<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 3, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 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, OREGON 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 3
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 3,
1999 was 4,132,185 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 3, 1999
and January 2, 1999 3
Consolidated Statement of Operations - Quarter Ended 4
April 3, 1999 and April 4, 1998
Consolidated Statement of Cash Flows - Quarter
Ended April 3, 1999 and April 4, 1998 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 1 Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
2
<PAGE>
MICROFIELD GRAPHICS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
April 3, January 2,
1999 1999
----------------- ------------------
<S> <C> <C>
Current assets:
Cash $ 1,295,703 $ 739,628
Cash and cash equivalents
Accounts receivable, net of allowances
of $43,962 and $44,553 526,420 797,543
Inventories (Note 3) 747,679 946,103
Prepaid expenses and other 164,113 156,627
----------------- ------------------
Total current assets 2,733,915 2,639,901
Property and equipment, net (Note 4) 348,391 379,457
Other assets 208,929 226,140
----------------- ------------------
$ 3,291,235 $ 3,245,498
================= ==================
Current liabilities:
Current portion of debt $ 552,594 $ 738,333
Accounts payable 415,301 532,308
Accrued payroll and payroll taxes 104,237 255,698
Unearned income 68,596 56,101
Accrued liabilities 299,109 186,403
----------------- ------------------
Total current liabilities 1,439,837 1,768,843
Long-term debt and Other Liabilities 64,351 84,165
----------------- ------------------
1,504,188 1,853,008
Shareholders' equity:
Common stock, no par value, 25,000,000 shares
authorized, 4,132,185 and 3,686,775 shares
issued and outstanding 15,363,909 14,362,698
Accumulated deficit (13,576,862) (12,970,208)
----------------- ------------------
Total shareholders' equity 1,787,047 1,392,490
----------------- ------------------
$ 3,291,235 $ 3,245,498
================= ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
MICROFIELD GRAPHICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
April 3, April 4,
1999 1998
---------------- -----------------
<S> <C> <C>
Sales $ 1,053,315 $ 2,557,924
Cost of goods sold 671,291 1,424,107
---------------- -----------------
Gross profit 382,024 1,133,817
Operating expenses
Research and development 244,610 210,318
Marketing and sales 481,418 635,765
General and administrative 247,629 209,650
---------------- -----------------
973,657 1,055,733
---------------- -----------------
Income (loss) from operations (591,633) 78,084
Other income (expense)
Interest expense, net (15,244) (24,140)
Other income, net 222 --
---------------- -----------------
Income (loss) before provision for income taxes (606,655) 53,944
Provision for income taxes 705
---------------- -----------------
Net income (loss) $ (606,655) $ 53,239
================ =================
Net income (loss) per share
Basic $ (.16) $ .02
================ =================
Diluted $ (.16) $ .02
================ =================
Shares used in per share calculations
Basic 3,721,320 3,283,809
================ =================
Diluted 3,721,320 3,505,440
================ =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
MICROFIELD GRAPHICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
----------------------------------------
April 3, April 4,
1999 1998
------------------- ------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (606,655) $ 53,239
Adjustments to reconcile net income (loss) to
Net cash used in operating activities:
Depreciation and amortization 49,922 47,787
Changes in assets and liabilities:
Accounts receivable 271,123 (863,596)
Inventories 198,424 (201,473)
Prepaid expenses and other (7,487) (72,600)
Accounts payable (117,007) 169,647
Accrued payroll and payroll taxes (151,461) (88,817)
Unearned income 12,495 5,037
Accrued liabilities 42,719 75,259
-------------- -------------
Net cash used in operating activities (307,927) (875,517)
Cash flows from investing activities:
Acquisition of property and equipment (13,970) (15,015)
-------------- -------------
Net cash used in investing activities (13,970) (15,015)
Cash flows from financing activities:
Payments on equipment line of credit (20,833) (20,834)
Payments on operating line of credit (102,406) (200,000)
Proceeds from exercise of common stock options 1,210 79,275
Proceeds from issuance of common stock 1,000,001 1,997,952
-------------- -------------
Net cash provided by financing activities 877,972 1,856,393
Net increase in cash and cash equivalents 556,075 965,861
Cash and cash equivalents, beginning of period 739,628 909,184
-------------- -------------
Cash and cash equivalents, end of period $ 1,295,703 $ 1,875,045
============== =============
Supplemental disclosure of cash flow information: Cash paid for:
Interest $ 17,264 30,690
============== =============
Income taxes $ -- $ 705
============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated 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 3, 1999
and April 4, 1998 have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. The financial information
as of January 2, 1999 is derived from the Company's Annual Report on Form
10-KSB. The accompanying consolidated 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
consolidated financial statements and notes thereto for the year ended January
2, 1999. 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 3, 1999 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 current fiscal year
is the 52-week period ending January 1, 2000. The Company's last fiscal year was
the 53-week period ended January 2, 1999. The Company's first fiscal quarters in
fiscal 1999 and 1998 were the 13-week periods ended April 3, 1999 and April 4,
1998, respectively.
