two year agreement, the Company
developed specialized versions of the SoftBoard product line exclusively for
3M. Shipments from the Company to 3M began in the fourth quarter 1997. For
the three months ended April 4, 1998 and March 29, 1997 approximately 62% and
0%, respectively, of the Company's sales were attributable to 3M.
The Company's future results of operations will depend on continued and
increased market acceptance of its SoftBoard products and the Company's
ability to modify them to meet the needs of its customers. Any reduction in
demand for, or increasing competition with respect to, these products could
have a material adverse effect on the Company's financial condition and
results of operations. As with any large OEM or distributor relationship,
order rates may be subject to quarterly fluctuations as demand varies and
inventories are adjusted.
In March 1998 the Company signed a common stock purchase agreement with
Steelcase Inc. (Steelcase), pursuant to which Steelcase purchased 350,000
shares of the Company's common stock and a warrant for a total of $2,012,500
in cash. The warrant gives Steelcase the right to purchase an additional
260,000 shares of the
7
<PAGE>
Company's common stock at $6.75 per share. The warrant is exerciseable
starting on March 16, 1999 and expires on March 16, 2001.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of sales, certain
consolidated statement of operations data relating to the SoftBoard business for
the periods indicated.
<TABLE>
<CAPTION>
FIRST FIRST
QUARTER QUARTER
1998 1997
----------- -------------
<S> <C> <C>
Sales 100 % 100 %
Cost of goods sold 56 54
-------- ----------
Gross profit 44 46
Research and development expenses (8) (18)
Marketing and sales expenses (25) (64)
General and administrative expenses (8) (18)
-------- ----------
Income (loss) from operations 3 (54)
Other income (expense) (1) --
-------- ----------
Income (loss) before provision for
income taxes 2 (54)
Provision for income taxes -- --
-------- ----------
Net income (loss) 2 % (54) %
-------- ----------
-------- ----------
</TABLE>
FIRST QUARTER 1998 COMPARED WITH FIRST QUARTER 1997
SALES. Sales increased $1,373,000 (116%) to $2,558,000 in the first
quarter of 1998 from $1,185,000 in the first quarter of 1997. The increase
resulted primarily from shipments to 3M under the OEM agreement announced in
July 1997. SEE "OVERVIEW"
GROSS MARGIN. Cost of goods sold includes the cost of raw materials
needed to assemble the products, assembly and preparation by vendors and
direct and indirect costs associated with the procurement, testing,
scheduling and quality assurance functions performed by the Company. The
Company's gross margin decreased to 44% in the first quarter of 1998 from 46%
in the first quarter of 1997. The decrease in gross margin was due primarily
to the lower margins on sales to 3M. OEM agreements typically call for lower
gross margins because of the volume of product that is purchased as a result
of the agreement.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs are
expensed as incurred. These expenses decreased $9,000 (4%) to $210,000 in the
first quarter of 1998 from $219,000 in the first quarter of 1997. Research
and development expenses decreased as a percentage of sales to 8% in the
first quarter of 1998 from 18% in the first quarter of 1997. The percentage
decrease was due primarily to higher sales levels in the first quarter of
1998 compared to the first quarter of 1997.
MARKETING AND SALES EXPENSES. Marketing and sales expenses decreased
$122,000 (16%) to $636,000 in the first quarter of 1998 from $758,000 in the
first quarter of 1997. The decrease was due primarily to the shift in sales
strategy to increased emphasis on sales through the reseller sales channel.
This shift resulted in lower employee costs and reduced sales travel costs.
Marketing and sales expenses decreased as a percentage of sales to 25% in the
first quarter of 1998 from 64% in the first quarter of 1997. The decrease
was due primarily to higher
8
<PAGE>
sales levels in the first quarter of 1998 compared to the first quarter of
1997. The Company plans to continue its efforts to build market and product
awareness through advertising and attendance at industry trade shows.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased $2,000 (1%) to $210,000 in the first quarter of 1998 from $212,000
in the first quarter of 1997. These expenses decreased as a percentage of
sales to 8% in the first quarter of 1998 from 18% in the first quarter of
1997. The percentage decrease was due primarily to higher sales levels in
the first quarter of 1998 compared to the first quarter of 1997.
OTHER INCOME (EXPENSE). Other income (expense) includes interest income,
interest expense, and miscellaneous income. Net interest income (expense)
decreased $26,000 to $24,000 net other expense in the first quarter of 1998
from $2,000 net other income in the first quarter of 1997. The increase in
other expense was due primarily to interest charged on the increased
borrowings under the Company's operating line of credit in the first quarter
of 1998 compared to the first quarter of 1997.
INCOME TAXES. The Company recorded a small profit in the first quarter
1998 against which prior net operating losses will be applied. The Company
recorded a net loss in the first quarter of 1997. Accordingly, no provision
for income taxes, other than minimum state taxes, was provided for in either
of these periods.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and capital
expenditures through the private and public sale of equity securities, cash
from operations, and borrowings under operating lines of credit. At April 4,
1998, the Company had working capital of approximately $2.9 million and its
principal source of liquidity consisted of $1.9 million in cash and cash
equivalents. Additionally, as of April 4, 1998, the Company had a $2,000,000
line of credit with its bank, which bears interest monthly at prime (8.5 % at
April 4, 1998). At April 4, 1998 $800,000 was outstanding under the line of
credit. Accounts receivable increased $863,000 in the first quarter of 1998
primarily due to the shipments to 3M during the quarter. Inventories
increased $201,000 in the first quarter of 1998 primarily due to higher
inventory purchasing levels. Property and equipment, net of depreciation,
decreased by $28,000 primarily due to low fixed asset purchases during the
quarter offset by depreciation expense.
In March 1998 the Company signed a common stock purchase agreement with
Steelcase Inc., pursuant to which Steelcase purchased 350,000 shares of the
Company's common stock and a warrant, for $2,012,500 in cash, giving
Steelcase the right to purchase an additional 260,000 shares of the Company's
common stock at $6.75 per share. The warrant is exerciseable starting on
March 16, 1999 and expires on March 16, 2001.
The Company has no commitments for capital expenditures in material
amounts.
The Company believes its existing cash and cash equivalents, cash available
under its operating line of credit, and cash from operations will be sufficient
to fund its operations for at least the next 12 months.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In March 1998, the Company sold to Steelcase 350,000 shares of the
Company's common stock and a warrant giving Steelcase the right to purchase
an additional 260,000 shares of the Company's common stock at $6.75 per
share. The warrant is exerciseable starting March 16, 1999 and expires on
March 16, 2001. Steelcase paid $2,012,500 in cash for the shares and the
warrant. This sale was exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended (the "Act"), because Steelcase is an
accredited investor, as that term is defined in Rule 501 of the Act, and the
transaction fell within the parameters of Rule 506 of the Act.
ITEM 5. OTHER INFORMATION
In connection with the transaction with Steelcase described in Part II,
Item 2 above, the Company and certain of its directors and executive officers
entered into a Share Ownership, Voting and Right of First Refusal Agreement
with Steelcase dated as of March 19, 1998. This agreement provides among
other things, that Steelcase has the right of first offer to shares of the
Company's common stock (or any other class or series of the Company's capital
stock that gives the holder the right to vote in the election of directors)
that the Company proposes to sell in the future, except as provided in the
agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibit filed as part of this report is listed below:
<TABLE>
<CAPTION>
EXHIBIT NO.
------------
<C> <S>
10.10** Common Stock Purchase Agreement dated March 16, 1998
between the Registrant and Steelcase Inc., Registration
Rights Agreement dated March 19, 1998 between the
Registrant and Steelcase Inc., Stock Purchase Warrant
to Purchase Shares of Common Stock of Microfield
Graphics, Inc. dated March 19, 1998 issued by the
Registrant to Steelcase Inc., and Share Ownership,
Voting and Right of First Refusal Agreement dated March
19, 1998 between the Registrant, Steelcase Inc., John
B. Conroy, Scott D. McVay, Randall R. Reed, Michael W.
Stansell, Peter F. Zinsli, Donald H. Zurstadt, and
William P. Cargile.
27 Financial data schedule
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended April 4,
1998.
** Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: May 19, 1998
MICROFIELD GRAPHICS, INC.
By:_________________________________
John B. Conroy
President and Chief Executive Officer
(Principal Executive Officer)
By:_________________________________
Randall R. Reed
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: May 19, 1998
MICROFIELD GRAPHICS, INC.
By:/s/JOHN B. CONROY
-----------------------------------------
John B. Conroy
President and Chief Executive Officer
(Principal Executive Officer)
By:/s/ RANDALL R. REED
-----------------------------------------
Randall R. Reed
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
between
MICROFIELD GRAPHICS, INC.
and
STEELCASE INC.
March 16, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. PURCHASE AND SALE OF STOCK. . . . . . . . . . . . . . . . . . . . . . 1
1.1 Sale and Issuance of Common Stock. . . . . . . . . . . . . . . 1
1.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Further Covenants; Good Faith Negotiation. . . . . . . . . . . 1
2. OTHER AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Voting Agreement . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Registration Rights Agreement. . . . . . . . . . . . . . . . . 2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . 2
3.1 Organization, Good Standing and Qualification. . . . . . . . . 2
3.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . 2
3.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 2
3.4 Valid Issuance of Common Stock . . . . . . . . . . . . . . . . 2
3.5 Reservation of Warrant Shares. . . . . . . . . . . . . . . . . 3
3.6 Absence of Conflicting Agreements; Consents. . . . . . . . . . 3
3.7 Governmental Consents. . . . . . . . . . . . . . . . . . . . . 3
3.8 SEC and Other Reports. . . . . . . . . . . . . . . . . . . . . 3
3.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.10 No Finders.. . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.11 Use of Proceeds .. . . . . . . . . . . . . . . . . . . . . . . 4
4. REPRESENTATIONS AND WARRANTIES OF INVESTOR. . . . . . . . . . . . . . 4
4.1 Organization, Good Standing and Qualification. . . . . . . . . 4
4.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . 4
4.3 Absence of Conflicting Agreements; Consents. . . . . . . . . . 4
4.4 Litigation.. . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.5 Purchase Entirely for Own Account. . . . . . . . . . . . . . . 5
4.6 Disclosure of Information. . . . . . . . . . . . . . . . . . . 5
4.7 Investment Experience. . . . . . . . . . . . . . . . . . . . . 5
4.8 Accredited Investor. . . . . . . . . . . . . . . . . . . . . . 5
4.9 Restricted Securities. . . . . . . . . . . . . . . . . . . . . 5
4.10 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.11 No Finders.. . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING . . . . . . . . . . . 6
5.1 Representations and Warranties . . . . . . . . . . . . . . . . 6
5.2 Qualifications . . . . . . . . . . . . . . . . . . . . . . . . 6
5.3 Proceedings and Documents. . . . . . . . . . . . . . . . . . . 7
5.4 Board of Directors . . . . . . . . . . . . . . . . . . . . . . 7
i
<PAGE>
5.5 Voting Agreement . . . . . . . . . . . . . . . . . . . . . . . 7
5.6 Registration Rights Agreement. . . . . . . . . . . . . . . . . 7
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. . . . . . . . . . 7
6.1 Representations and Warranties . . . . . . . . . . . . . . . . 7
6.2 Qualifications . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3 Proceedings and Documents. . . . . . . . . . . . . . . . . . . 7
6.4 Payment of Purchase Price. . . . . . . . . . . . . . . . . . . 8
6.5 Voting Agreement . . . . . . . . . . . . . . . . . . . . . . . 8
6.6 Registration Rights Agreement. . . . . . . . . . . . . . . . . 8
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.1 Survival of Warranties . . . . . . . . . . . . . . . . . . . . 8
7.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . 8
7.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 8
7.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.5 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . 8
7.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.7 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . 9
7.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.9 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
Schedule 2 Executive Officers and Directors
EXHIBIT A Stock Purchase Warrant
EXHIBIT B Share Ownership, Voting and Right of First Refusal Agreement
EXHIBIT C Registration Rights Agreement
ii
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT is made as of March 16, 1998, by and
among Microfield Graphics, Inc. d/b/a SoftBoard, an Oregon corporation (the
"Company"), and Steelcase Inc., a Michigan corporation ("Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF COMMON STOCK. Subject to the terms and
conditions of this Agreement, Investor agrees to purchase at the Closing, and
the Company agrees to sell and issue to Investor at the Closing, 350,000 shares
of the Company's Common Stock (the "Purchased Stock") and a warrant for the
purchase of 260,000 shares of the Company's Common Stock (the "Warrant Shares")
in the form attached as EXHIBIT A (the "Warrant") for an aggregate purchase
price of $2,012,500.
1.2 CLOSING. The purchase and sale of the Purchased Stock and
Warrant shall take place at the offices of Stoel Rives LLP, 900 SW Fifth Avenue,
Suite 2300, Portland, Oregon, at 10:00 A.M. on March 19, 1998, or at such other
time and place as the Company and Investor mutually agree upon orally or in
writing (which time and place are designated as the "Closing"). At the Closing,
the Company shall deliver to Investor a certificate representing the Purchased
Stock and the Warrant against payment of the purchase price therefor by wire
transfer.
1.3 FURTHER COVENANTS; GOOD FAITH NEGOTIATION. It is the parties'
intention to enter into an agreement whereby the Company's product and
technology will be incorporated into Investor's products, the terms and
conditions of such agreement to be agreed upon by the parties. The Company and
Investor both agree to use good faith efforts to negotiate and execute such an
agreement as soon as possible*.
2. OTHER AGREEMENTS.
2.1 VOTING AGREEMENT. The Investor, the Company, and the
executive officers and directors named in Schedule 2 shall enter into the Share
Ownership, Voting and Right of First Refusal Agreement, in the form attached as
EXHIBIT B (the "Voting Agreement"), that provides that (a) the signatories will
vote for the election of specific nominees to the Company's Board of Directors,
(b) the Investor will vote any additional shares of the Company's Common Stock
acquired by the Investor in a certain manner, (c) the executive officers and
management will agree to certain rights of first refusal on sales of the
Company's Common Stock owned by them, and (d) the Investor will not transfer any
shares of the Company's Common Stock for two years following the Closing, except
under certain circumstances described therein.
*This material has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Commission.
<PAGE>
2.2 REGISTRATION RIGHTS AGREEMENT. The Company agrees to grant
Investor registration rights as set forth in the Registration Rights Agreement
attached as EXHIBIT C (the "Registration Rights Agreement").
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Investor that:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Oregon and has all requisite corporate power and authority
to carry on its business as now conducted. The Company is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure to so qualify would have a material adverse effect on its business or
properties.
3.2 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Voting Agreement
and the Registration Rights Agreement, the performance of all obligations of the
Company hereunder and thereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Purchased Stock and the
Warrant Shares has been taken or will be taken prior to the Closing, and this
Agreement, the Voting Agreement and the Registration Rights Agreement constitute
valid and legally binding obligations of the Company, enforceable in accordance
with their respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Registration Rights Agreement may be limited by applicable
federal or state securities laws.
3.3 CAPITALIZATION. The authorized capital of the Company consists
of:
(a) COMMON STOCK. Twenty-five million (25,000,000) shares
of Common Stock, 3,228,914 of which were issued and outstanding as of February
28, 1998.
(b) PREFERRED STOCK. Ten million (10,000,000) shares of
undesignated Preferred Stock, none of which are issued or outstanding.
3.4 VALID ISSUANCE OF COMMON STOCK. The Purchased Stock, the
Warrant and the Warrant Shares, when issued, sold and delivered in accordance
with the terms of this Agreement for the consideration expressed herein, will be
duly and validly issued, fully paid, and nonassessable, and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement, the Voting Agreement and the Registration Rights Agreement and under
applicable state and federal securities laws.
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3.5 RESERVATION OF WARRANT SHARES. The Warrant Shares have been
duly authorized and reserved and, when issued upon exercise of the Warrant in
accordance with its terms, will be validly issued, fully paid and nonassessable.
3.6 ABSENCE OF CONFLICTING AGREEMENTS; CONSENTS. The execution
and delivery of this Agreement, the Voting Agreement and the Registration Rights
Agreement and the consummation of the transactions contemplated hereby and
thereby will not conflict in any material respect with or result in a material
breach of any terms or provisions of, or constitute a material default under
(a) the Articles of Incorporation or Bylaws of the Company; (b) any note, bond,
mortgage, indenture, license, lease, contract, commitment, agreement or other
instrument or obligation to which the Company is a party or by which the Company
or any of its properties may be bound; or (c) any statute, order, writ,
injunction, decree, rule or regulation applicable to the Company or any of its
properties. No consent, approval, authorization, declaration or other order of,
or registration or filing with, any court or regulatory authority or any third
person is required for the valid execution, delivery and performance of this
Agreement, the Voting Agreement or the Registration Rights Agreement by the
Company, or its consummation of the transactions contemplated hereby or thereby,
except such consents, approvals, authorizations, declarations, registrations or
filings that have already been obtained or made, or those disclosed by Investor
pursuant to this Agreement.
3.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement except if required, qualifications or filings
under the Securities Act and applicable Blue Sky laws, which qualifications and
filings will be obtained or made and will be effective within the period
required by law.
3.8 SEC AND OTHER REPORTS. The Company has heretofore furnished
Investor with complete copies of all of registration statements, reports and
proxy statements, including amendments thereto, filed by the Company with the
Securities and Exchange Commission (the "SEC") since January 1, 1997 and prior
to the date of this Agreement (collectively the "SEC Documents"). None of the
SEC documents, as of the date filed, contain any untrue statement of any
material fact or omit to state a material fact necessary to make the statements
contained in them not misleading. The Company has also furnished Investor with
a copy of its year-end earnings release for 1997, including its income statement
and balance sheet, for the fiscal year ended January 3, 1998.
3.9 LITIGATION. There is no action, proceeding or suit pending,
or, to the Company's knowledge, threatened, that questions the validity of this
Agreement, the Voting Agreement or the Registration Rights Agreement or that
would prevent or materially hinder the consummation of the transactions
contemplated hereby or thereby.
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3.10 NO FINDERS. The Company has not employed any broker, finder,
agent or investment banker, dealt with anyone purporting to act in that capacity
or agreed to pay any brokerage fee, finder's fee or commission with respect to
the transactions contemplated by this Agreement.
3.11 USE OF PROCEEDS. The net proceeds to be received by the
Company from the sale of the Purchased Stock and Warrant Shares pursuant to this
Agreement shall be used by the Company for working capital and other general
corporate purposes and not for dividends, stock buybacks (except for repurchases
from employees at the original purchase price), or bonuses inconsistent with
prior practices for a period of one year from the date of Closing.
4. REPRESENTATIONS AND WARRANTIES OF INVESTOR. Investor hereby
represents and warrants that:
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Investor is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Michigan and has all requisite corporate power and authority to
carry on its business as now conducted. Investor is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure to so
qualify would have a material adverse effect on its business or properties.