2. INVENTORIES
Inventories are stated at the lower of standard cost (which
approximates the first-in, first-out method) or market value. Inventory costs
include raw materials, direct labor and allocated overhead and consist of the
following:
<TABLE>
<CAPTION>
April 3, January 2,
1999 1999
----------------- -----------------
<S> <C> <C>
Raw materials $ 435,348 $ 607,140
Finished goods 312,331 338,963
----------------- -----------------
747,679 $ 946,103
================= =================
</TABLE>
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
April 3, January 2,
1999 1999
----------------- -------------------
<S> <C> <C>
Machinery and equipment $1,236,983 $ 1,223,014
Less accumulated depreciation and
amortization 888,592 843,557
----------------- -------------------
$ 348,391 $ 379,457
================= ===================
</TABLE>
6
<PAGE>
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, digital whiteboard rear projection systems and interactive
plasma display 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 globally markets 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.
Product shipments from the Company to 3M began in the fourth quarter of 1997 and
continued through the second quarter of 1998. For the three months ended
April 3, 1999 and April 4, 1998, approximately 0% and 62%, respectively, of the
Company's sales were attributable to 3M.
In April 1999, the Company was informed by 3M of their decision to exit
the Advanced Meeting Solutions (AMS) Project under which the SoftBoard family of
products was marketed. The Company reached an agreement with 3M under which the
Company will assume responsibility for the global distribution network of
whiteboard products. In this role, the Company will support digital whiteboard
product sales, service and warranty obligations for all of 3M's installed base
and dealer network affected by its withdrawal from the AMS Project.
As with any large OEM or distributor relationship, order rates may be
subject to quarterly fluctuations as demand builds and inventories are adjusted.
The reduced level of sales to 3M in the last several quarters, and the announced
exit by 3M from their AMS program has had a material adverse effect on the
Company's business.
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 Company's common stock at $6.75 per share. The warrant is exerciseable
starting on March 16, 1999 and expires on March 16, 2001. In March 1999,
Steelcase purchased an additional 444,445 shares for a total of $1,000,001 in
cash. As of April 3, 1999 Steelcase owned 23% of the outstanding common stock of
the Company.
Also in the first quarter of 1999, the Company signed a Joint
Development Agreement with Steelcase. Together with Steelcase and IDEO, an
internationally recognized industrial design firm, the
7
<PAGE>
Company will develop products based on the SoftBoard technology that are to
be marketed by Steelcase in the office furniture market on a world-wide basis.
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.
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>
THREE MONTHS ENDED
----------------------------
APRIL 3, APRIL 4,
1999 1998
------------- ----------
<S> <C> <C>
Sales 100 % 100 %
Cost of goods sold 64 56
------------ ----------
Gross profit 36 44
Research and development expenses (23) (8)
Marketing and sales expenses (46) (25)
General and administrative expenses (23) (8)
------------ ----------
Income (loss) from operations (56) 3
Other income (expense) (1) (1)
------------ ----------
Income (loss) before provision for income taxes (57) 2
Provision for income taxes -- --
------------ ----------
Net income (loss) (57)% 2 %
============ ==========
</TABLE>
FIRST QUARTER ENDED APRIL 3, 1999 COMPARED WITH FIRST QUARTER ENDED APRIL 4,
1998
SALES. Sales decreased $1,505,000 (59%) to $1,053,000 in the first
quarter of 1999 from $2,558,000 in the first quarter of 1998. This decrease was
due primarily to the decreased level of sales to 3M during the current quarter.