4.2 AUTHORIZATION. Investor has full corporate power and
authority to enter into this Agreement, the Voting Agreement and the
Registration Rights Agreement, and each such Agreement constitutes its valid and
legally binding obligation, enforceable in accordance with their respective
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
the Registration Rights Agreement may be limited by applicable federal or state
securities laws.
4.3 ABSENCE OF CONFLICTING AGREEMENTS; CONSENTS. The execution
and delivery of this Agreement, the Voting Agreement and the Registration Rights
Agreement and the consummation of the transactions contemplated hereby and
thereby will not conflict in any material respect with or result in a material
breach of any terms or provisions of, or constitute a material default under
(a) the Articles of Incorporation or Bylaws of Investor; (b) any note, bond,
mortgage, indenture, license, lease, contract, commitment, agreement or other
instrument or obligation to which Investor is a party or by which Investor or
any of its properties may be bound; or (c) any statute, order, writ, injunction,
decree, rule or regulation applicable to Investor or any of its properties. No
consent, approval, authorization, declaration or other order of, or registration
or filing with, any court or regulatory authority or any third person is
required for the valid execution, delivery and performance of this Agreement and
the Voting Agreement by Investor or its consummation
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of the transactions contemplated hereby or thereby, except such consents,
approvals, authorizations, declarations, registrations or filings that have
already been obtained or made, or those disclosed by the Company pursuant to
this Agreement.
4.4 LITIGATION. There is no action, proceeding or suit pending,
or, to Investor's knowledge, threatened, that questions the validity of this
Agreement, the Voting Agreement or the Registration Rights Agreement or that
would prevent or materially hinder the consummation of the transactions
contemplated hereby or thereby.
4.5 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with Investor in reliance upon such Investor's representation to the Company,
which by Investor's execution of this Agreement Investor hereby confirms, that
the Purchased Stock, the Warrant and Warrant Shares (collectively, the
"Securities") will be acquired for investment for Investor's own account, not as
a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that Investor has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this
Agreement, Investor further represents Investor does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities.
4.6 DISCLOSURE OF INFORMATION. Investor believes it has received
all the information it considers necessary or appropriate for deciding whether
to purchase the Purchased Stock and Warrant. Investor further represents that
it has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Purchased Stock and
Warrant and the business, properties and financial condition of the Company.
The foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 3 of this Agreement or the right of
Investor to rely thereon.
4.7 INVESTMENT EXPERIENCE. Investor is an investor in securities
of companies in the development stage and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment, and has such knowledge
and experience in financial or business matters that it is capable of evaluating
the merits and risks of the investment in the Purchased Stock and Warrant.
Investor also represents it has not been organized for the purpose of acquiring
the Purchased Stock and Warrant.
4.8 ACCREDITED INVESTOR. Investor is an "accredited investor"
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
4.9 RESTRICTED SECURITIES. Investor understands that the
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be
5
<PAGE>
resold without registration under the Act only in certain limited
circumstances. In this connection, Investor represents that it is familiar
with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
4.10 LEGENDS. It is understood that the certificates evidencing
the Securities may bear one or all of the following legends:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY APPLICABLE STATE LAW, AND NO INTEREST THEREIN MAY BE SOLD,
DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A)
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING THESE
SECURITIES OR (B) THE COMPANY RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE
HOLDER OF THESE SECURITIES (CONCURRED IN BY LEGAL COUNSEL FOR THE COMPANY)
STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION OR THE COMPANY
OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION."
(b) A legend stating that the Securities are subject to the
Voting Agreement.
4.11 NO FINDERS. Investor has not employed any broker, finder,
agent or investment banker, dealt with anyone purporting to act in that capacity
or agreed to pay any brokerage fee, finder's fee or commission with respect to
the transactions contemplated by this Agreement.
5. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
Investor under subsection 1.1 of this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions, the waiver of
which shall not be effective against Investor if it does not consent thereto:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
5.2 QUALIFICATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
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5.3 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Investor, and it shall have received all such counterpart original
and certified or other copies of such documents as it may reasonably request.
5.4 BOARD OF DIRECTORS. At the Closing, Investor's nominee, James
Keane, shall be duly elected. The other initial directors of the Company shall
be John B. Conroy, Herb Shaw and William P. Cargile, and there shall be one
vacancy on the Board of Directors to be filled in accordance with the Voting
Agreement.
5.5 VOTING AGREEMENT. The Company, the Investor and the Company's
executive officers and directors named in Schedule 2 shall have entered into the
Voting Agreement.
5.6 REGISTRATION RIGHTS AGREEMENT. The Company and the Investor
shall have entered into the Registration Rights Agreement.
5.7 1997 ANNUAL REPORT. The Company shall have provided Investor
with a copy of the Company's Annual Report on Form 10-K for the fiscal year
ended January 3, 1998, which as of the date filed will not contain any untrue
statement of any material fact or omit or misstate a material fact necessary to
make the statements contained in it not misleading, and there shall not have
been a material adverse change in the Company's financial results from those
reported in the earnings release provided to Investor and referenced in Section
3.8 of this Agreement.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to Investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions by Investor:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Investor contained in Section 4 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
6.2 QUALIFICATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
6.3 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Company, and it shall have received all such counterpart
original and certified or other copies of such documents as it may reasonably
request.
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6.4 PAYMENT OF PURCHASE PRICE. Investor shall have delivered to
the Company at the Closing the purchase price for the Purchased Stock and
Warrant.
6.5 VOTING AGREEMENT. The Company, the Investor and the Company's
executive officers and directors named in Schedule 2 shall have entered into the
Voting Agreement.
6.6 REGISTRATION RIGHTS AGREEMENT. The Company and the Investor
shall have entered into the Registration Rights Agreement.
7. MISCELLANEOUS.
7.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investor or the Company.
7.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Oregon, exclusive of choice of law
rules.
7.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
delivery by confirmed facsimile transmission or nationally recognized overnight
courier service or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
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or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
7.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only by the written consent of the Company and Investor. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon the holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities are convertible),
any future holder of all such securities, and the Company.
7.8 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
7.9 ENTIRE AGREEMENT. This Agreement and the documents referred
to herein constitute the entire agreement among the parties and no party shall
be liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
[Signature Page to Follow]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE COMPANY:
MICROFIELD GRAPHICS, INC.
By: /s/ John B. Conroy
---------------------------------------
John B. Conroy
President and Chief Executive Officer
Address: 7216 SW Durham Road
Portland, OR 97224
INVESTOR:
STEELCASE INC.
By: /s/ James P. Hackett
--------------------------------------
James P. Hackett
President and Chief Executive Officer
Address: 901 - 44th Street, S.E.
Grand Rapids, MI 49508
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SCHEDULE 2
EXECUTIVE OFFICERS AND DIRECTORS
John B. Conroy
Scott McVay
Randall R. Reed
Michael Stansell
Peter Zinsli
Donald Zurstadt
William P. Cargile
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EXHIBIT A
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES
LAWS. THIS WARRANT IS BY ITS TERMS NONTRANSFERABLE AND THE COMMON STOCK
ISSUABLE UPON EXERCISE HEREOF MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SUCH ACT OR LAWS OR AN OPINION OF COUNSEL FOR THE HOLDER
SATISFACTORY TO THE ISSUER STATING THAT SUCH REGISTRATION IS NOT REQUIRED.
No. 1998-W-1 WARRANT TO PURCHASE 260,000
SHARES OF COMMON STOCK
STOCK PURCHASE WARRANT
TO PURCHASE SHARES OF COMMON STOCK
OF MICROFIELD GRAPHICS, INC.
For value received, Microfield Graphics, Inc., an Oregon corporation (the
"Company"), grants to Steelcase Inc. (the "Holder") the right, subject to the
terms of this Warrant, to purchase at any time during the period commencing on
the "Initial Exercise Date" (as defined below), and ending on the "Expiration
Date" (as defined below), 260,000 fully paid and nonassessable shares of Common
Stock of the Company at the "Exercise Price" (as defined below). This Warrant
is nontransferable (except as provided in Section 8.1) and may be exercised for
all, but not less than all, 260,000 shares in a single exercise. The number of
shares that may be purchased are subject to adjustment under the terms of this
Warrant.
Section 1. DEFINITIONS. As used in this Warrant, unless the context
otherwise requires:
"EXERCISE AMOUNT" means 260,000 shares (adjusted as necessary in accordance
with Section 7).
"EXERCISE PRICE" means $6.75 per share.
"COMMON STOCK" means the Common Stock of the Company.
"COMPANY" has the meaning specified in the introductory paragraph.
"EXERCISE DATE" means any date when this Warrant is exercised in the manner
indicated in Sections 2.1 and 2.2.
"EXPIRATION DATE" means 12:00 midnight (Portland time) on March 19, 2001.
<PAGE>
"HOLDER" has the meaning specified in the introductory paragraph.
"INITIAL EXERCISE DATE" means March 19, 1999.
"PERSON" means an individual, corporation, partnership, trust, joint
venture or other form of business entity.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time, and all rules and regulations promulgated thereunder, or any act, rules or
regulations which replace the Securities Act or any such rules and regulations.
"WARRANT SHARES" means the shares of Common Stock issued or issuable upon
exercise of this Warrant, adjusted as necessary in accordance with Section 7.
Section 2. DURATION AND EXERCISE OF WARRANT.
2.1 EXERCISE PERIOD. Subject to the provisions hereof, this Warrant
may be exercised at any time during the period commencing on the Initial
Exercise Date and ending on the Expiration date for the Exercise Amount. After
the Expiration Date, this Warrant shall become void and all rights to purchase
Warrant Shares hereunder shall thereupon cease.
2.2 METHODS OF EXERCISE. This Warrant may be exercised by the Holder
for the Exercise Amount by (i) surrendering this Warrant to the Secretary of the
Company, (ii) payment of any applicable consideration, and (iii) executing and
delivering to the Secretary of the Company the attached Exercise Form, which
must select one of the following exercise methods, to be at the Holder's option:
2.2.1 EXERCISE FOR CASH. If the Holder elects to exercise
the Warrant for cash, the Holder shall tender to the Company payment in full by
cash, check, or wire transfer of the Exercise Price for the Warrant Shares.
2.2.2 SAME DAY SALE EXERCISE. In lieu of exercising this
Warrant by payment of cash, when permitted by law and applicable regulations
(including Nasdaq and NASD rules), the Holder may pay the Exercise Price through
a "same day sale" commitment from the Holder and a broker-dealer that is a
member of the National Association of Securities Dealers (an "NASD Dealer")
whereby the Holder irrevocably elects to exercise the Warrant and to sell a
portion of the Warrant Shares so purchased to pay for the Exercise Price and
whereby the NASD Dealer irrevocably commits upon receipt of such Warrant Shares
to forward the Exercise Price directly to the Company.
2.3 CERTIFICATES. As soon as practicable after exercise of this Warrant,
certificates for Warrant Shares shall be delivered to the Holder.
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2.4 EFFECTIVE DATE OF EXERCISE. This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above. The person entitled to receive the
Warrant Shares shall be treated for all purposes as the holder of record of such
shares as of the close of business on the date the Holder is deemed to have
exercised this Warrant.
2.5 SECURITIES ACT COMPLIANCE. Unless the issuance of the Warrant shares
shall have been registered under the Securities Act, as a condition of its
delivery of certificates for the Warrant Shares, the Company may require the
Holder to deliver to the Company, in writing, representations regarding the
Holder's sophistication, investment intent, acquisition for its own account and
such other matters as are reasonable and customary for purchasers of securities
in an unregistered private offering. The Company may place conspicuously upon
each certificate representing the Warrant Shares a legend substantially in the
following form, the terms of which are agreed to by the Holder:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
LAW, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING ANY SUCH TRANSACTION INVOLVING THESE SECURITIES OR (B) THE COMPANY
RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THESE SECURITIES
(CONCURRED IN BY LEGAL COUNSEL FOR THE COMPANY) STATING THAT SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION OR THE COMPANY OTHERWISE SATISFIES
ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION.
2.6 TAXES. The Company shall pay any tax and other governmental charges
which may be payable in respect of the issuance of the Warrant Shares, provided,
however, that in no case will the Company pay any taxes relating to income to
the Holder resulting from the issuance or exercise of this Warrant.
2.7 VOTING AGREEMENT. Upon exercise of this Warrant, Holder acknowledges
that all Common Stock issued under the Warrant shall be subject to the terms and
conditions of that certain Share Ownership, Voting and Right of First Refusal
Agreement dated as of March 19, 1998 between the Company, the Holder and
certain officers and directors of the Company.
Section 3. WARRANT SHARES.
3.1 VALIDITY AND RESERVATION. The Company covenants that all Warrant
Shares issued upon exercise of this Warrant will be validly issued, fully paid,
nonassessable, free
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and clear of all liens, security interests, charges and other encumbrances or
restrictions on sale (except encumbrances or restrictions arising under
federal or state securities laws), and not subject to preemptive rights. The
Company agrees that, as long as this Warrant may be exercised, the Company
will have duly authorized and reserved for issuance upon exercise of this
Warrant a sufficient number of shares of Common Stock or other shares of
capital stock of the Company as are from time to time issuable upon exercise
of this Warrant and from time to time will take all steps necessary to amend
its Articles of Incorporation to provide sufficient reserves of Common Stock
issuable upon exercise of this Warrant. Issuance of this Warrant shall
constitute full authority to the Company's officers who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for Common Stock upon the exercise of this Warrant.
Section 4. FRACTIONAL SHARES.
No fractional Warrant Shares shall be issued upon the exercise of this
Warrant, and the number of Warrant Shares to be issued shall be rounded to the
nearest whole number.
Section 5. LIMITED RIGHTS OF WARRANT HOLDER.
The Holder shall not, solely by virtue of being the Holder of this Warrant,
have any of the rights of a stockholder of the Company, either at law or equity,
until this Warrant shall have been exercised.
Section 6. LOSS OF WARRANT.
Upon receipt by the Company of satisfactory evidence of the loss, theft,
destruction or mutilation of this Warrant and either (in the case of loss, theft
or destruction) reasonable indemnification and a bond satisfactory to the
Company if requested by the Company or (in the case of mutilation) the surrender
of this Warrant for cancellation, the Company will execute and deliver to the
Holder, without charge, a new warrant of like denomination.
Section 7. CERTAIN ADJUSTMENTS.
7.1 ADJUSTMENT OF WARRANT SHARES. The number, class and Exercise
Price per share of securities for which this Warrant may be exercised are
subject to adjustment from time to time upon the happening of certain events as
hereinafter provided:
(a) RECAPITALIZATION. If the outstanding shares of the
Company's Common Stock are divided into a greater number of shares, the number
of shares of Common Stock purchasable upon the exercise of this Warrant shall be
proportionately increased and the Exercise Price per share shall be
proportionately reduced. Conversely, if the outstanding shares of Common Stock
are combined into a smaller number of shares of Common Stock, the number of
shares of Common Stock purchasable upon the exercise of this Warrant shall be
4
<PAGE>
proportionately reduced and the Exercise Price per share shall be
proportionately increased. The increases and reductions provided for in this
Section 7.1(a) shall be made with the intent and, as nearly as practicable, the
effect that neither the percentage of the total equity of the Company obtainable
on exercise of this Warrant nor the aggregate price payable for such percentage
shall be affected by any event described in this Section 7.1(a).
(b) MERGER OR REORGANIZATION, ETC. In the event of any change
in the Common Stock through merger, consolidation, reclassification,
reorganization, partial or complete liquidation or other change in the capital
structure of the Company (not including the issuance of additional shares of
capital stock other than by stock dividend or stock split), then, the Holder of
this Warrant will have the right thereafter to receive upon the exercise of this
Warrant the kind and amount of shares of stock or other securities or property
to which it would have been entitled if, immediately before the merger,
consolidation, reclassification, reorganization, recapitalization or other
change in the capital structure, it had held the number of shares of Common
Stock obtainable upon the exercise of this Warrant.
(c) ADJUSTMENT FOR DIVIDENDS OR DISTRIBUTIONS OF STOCK OR OTHER
SECURITIES OR PROPERTY. In case the Company shall make or issue, or shall fix a
record date for the determination of eligible holders entitled to receive, a
dividend or other distribution with respect to the Warrant Shares (or any shares
of stock or other securities at the time issuable upon exercise of the Warrant)
payable in (i) securities of the Company or (ii) assets (excluding cash
dividends paid or payable solely out of retained earnings), then, in each such
case, upon exercise of this Warrant at any time after the consummation,
effective date or record date of such dividend or other distribution, the Holder
shall receive, in addition to the Warrant Shares (or such other stock or
securities) issuable on such exercise prior to such date, and without the
payment of additional consideration therefor, the securities or such other
assets of the Company to which such Holder would have been entitled upon such
date if such Holder had exercised this Warrant on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock available
by it as aforesaid during such period giving effect to all adjustments called
for by this Section 7.
(d) OTHER IMPAIRMENTS. If any event shall occur as to which the
provisions of Section 7.1(a)-(c) are not strictly applicable but are covered by
the essential intent and principles of such sections, then, in each such case,
the Company will appoint the firm of independent certified public accountants of
recognized national standing with the largest U.S. revenues for the prior year
(but not the Company's regular auditors), which shall give their opinion upon
the adjustment, if any, on a basis consistent with the essential intent and
principles established in this Section 7.1, necessary to preserve the rights
represented by this Warrant. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the holder of this Warrant and shall make the
adjustments described therein.
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<PAGE>
7.2 NOTICE OF ADJUSTMENT. Whenever an event occurs requiring any
adjustment to be made pursuant to Section 7.1, the Company shall promptly file
with its Secretary or an assistant secretary at its principal office and with
its stock transfer agent, if any, a certificate of its President or Chief
Financial Officer specifying such adjustment, setting forth in reasonable detail
the acts requiring such adjustment, and stating such other facts as shall be
necessary to show the manner and figures used to compute such adjustment. Such
certificate shall be made available at all reasonable times for inspection by
the Holder. Promptly (but in no event more than 30 days) after each such
adjustment, the Company shall give a copy of such certificate by certified mail
to the Holder.
Section 8. MISCELLANEOUS.
8.1 ASSIGNMENT. This Warrant may not be transferred or assigned by
the Holder, except to a wholly-owned subsidiary of the Holder.
8.2 NOTICE. All notices required or permitted under this Warrant
shall be given in writing and shall be deemed effectively given (a) upon
personal delivery to the party to be notified, (b) three days after deposit with
the United States Post Office, by registered or certified mail, postage prepaid
and addressed to the party to be notified at the address for such party, (c) one
day after deposit with a nationally recognized air courier service such as DHL
or Federal Express, or (d) on the date of facsimile transmission, with confirmed
transmission.
IF TO THE COMPANY:
Microfield Graphics, Inc.