The first quarter of 1998 included approximately $1.6 million in sales to 3M.
There were no shipments to 3M in the first quarter of 1999. (SEE OVERVIEW)
GROSS PROFIT. 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 36% in the first quarter of 1999 from 44% in the first quarter of
1998. The decrease is primarily due to lower production volumes in the first
quarter of 1999 compared to the comparable quarter in 1998, resulting in lower
absorption of manufacturing overhead expense.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs are
expensed as incurred. These expenses increased $34,000 (16%) to $245,000 in the
first quarter of 1999 from $210,000 in the first quarter of 1998. This increase
was due primarily to higher development costs incurred on the next generation
SoftBoard Series 200 product line during the current period. Research and
development expenses increased as a percentage of sales to 23% in the first
three months of 1999
8
<PAGE>
from 8% in the first three months of 1998. The increase was due primarily to
the lower level of Company revenue in the first three months of 1999 compared
to the same period in 1998, coupled with slightly higher new product
development costs.
MARKETING AND SALES EXPENSES. Marketing and sales expenses decreased
$154,000 (24%) to $481,000 in the first quarter of 1999 from $636,000 in the
first quarter of 1998. The decrease between quarters was due primarily to lower
costs associated with the current advertising program and decreased
participation in trade shows during the quarter. Marketing and sales expenses
increased as a percentage of sales to 46% in the first three months of 1999 from
25% in the first three months of 1998 primarily due to the lower sales volume in
1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $38,000 (18%) to $248,000 in the first quarter of 1999 from
$210,000 in the first quarter of 1998. This increase was due primarily to costs
associated with the Company's investor relations program, which was not in place
in the same period in 1998, and to slightly higher property taxes. General and
administrative expenses increased as a percentage of sales to 23% in the first
three months of 1999 from 8% in the first three months of 1998 primarily due to
the lower sales volume in 1999.
OTHER INCOME (EXPENSE). Other income (expense) includes interest
income, interest expense, and miscellaneous income. Interest expense, net was
$15,000 in the first quarter of 1999 compared to interest expense, net of
$24,000 in the first quarter of 1998. Interest expense decreased due to lower
levels of borrowing under the Company's operating line of credit in the first
quarter of 1999 compared to the first quarter of 1998.
INCOME TAXES. The Company recorded a loss from operations in the first
quarter of 1999. Accordingly, no provision for income taxes, was provided for in
the current period. The Company recorded income in the first quarter of 1998,
but did not provide for other than minimum state income taxes due to available
net operating loss carryforwards of approximately $10 million for federal tax
purposes.
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 3, 1999,
the Company had working capital of approximately $1.3 million, with its
principal source of liquidity consisting of the same amount in cash and cash
equivalents. Additionally, as of April 3, 1999, the Company had a $2,000,000
line of credit with its bank using its accounts receivable and certain of its
inventory as collateral. The operating line bears interest monthly at prime
(8.5% at April 3, 1999). At April 3, 1999 $547,500 was outstanding under the
line of credit. Accounts receivable decreased to $526,000 from $798,000 at
the end of 1998, and inventory decreased to $745,000 from $946,000 at the end
of 1998.
The Company has no commitments for capital expenditures in material
amounts.
The Company believes its existing cash and cash equivalents (including
the proceeds of the recent sale of stock to Steelcase, SEE OVERVIEW), cash
available under its operating line of credit, and cash from operations may not
be sufficient to fund its operations for at least the next 12 months, and is
looking at alternative means of financing the business should the above sources
be insufficient. There is no
9
<PAGE>
assurance that the Company can obtain such financing, or that such financing
will be on terms acceptable to the Company.
IMPACT OF THE YEAR 2000 ISSUE
The Company has made an assessment of the Year 2000 issue on its
internal systems and equipment, its hardware and software products, and on the
systems of its vendor base. Based on this assessment, the Company believes that
its internal systems have been updated to address the Year 2000 issue, its
hardware and software products will properly recognize calendar dates beginning
in the Year 2000, and its vendor base is appropriately addressing the Year 2000
issues. Accordingly, the Company believes it is Year 2000 ready and does not
currently expect to incur any material costs in connection with the Year 2000
issue.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 5, 1998 a former temporary leased employee filed a complaint
in federal district court for the district of Oregon (Schmechel vs. Microfield
Graphics, Inc.) alleging gender discrimination and harassment in addition to a
state wrongful constructive discharge claim. The plaintiff alleged emotional
distress, economic loss and punitive damages. No members of the Company's
management were named in the suit. An agreement between the parties has been
reached that will not have a material effect on the Company's operating results.