7216 SW Durham Road
Portland, Oregon 97224
ATTN: John B. Conroy, President
and Chief Executive Officer
Fax: (503) 620-4090
IF TO THE HOLDER:
Steelcase Inc.
901-44th Street S.E.
Grand Rapids, MI 49508
ATTN: James P. Hackett, President and Chief Executive Officer
Fax: (616) 247-2374
or such other address as such party may designate by 10 days' advance written
notice to the other party.
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8.3 GOVERNING LAW. The validity, interpretation and performance of
this Warrant shall be governed by the laws of the State of Oregon, exclusive of
choice of law rules.
8.4 NO IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation or Bylaws, or through reorganization, consolidation,
merger, dissolution, issue or sale of securities, sale of assets or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder of this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock issuable
upon the exercise of this Warrant above the amount payable therefore upon such
exercise and (b) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
non-assessable Warrant Shares upon exercise of this Warrant.
8.5 NOTICES OF RECORD DATE. After the Initial Exercise Date, in
case:
8.5.1 the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time receivable upon the
exercise of this Warrant) for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any securities or to receive any other right; or
8.5.2 of any consolidation or merger of the Company with or
into another corporation, any capital reorganization of the Company, any
reclassification of the capital stock of the Company, or any conveyance of all
or substantially all of the assets of the Company to another corporation in
which holders of the Company's stock are to receive stock, securities or
property of another corporation; or
8.5.3 of any voluntary dissolution, liquidation or winding-up
of the Company; or
8.5.4 of any redemption or conversion of all outstanding Common
Stock;
then, and in each such case, the Company will mail or cause to be mailed to
the Holder of this Warrant a notice specifying, as the case may be, (i) the date
on which a record is to be taken for the purpose of such dividend, distribution
or right, or (ii) the date on which such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation, winding-up,
redemption or conversion is to take place, and the time, if any is to be fixed,
as of which the holders of record of Common Stock (or such stock or securities
as at the time are receivable upon the exercise of this Warrant) shall be
entitled to exchange their shares of Common Stock (or such other stock or
securities) for securities or
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other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up.
Such notice shall be delivered at least thirty (30) days before the
consummation of the applicable event.
8.6 NO INCONSISTENT AGREEMENTS. The Company will not on or after the
date of this Warrant enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the Holder of this Warrant or
otherwise conflicts with the provisions hereof. The rights granted to the
Holder hereunder do not in any way conflict with the rights granted to holders
of the Company's securities under any other agreements, except rights that have
been waived.
8.7 SATURDAYS, SUNDAYS AND HOLIDAYS. If the Expiration Date falls on
a Saturday, Sunday or legal holiday, the Expiration Date shall automatically be
extended until 5:00 p.m. Pacific Time the next business day.
8.8 HEADINGS. The headings herein are for convenience only and shall
not control or affect the meaning or construction of this Warrant.
Dated as of: March 19, 1998.
MICROFIELD GRAPHICS, INC.
By:
---------------------------------
John B. Conroy, President
and Chief Executive Officer
8
<PAGE>
EXERCISE FORM
(To Be Executed by the Warrant Holder
to Exercise the Warrant)
To: MICROFIELD GRAPHICS, INC.
1. The undersigned hereby irrevocably elects to exercise the right to purchase
represented by Warrant No. 1998-W-1 for 260,000 shares of Common Stock, and
to purchase 260,000 shares of Common Stock provided for in the Warrant as
follows [check one]:
[ ] EXERCISE FOR CASH: Pursuant to Section 2.2.1 of the Warrant, the
Holder hereby elects to exercise the Warrant for cash and tenders payment
herewith (or has made a wire transfer) to the order of Microfield Graphics, Inc.
in the amount of $____________.
[ ] SAME DAY SALE EXERCISE: Pursuant to Section 2.2.2 of the Warrant, the
Holder hereby elects to exercise the Warrant on a cashless basis.
2. The undersigned requests that certificates for such shares of Common Stock
be issued and delivered as follows:
Name: ______________________________
Address: ___________________________
Deliver to: ________________________
Address: ___________________________
3. In connection with the exercise of the Warrant, the undersigned hereby
represents and warrants to you as follows:
(a) PURCHASE ENTIRELY FOR OWN ACCOUNT. The Common Stock will be acquired
for investment for the undersigned's own account and not with a view
to the resale or distribution of any part thereof, and the undersigned
has no intention of selling, granting any participation in, or
otherwise distributing the same.
(b) RESTRICTED SECURITIES. The undersigned understands the Common Stock
may not be sold, transferred, or otherwise disposed of without
registration under the Securities Act or an exemption therefrom and,
in the absence of an effective registration statement covering the
Common Stock or an available
<PAGE>
exemption from registration under the Securities Act, the Common
Stock must be held indefinitely.
(c) INVESTMENT EXPERIENCE. The undersigned is experienced in evaluating
and investing in companies in the development stage, can bear the
economic risk of an investment in the Common Stock, and has enough
knowledge and experience in financial and business matters to evaluate
the merits and risks of the investment in the Common Stock.
(d) QUALIFICATIONS AS AN ACCREDITED INVESTOR. The undersigned is a
corporation that was not formed for the specific purpose of acquiring
the securities of the Company and has total assets in excess of
$5,000,000.
(e) OPPORTUNITY TO REVIEW DOCUMENTS AND ASK QUESTIONS. The Company has
made available to the undersigned all documents and information
requested by the undersigned relating to an investment in the Company.
In addition, the undersigned has had adequate opportunity to ask
questions and to receive answers from the management of the Company
covering the terms and conditions of the offering and the Company's
business, management, and financial affairs.
4. The undersigned understands, agrees, and recognizes that:
(a) No federal or state agency has made any finding or determination as to
the fairness of the investment or any recommendation or endorsement of
the Common Stock.
(b) All certificates evidencing the Common Stock shall bear a legend
substantially similar to the legend set forth in Section 2.5 of the
Warrant regarding resale restrictions.
(c) All shares of Common Stock issued upon exercise of this Warrant shall
be subject to the Voting Agreement referenced in Section 2.7 of the
Warrant and all certificates shall also bear a legend stating that the
Common Stock issued is subject to the Voting Agreement.
<PAGE>
5. The undersigned is a resident of the state of ________________________.
Dated: _____________, 19___.
STEELCASE INC.
By: _____________________
Name: ___________________
Title: __________________
Note: Signature must correspond with the name as
written upon the face of the Warrant in every
particular, without alteration or enlargement or
any change whatsoever.
<PAGE>
EXHIBIT B
SHARE OWNERSHIP, VOTING
AND RIGHT OF FIRST REFUSAL AGREEMENT
This SHARE OWNERSHIP, VOTING AND RIGHT OF FIRST REFUSAL AGREEMENT (the
"Agreement") is entered into as of March 19, 1998 by and between Microfield
Graphics, Inc., an Oregon corporation (the "Company"), and Steelcase Inc., a
Michigan corporation ("Steelcase") and the executive officers and directors of
the Company listed in Schedule A (the "Executives").
RECITALS
A. Steelcase proposes to acquire, pursuant to a Common Stock Purchase
Agreement dated as of March 16, 1998, shares of the Company's Common Stock (the
"Common Stock").
B. Steelcase, Company and the Executives agree to limitations on transfer
and voting of shares of Common Stock owned by each of them, on the terms set
forth herein.
AGREEMENT
For good and valuable consideration including the promises contained
herein, the parties agree as follows:
1. DEFINITIONS. The following terms and phrases used in this Agreement
shall have the meanings given in this Section 1:
"AFFILIATE," in the case of Steelcase, means any other person or
entity, directly or indirectly, controlled by or under direct or indirect common
control with Steelcase; and in the case of any Executive, means any member of
the Executive's immediate family or a trust for the benefit of such family
member. For the purposes of this definition, "control" means the power to
direct the management and policies of such person or entity, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise. Affiliates shall not mean employees of Steelcase acting in their
individual capacities.
"BENEFICIAL OWNER" of Shares means a person who has or shares with
respect to such shares (1) voting power, which includes the power to vote, or to
direct the voting of, such Shares or (2) investment power, which includes the
power to dispose, or to direct the disposition of, such Shares. "Beneficial
ownership" shall be determined in accordance with the foregoing definition.
Notwithstanding the foregoing, no Executive shall be deemed to be the beneficial
owner of Shares where his power to vote or direct the voting is solely as a
result of his appointment as proxy by another shareholder that is not an
Affiliate of the Executive.
<PAGE>
"BUSINESS DAY" shall have the meaning given in Rule 14d-1(c) under the
Exchange Act.
"CLOSING" means the closing of the purchase by Steelcase pursuant to
the Stock Purchase Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXECUTIVES" shall have the meaning given in the preamble of this
Agreement.
"EXECUTIVE'S SHARES" means all Shares beneficially owned by each
Executive, including Shares acquired after the date of this Agreement.
"GROUP" shall have the meaning given in Rule 13d-5(b) under the
Exchange Act.
"INDEPENDENT DIRECTOR" for purposes of this Agreement shall mean any
director who is not also employed by the Company. Initially, the Independent
Directors shall be the Independent Directors listed on Schedule 3.3.
"LIEN" shall have the meaning given in Section 2 of this Agreement.
"PROPOSED TRANSFEREE" shall have the meaning given in Section 6 of
this Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SHARES" shall mean issued and outstanding shares of Common Stock of
the Company and any other class or series of capital stock that at any time
gives the holder the right to vote for the election of directors.
"STEELCASE SHARES" means all Shares beneficially owned by Steelcase,
including Shares acquired after the date of this Agreement.
"THE COMPANY" shall have the meaning given in the preamble of this
Agreement.
"THRESHOLD AMOUNT" shall have the meaning given in Section 3 of this
Agreement.
"TRANSFER" shall mean any sale, contract to sell, exchange,
assignment, gift or other disposition (other than a pledge or encumbrance to
secure a loan), whether voluntary or involuntary, because of any act or
occurrence.
2
<PAGE>
2. REPRESENTATIONS.
2.1 STEELCASE. Steelcase represents and warrants that as of the date
of this Agreement (a) it beneficially owns all the Shares purchased under the
Stock Purchase Agreement; (b) except as permitted by this Agreement or the Stock
Purchase Agreement, the Steelcase Shares are not subject to any lien, charge,
pledge, security interest, adverse claim, obligation to sell or otherwise
dispose or other encumbrance of any kind or nature whatsoever and however
arising ("Lien"); and (c) neither the execution and delivery of this Agreement
nor the observance or performance of its terms by Steelcase violates, or creates
any Lien with respect to the Steelcase Shares, pursuant to any statute,
ordinance, regulation, order, judgment or decree applicable to Steelcase or the
Steelcase Shares or any agreements to which Steelcase or the Steelcase Shares
are bound.
2.2 EXECUTIVES. Each Executive represents and warrants that as of
the date of this Agreement (a) except as permitted by this Agreement or the
Stock Purchase Agreement, the Executive's Shares are not subject to any Lien (as
defined above); and (b) neither the execution and delivery of this Agreement nor
the observance or performance of its terms by the Executive violates, or creates
any Lien with respect to the Executive's Shares, pursuant to any statute,
ordinance, regulation, order, judgment or decree applicable to the Executive or
the Executive's Shares or any agreements to which the Executive or the
Executive's Shares are bound.
3. VOTING OF SHARES GENERALLY.
3.1 STEELCASE SHARES BELOW THRESHOLD AMOUNT. Any Shares beneficially
owned by Steelcase up to and including 610,000 Shares (as adjusted for any stock
split, combination or stock dividend) (the "Threshold Amount") may be voted by
Steelcase in its discretion without restriction except as set forth in Section
3.3.
3.2 STEELCASE SHARES ABOVE THRESHOLD AMOUNT. With respect to all
matters submitted to shareholders of the Company for a vote (other than
elections of directors), all Shares beneficially owned by Steelcase in excess of
the Threshold Amount shall be voted in proportion to the votes of all
outstanding Shares actually cast including Shares up to and including the
Threshold Amount, but not including abstentions or Shares beneficially owned by
Steelcase in excess of the Threshold Amount.
3.3 DIRECTOR ELECTIONS. Steelcase and each Executive shall vote all
of its or his Shares, including Shares in excess of the Threshold Amount, to
elect the director-nominees listed in Schedule 3.3 (or their respective
successors selected in the manner described in Schedule 3.3); provided, however,
that any party may vote its or his Shares against any such director-nominee if
grounds exist to terminate the director-nominee "for cause" and such party
provides a notification to the Company of the grounds for such conclusion. If
any director-nominee listed in Schedule 3.3 is not elected as a result of the
3
<PAGE>
proviso in the preceding sentence, his successor shall be selected in the manner
described in Schedule 3.3.
3.4 AFFILIATES. Each party agrees that the voting provisions set
forth in this Agreement shall apply to Shares transferred by such party to its
or his Affiliates and that prior to any such transfer such Affiliates shall have
agreed in writing to be bound by the provisions of this Section 3.
4. RESTRICTIONS ON TRANSFER.
4.1 EXECUTIVES. Each Executive shall not transfer any of his Shares
in a private sale (excluding market transactions), except in accordance with
Section 6 of this Agreement.
4.2 STEELCASE. Steelcase shall not transfer any Shares until the
second anniversary of the Closing, other than to a Steelcase Affiliate.
Notwithstanding the foregoing, the obligations set forth in this Agreement shall
continue to be applicable to (a) any Steelcase Affiliate who is a transferee of
Steelcase's Shares, and (b) any transferee after the second anniversary of the
Closing if such transferee obtained the Shares from Steelcase in a private sale
(excluding market transactions) and, in each case, the transferee shall have
agreed in writing to be bound by the provisions of this Agreement affecting the
transferred Shares.
5. ACQUISITION OF NEW SHARES. Each party agrees that any Shares acquired
by such party, whether by purchase or otherwise, shall be subject to the terms
of this Agreement.
6. RIGHT OF FIRST REFUSAL.
6.1 PROPOSED TRANSFERS. If any Executive proposes to sell any of
such Executive's Shares to any person or group (a "Proposed Transferee") in one
or a series of related transactions in a private sale (excluding market
transactions), no such sale shall be completed unless the Executive first gives
Steelcase a written notice of such proposed sale. Upon receipt of such notice,
Steelcase shall have the right to purchase all the Executive's Shares offered to
the Proposed Transferee upon substantially the same terms and conditions offered
to the Proposed Transferee. Steelcase must respond to such notice with an offer
to buy the Executive's Shares within ten business days after receipt of the
notice, after which time the Executive may sell to the Proposed Transferee on
the specified terms. If the Executive has not consummated the sale to the
Proposed Transferee within 90 days after the date of giving the required notice
to Steelcase, the proposed sale shall again be subject to this Section 6.1 and
another notice to Steelcase is required.
6.2 TRANSFERS NOT SUBJECT TO RIGHTS OF FIRST REFUSAL. This Section 6
shall not apply to any transfer (a) by an Executive to any Affiliate PROVIDED,
HOWEVER, that with
4
<PAGE>
respect to a transfer of any Shares permitted pursuant to this clause, the
obligations set forth in this Agreement shall continue to be applicable to
the transferee of such Shares and PROVIDED FURTHER that the transferee of
such Shares shall have agreed in writing to be bound by the provisions of
this Agreement affecting the transferred Shares; or (b) pursuant to a
business combination that is approved by the Company's Board of Directors
including a majority of the Independent Directors.
7. RIGHT OF FIRST OFFER. If the Company proposes to sell, for cash, any
Shares to any person or group (including in a public offering), the Company
shall first make an offering of such Shares to Steelcase in accordance with the
following provisions:
7.1 NOTICE. The Company shall deliver a notice by confirmed
facsimile transmission, certified mail, or a nationally recognized overnight
courier service ("Notice") to Steelcase stating (a) the Company's bona fide
intention to offer such Shares, (b) the number of such Shares to be offered
(including any Shares to be offered for the account of any shareholder), and (c)
the price and a summary of the terms, if any, upon which the Company proposes to
offer such Shares.
7.2 ELECTION TO PURCHASE. By written notification received by the
Company within 20 calendar days after receipt of the Notice, Steelcase may elect
to purchase or obtain, at the price and on the terms specified in the Notice
all, but not less than all, of the Shares specified in the Notice.
7.3 If Steelcase declines to purchase such Shares, the Company may,
during the 270 day period following the expiration of the election period, offer
the Shares to any person or persons (including in a public offering) at a price
not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not sell the Shares within such
period, the right provided hereunder shall be deemed to be revived, and such
Shares shall not be offered unless first reoffered to Steelcase in accordance
with this Section.
7.4 The right of first offer in this Section 7 shall not be
applicable to (a) Shares issuable or issued to employees, consultants or
directors of the Company directly or pursuant to a stock incentive plan or
restricted stock plan approved by the Company's Board of Directors, (b) Shares
issued or issuable upon conversion of any convertible securities, (c) securities
issued or issuable to banks or equipment lessors, provided such issuances are
for other than primarily equity financing purposes and are not for more than 5
percent of the outstanding Shares of the Company, and (d) securities issued in
connection with business combinations approved by the Company's Board of
Directors including a majority of the Independent Directors.
8. TERM AND TERMINATION. This Agreement shall become effective upon
execution and shall continue in full force and effect until the earlier of (a)
such time as Steelcase or any Steelcase Affiliate beneficially owns less than 5
percent of the outstanding
5
<PAGE>
Shares of the Company for a period continuing for more than one year, (b) the
fifth anniversary of the Closing, or (c) the date upon which Steelcase and/or
its Affiliates beneficially own more than 50 percent of the outstanding
Shares of the Company. Except as otherwise expressly provided in this
Agreement, the obligations and restrictions set forth in this Agreement shall
not apply to any person who acquires beneficial ownership of Shares pursuant
to a transfer permitted by this Agreement.
9. SPECIFIC PERFORMANCE. The parties to this Agreement acknowledge and
agree that it is impossible to measure in money the damages that will accrue to
a party or to their successors, heirs, personal representatives or assigns by
reason of a failure to perform any of the obligations under this Agreement and
agree that the terms of this Agreement shall be specifically enforceable, and
appropriate injunctive relief may be applied for and granted in connection with
the enforcement of this Agreement. If any party to this Agreement or his or its
successors, heirs, personal representatives or assigns institutes any action or
proceeding to enforce specifically any provision of this Agreement, any person
against whom such action or proceeding is brought waives the claim or defense
that such party has an adequate remedy at law, and such person shall not offer
in any such action or proceeding the claim or defense that such remedy at law
exists. Such equitable remedies shall, however, be cumulative and not exclusive
and shall be in addition to any other remedies that any party may have under
this Agreement or otherwise.
10. FURTHER ASSURANCES. Each party to this Agreement shall do and
perform or cause to be done and performed all such further acts and things and
shall execute and deliver all such other agreements, certificates, instruments
or documents as any other party may reasonably request from time to time in
order to carry out the intent and purposes of this Agreement. No party to this
Agreement shall voluntarily undertake any course of action inconsistent with
satisfaction of the requirements applicable to them set forth in such
instruments and documents, and each party shall promptly do all such acts and
take all such measures as may be appropriate to enable him or it to perform as
early as practicable the obligations herein and therein required to be performed
by them.
11. GOVERNING LAW. This Agreement, and the rights of the parties hereto,
shall be governed by and construed in accordance with the laws of the state of
Oregon, exclusive of choice of law rules.
12. AMENDMENT. This Agreement, other than Sections 6 and 7, may be
amended, or its terms waived, only by an instrument in writing signed by
Steelcase, the Executives and the Company. The provisions of Section 6 may be
amended, or its terms waived, only by an instrument in writing signed by
Steelcase and the Executive selling Shares. The provisions of Section 7 may be
amended, or its terms waived, only by an instrument in writing signed by
Steelcase and the Company.
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<PAGE>
13. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable, the validity and enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
14. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, successors,
assigns, administrators, executors and other legal representatives.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
shall constitute one and the same agreement.
16. NO THIRD PARTY BENEFICIARIES. This Agreement is entered into solely
for the benefit of the parties hereto and nothing in this Agreement shall confer
rights or benefits on any third party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MICROFIELD GRAPHICS, INC.
-------------------------------------
John B. Conroy
President and Chief Executive Officer
STEELCASE INC.
------------------------------------
James P. Hackett
President and Chief Executive Officer
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<PAGE>
EXECUTIVES:
------------------------------
John B. Conroy
------------------------------
Scott McVay
------------------------------
Randall R. Reed
------------------------------
Michael Stansell
------------------------------
Peter Zinsli
------------------------------
Donald Zurstadt
-----------------------------
William P. Cargile
8
<PAGE>
SCHEDULE A
EXECUTIVES
John B. Conroy
Scott McVay
Randall R. Reed
Michael Stansell
Peter Zinsli
Donald Zurstadt
William P. Cargile
9
<PAGE>
SCHEDULE 3.3
DIRECTOR-NOMINEES
John B. Conroy (or the successor Chief Executive Officer of the Company)
William P. Cargile (or his successor selected as described below)
Herb Shaw (or his successor selected as described below)
James P. Keane (or a successor designated in writing by Steelcase)
One other director-nominee acceptable to the majority of the directors then in
office.
If Mr. Cargile or Mr. Shaw are no longer serving as directors, the
parties shall vote for an independent, outside director-nominee
acceptable to the majority of the directors then in office as a
successor.
Messrs. Cargile, Keane and Shaw shall be considered the initial "Independent
Directors" for purposes of the Share Ownership, Voting and Right of First
Refusal Agreement.
10
<PAGE>
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
This Agreement, dated March 19, 1998, is between Microfield
Graphics, Inc. (the "Company") and Steelcase Inc. (the "Investor"). SECTION
8 contains an index of all defined terms.
RECITALS
A. The Company and the Investor are parties to a Common Stock Purchase
Agreement ("Purchase Agreement") dated March 16, 1998, pursuant to which the
Investor is purchasing shares of Common Stock from the Company.
B. The Investor has requested, and the Company is willing to grant to the
Investor, registration rights, all on the terms and conditions of this
Agreement.
AGREEMENT
The parties agree as follows:
1. REQUEST FOR REGISTRATION.
1.1 REQUEST AND NOTICE. If the Company shall receive, at any time after
March 19, 2000, a written request from the Investor (a "Notice") that the
Company file a registration statement under the Securities Act of 1933, as
amended (the "1933 Act"), then the Company shall, subject to the limitations of
this Agreement, use all reasonable efforts to effect as soon as practicable, and
in any event within 90 days of the receipt of such request, the registration
under the 1933 Act of all Registrable Securities which the Investor shall have
specified in the Notice. Any written request from the Investor pursuant to
this SECTION 1.1 shall state that the request is being made pursuant to this
SECTION 1.1. The Company is obligated to effect only two such registrations
pursuant to this SECTION 1.1.
1.2 SHARES INCLUDED. The Investor shall include in such registration at
least 200,000 shares of the Registerable Securities then held by it, or all of
the remaining Registrable Securities then held by the Investor if less.
1.3 UNDERWRITING. If the Investor intends to distribute the Registrable
Securities covered by its request by means of an underwriting, it shall so
advise the Company as a part of its request made pursuant to SECTION 1.1. In
such event, the Investor shall (together with the Company as provided in
SECTION 2.5) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Investor and
reasonably acceptable to the Company. Notwithstanding any other provision of
this SECTION 1, if the underwriter advises the Investor in writing that
marketing factors require a limitation
<PAGE>
of the number of shares to be underwritten, then the Investor agrees to limit
the number of shares of Registrable Securities that may be included in the
underwriting.
1.4 DEFERRAL. Notwithstanding the foregoing, (a) the Company shall not be
obligated to effect a registration pursuant to SECTION 1.1 during the period
starting with the date 60 days prior to the Company's good faith estimated date
of filing of, and ending on the date 90 days following the effective date of, a
registration statement pertaining to an underwritten public offering of
securities for the account of the Company (the "Preclusion Period"), provided,
however, that the Company is at all times during such period diligently pursuing
such registration, and further provided that the Company notifies the Investor
at least 20 days before the beginning of the Preclusion Period and (b) if the
Company shall furnish to the Investor a certificate signed by the President or
Chief Financial Officer of the Company stating that, in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental to
the Company for the Company to comply with such request and it is therefore
essential to defer the filing of the registration statement relating thereto,
the Company shall have the right to defer such filing for a period of not more
than 180 days after receipt of the Investor Notice; provided, however, that the
Company may not exercise this right more than once in any 12-month period.
1.5 REQUIRED REGISTRATION. The Company may, by giving written notice to
the Investor, require that all shares of Registrable Securities then held by the
Investor be registered on Form S-3 or a comparable form under the 1993 Act.
After giving such notice, the Company shall promptly undertake to prepare and
file with the SEC a Form S-3 or comparable registration statement with respect
to all the Investor's Registrable Securities and use its best efforts to cause
such registration to become effective and shall refrain from terminating such
registration statement until the Investor has sold all of its Registrable
Securities registered under such registration statement. The Investor shall
furnish to the Company such information regarding the Investor, the Registrable
Securities held by it, and the intended method of distribution (if any), as
shall be reasonably required to effect the registration pursuant to this
SECTION 1.5. If a registration pursuant to this SECTION 1.5 becomes effective,
all further obligations of the Company to make any registrations under this
Agreement shall automatically terminate.
1.6 COMPANY REGISTRATION. If (but without any obligation to do so) the
Company proposes to register any of its stock or other securities under the Act
in connection with the public offering of such securities solely for cash (other
than a registration relating solely to the sale of securities to participants in
a Company stock plan or a registration on any form that does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give the Investor written notice of such
registration. Upon the written request of the Investor given within ten (10)
days after mailing of such notice by the Company in accordance with Section 7.5,
the Company shall, subject to the provisions of Section 4.4, include in the
registration statement all of the Registrable Securities that the Investor has
requested to be registered.
2
<PAGE>
2. OBLIGATIONS OF THE COMPANY.
Whenever required under SECTIONS 1.1 or whenever it elects under
SECTION 1.5 of this Agreement to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible:
2.1 REGISTRATION STATEMENT. Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use commercially
reasonably efforts to cause such registration statement to become effective, and
keep such registration statement effective for up to nine months (or, if
earlier, until the Investor has sold the Registrable Securities held by it).
2.2 AMENDMENTS. Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
2.3 PROSPECTUS. Furnish to the Investor such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by it.
2.4 BLUE SKY. Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such states or jurisdictions as shall be reasonably requested by the
Investor, provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
2.5 UNDERWRITING. In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering.
2.6 NOTIFICATION. Notify the Investor, at any time when a prospectus
covered by such registration statement is required to be delivered under the
1933 Act, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, either (a) includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing or (b) to the
Company's knowledge, fails to comply with the 1933 Act or any other applicable
federal or state securities laws.
2.7 LISTING. List the Registrable Securities being registered on any
national securities exchange on which a class of the Company's equity securities
are listed or qualify
3
<PAGE>
the Registrable Securities being registered for inclusion on the Nasdaq Stock
Market if the Company does not have a class of equity securities listed on a
national securities exchange.
3. EXPENSES.
3.1 REGISTRATION EXPENSES. All expenses (other than underwriting
expenses, discounts and commissions relating to Registrable Securities and fees
and disbursements of counsel for the Investor), including without limitation,
all registration, filing, and qualification fees, printing and accounting fees
and legal fees and expenses of the Company' counsel incurred in connection with
a registration pursuant to SECTION 1.1 or SECTION 1.5 shall be borne by the
Company.
3.2 UNDERWRITING EXPENSES. All underwriting expenses, discounts and
commissions relating to the Registrable Securities shall be borne by the
Investor.
3.3 DEEMED AMENDMENT. Notwithstanding any other provision of this
SECTION 3, the provisions of this SECTION 3 shall be deemed amended to
incorporate and comply with the provisions of any applicable state securities
laws, regulations, and administrative policies.
3.4 WITHDRAWN REGISTRATION. The Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to SECTION 1.1 if the
registration request is subsequently withdrawn at any time at the request of the
Investor (in which case the Investor shall bear such expenses), unless the
Investor agrees to forfeit its right to a demand registration pursuant to
SECTION 1.1. Notwithstanding the foregoing, however, if the Investor's request
for such withdrawal is preceded by and a consequence of a material adverse
disclosure made by the Company after the date of the Investor Notice but before
the effective date of the resulting registration statement, then the Investor
shall not be required to bear such expenses and shall not forfeit its right to
demand one registration pursuant to SECTION 1.1 as a consequence of such
withdrawal request.
4. CERTAIN REQUIREMENTS.
4.1 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the Investor shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be reasonably required under applicable federal and
state securities laws and regulations to effect the registration of its
Registrable Securities.
4.2 DELAY OF REGISTRATION. So long as the Company has given any notice
required by this Agreement, the Investor shall not have any right to take any
action to restrain or otherwise delay any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Agreement.
4
<PAGE>
4.3 LIMITS ON REGISTRATIONS. The Company shall not be obligated to
register any Registrable Securities under this Agreement at any time after
March 19, 2005. This Agreement shall automatically expire on March 19, 2005.
Termination of this Agreement shall not affect any obligations to register
pursuant to a demand received prior to the termination of this Agreement.
4.4 UNDERWRITING REQUIREMENTS. In connection with any offering involving
an underwriting of shares of the Company's capital stock, the Company shall not
be required under Section 1.6 to include any of the Investor's securities in
such underwriting unless it accepts the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it and then only in such
quantity as the underwriters determine in their sole discretion will not,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold (other than by
the Company) that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders).
5. INDEMNIFICATION.
If any Registrable Securities are included in a registration statement
under this Agreement:
5.1 BY THE COMPANY. To the extent permitted by law, the Company will
indemnify and hold harmless the Investor, the officers and directors of the
Investor, any underwriter (as defined in the 1933 Act) for the Investor and each
person, if any, who controls the Investor or underwriter within the meaning of
the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934
Act"), against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the 1933 Act, the 1934 Act, or any other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions, or violations (collectively a "Violation"):
(a) any untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto,
(b) the omission or alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein not
misleading, or (c) any violation or alleged violation by the Company, or any of
the Company' officers, directors, employees or affiliates of the 1933 Act, the
1934 Act, or any rule or regulation promulgated under the 1933 Act, the 1934
Act, or any state or other federal securities law. The Company will reimburse
the Investor and each such officer or director, or underwriter
5
<PAGE>
or controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this SECTION 5.1 shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case for
any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in
connection with such registration by any the Investor, underwriter or
controlling person.
5.2 BY THE INVESTOR. To the extent permitted by law, the Investor will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the 1933 Act and each agent and any
underwriter for the Company, against any losses, claims, damages, or liabilities
(joint or several) to which the Company or any such director, officer,
controlling person, agent, or underwriter or controlling person, may become
subject, under the 1933 Act, the 1934 Act, or any other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by the Investor expressly for
use in connection with such registration; and the Investor will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, agent, or underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this SECTION 5.2 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Investor, which consent shall not be unreasonably withheld.
5.3 PROCEDURE. Promptly after receipt by an indemnified party under this
SECTION 5 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this SECTION 5, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, reasonably satisfactory to the
indemnifying party, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
conflicts of interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying
6
<PAGE>
party of any liability to the indemnified party under this SECTION 5 except
to the extent the indemnifying party is prejudiced as a result thereof; and
the omission so to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party
otherwise than under this SECTION 5.
5.4 SURVIVAL. The obligations of each party under this SECTION 5 shall
survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement.
6. REPORTS, ASSIGNMENT AND STAND-OFF.
6.1 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making
available to the Investor the benefits of Rule 144 promulgated under the 1933
Act and any other rule or regulation of the SEC that may at any time permit the
Investor to sell securities of the Company to the public without registration,
the Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act; and
(c) Furnish to the Investor, so long as the Investor owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 and the
1934 Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested in availing the Investor
of any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.
6.2 ASSIGNMENT. The Investor's rights under this Agreement may not be
assigned by the Investor without the prior written consent of the Company,
except to any other person or entity, directly or indirectly, controlled by or
under direct or indirect common control with Investor (the "Investor
Affiliate"), provided that such Investor Affiliate acquires at least 50,000
shares of the Investor's Registrable Securities. Subject to the foregoing, the
terms and conditions of this Agreement shall inure to the benefit of, and be
binding upon, the respective successors and assigns of the parties. "Control"
means the power to direct the management and policies of such person or entity,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise. Investor Affiliate shall not mean employees of Investor
acting in their individual capacities.
6.3 "MARKET STAND-OFF" AGREEMENT. The Investor hereby agrees that it
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose (other than to donees who
7
<PAGE>
agree to be similarly bound) any Registrable Securities during the period
requested by such underwriter (not to exceed 180 days following the
effective date of a registration statement of the Company filed under the
1933 Act); provided, however, that all officers and directors of the Company
also enter into similar agreements.
7. MISCELLANEOUS.
7.1 NO THIRD PARTY BENEFITS. Nothing in this Agreement, express or
implied, is intended to confer upon any third party any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
7.2 GOVERNING LAW. This Agreement and all transactions contemplated
hereby, shall be governed, construed and enforced in accordance with the laws of
the State of Oregon, without reference to its choice of law provisions.
7.3 COUNTERPARTS. This Agreement may be executed in several counterparts
each of which shall be deemed to be an original, and all of which when taken
together shall constitute one single agreement between the parties.
7.4 HEADINGS. The headings and subheadings used in this Agreement are for
convenience only and shall not control or affect the meaning or construction of
this Agreement.
7.5 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given (a) upon personal delivery to the
party notified, (b) three days after deposit with the United States Post Office,
by registered or certified mail, postage prepaid and addressed to the party to
be notified at the address for such party, (c) one day after deposit with a
nationally recognized air courier service such as DHL or Federal Express for
next day delivery, or (d) on the date of facsimile transmission, with confirmed
transmission, provided that notice is also given under clauses (a), (b) or (c),
above. Addresses for notices are on the signature page hereof, or such other
address as such party may designate by ten days' advance written notice to the
other party in accordance with this SECTION 7.5.
7.6 AMENDMENT; WAIVERS. No amendment or modification of this Agreement
shall be effective unless it is set forth in a writing which refers to the
particular provision(s) so amended or modified and is executed by authorized
representatives of both parties. No failure or delay by either party in
exercising any right, power or remedy will operate as a waiver of any such
right, power or remedy and any waiver as to a breach of any particular provision
will not be deemed to be a waiver of any future breach of that same provision.
7.7 SEVERABILITY. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement
8
<PAGE>
and the balance of the Agreement shall be interpreted as if such provision
were so excluded and shall be enforceable in accordance with its terms.
7.8 ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the parties regarding the subject matter of this Agreement and supersedes any
other agreements among the parties regarding such subject matter, each of which
is hereby terminated and of no further force or effect.
8. DEFINITIONS.
The following terms are defined as follows or in the indicated
sections of this Agreement:
"1933 ACT" shall have the meaning set forth in SECTION 1.1;
"1934 ACT" shall have the meaning set forth in SECTION 5.1;
"PURCHASE AGREEMENT" shall have the meaning set forth in Recital A;
"COMMON STOCK" means the common stock of the Company;
"THE INVESTOR" means Steelcase Inc., a Michigan corporation;
"NOTICE" shall have the meaning set forth in SECTION 1.1;
"THE INVESTOR AFFILIATE" shall have the meaning set forth in SECTION
6.2;
"THE COMPANY" means Microfield Graphics, Inc., an Oregon corporation;
"REGISTER," "registration," and "registered" refer to a registration
effected by preparing and filing a registration statement or similar document in
compliance with the Securities Act of 1933, as amended, and the declaration or
ordering of effectiveness of such registration statement or document;
"REGISTRABLE SECURITIES" means (a) the Common Stock issuable or issued
pursuant to the Purchase Agreement, (b) the Common Stock issuable or issued upon
exercise of the Warrant, and (c) any stock issued in connection with the Common
Stock described in (a) or (b) of this provision;
"SEC" means the Securities and Exchange Commission;
"VIOLATION" shall have the meaning set forth in SECTION 5.1; and
9
<PAGE>
"WARRANT" means Warrant No. 1998-W-1 issued to the Investor for the
purchase of 260,000 shares of the Company's Common Stock, of even date hereof.
The parties have executed this Agreement as of the date first written
above.
MICROFIELD GRAPHICS, INC.
By:
----------------------------------
John B. Conroy, President and
Chief Executive Officer
Mailing Address: 7216 SW Durham Road
Portland, OR 97224
Attention: John B. Conroy, President and
Chief Executive Officer
Fax: 503/620-4090
STEELCASE INC.
By:
-----------------------------------
James P. Hackett, President and
Chief Executive Officer
Mailing Address: 901-44th Street S.E.
Grand Rapids, MI 49508
Attention: James P. Hackett, President and
Chief Executive Officer
Fax:
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S FORM 10QSB FOR THE
THREE MONTH PERIODS ENDED APRIL 4, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> APR-04-1998
<CASH> 1,875
<SECURITIES> 0
<RECEIVABLES> 1,891
<ALLOWANCES> 20
<INVENTORY> 913
<CURRENT-ASSETS> 4,969
<PP&E> 1,057
<DEPRECIATION> 701
<TOTAL-ASSETS> 5,393
<CURRENT-LIABILITIES> 2,063
<BONDS> 0
0
0
<COMMON> 14,263
<OTHER-SE> (11,002)
<TOTAL-LIABILITY-AND-EQUITY> 5,393
<SALES> 2,558
<TOTAL-REVENUES> 2,558
<CGS> 1,424
<TOTAL-COSTS> 1,424
<OTHER-EXPENSES> 1,056
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> 54
<INCOME-TAX> 1
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53
<EPS-PRIMARY> .02
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</TABLE>