The Settlement Agreement is expected to be finalized on or about May 24, 1999.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 26, 1999, the Company sold to Steelcase 444,445 shares of the
Company's common stock. Steelcase paid $1,000,001 in cash for the shares. 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
On April 21, 1999, the Company received notice from the Nasdaq Stock
Market that the Company no longer meets the requirements for continued listing
on the Nasdaq SmallCap Market. Under Marketplace Rule 4310(c)(2) companies are
required to maintain 1) net tangible assets of $2 million; or 2) market
capitalization of $35 million; or 3) net income of $500,000 in the most recently
completed fiscal year, or in two of the last three most recently completed
fiscal years. As of January 2, 1999, the Company's 1998 fiscal year end, the
Company did not meet any of these requirements. In order for the Company to
continue to be listed on the Nasdaq Stock Market, the Company is required to
submit to Nasdaq, a proposal for achieving compliance, and subsequently meet one
of the three requirements listed. The Company submitted its proposal as required
and is waiting for a response from Nasdaq. Should the Company's proposal be
deemed not to warrant continued listing, Nasdaq will immediately issue a formal
notice of deficiency specifying a delisting date for the Company's securities.
Should the Company's securities be delisted from the Nasdaq Stock Market, the
marketability of the Company's common stock could be seriously impaired.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibit filed as part of this report is listed below:
EXHIBIT NO.
10.12 Common Stock Purchase Agreement dated
March 25, 1999 between the Registrant
and Steelcase Inc., Amendment No. 1 to
Registration Rights Agreement dated March
25, 1999 between the Registrant and
Steelcase Inc., and Amended and Restated
Share Ownership, Voting and Right of First
Refusal Agreement dated March 25, 1999
between the Registrant, Steelcase Inc.,
John B. Conroy, Ross K. Summers, Randall
R. Reed, Michael W. Stansell, Donald H.
Zurstadt, William P. Cargile and Herbert S.
Shaw.
27 Financial data schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
April 3, 1999.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the issuer caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 18, 1999
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)
12
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
BETWEEN
MICROFIELD GRAPHICS, INC.
AND
STEELCASE INC.
MARCH 25, 1999
<PAGE>
TABLE OF CONTENTS
Page
1. PURCHASE AND SALE OF STOCK 1
1.1 Sale and Issuance of Common Stock 1
1.2 Closing 1
1.3 Further Covenants; Price Limitation on Future Sales 1
2. OTHER AGREEMENTS 1
2.1 Amended Voting Agreement 1
2.2 Amended Registration Rights Agreement 1
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 1
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 Absence of Conflicting Agreements; Consents. 2
3.6 Governmental Consents 3
3.7 SEC and Other Reports. 3
3.8 Litigation 3
3.9 No Finders. 3
3.10 Use of Proceeds . 3
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. 4
4.5 Purchase Entirely for Own Account 4
4.6 Disclosure of Information 5
4.7 Investment Experience 5
4.8 Accredited Investor 5
4.9 Restricted Securities 5
4.10 Legends 5
4.11 No Finders. 6
4.12 Affiliate Status 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 6
5.4 Amending Voting Agreement 6
5.5 Amended Registration Rights Agreement 7
<PAGE>
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. 7
6.5 Amended Voting Agreement 7
6.6 Amended Registration Rights Agreement 7
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 8
7.8 Severability 9
7.9 Entire Agreement 9
Schedule 2 Executive Officers and Directors
EXHIBIT A Amended and Restated Share Ownership, Voting and Right of First
Refusal Agreement
EXHIBIT B Amendment No. 1 to Registration Rights Agreement
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT is made as of March 25, 1999, 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, 444,445
shares of the Company's Common Stock (the "Purchased Stock") for a purchase
price of $1,000,001.25.
1.2 CLOSING. The purchase and sale of the Purchased Stock
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 25, 1999, 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
against payment of the purchase price therefor by wire transfer.
1.3 FURTHER COVENANTS; PRICE LIMITATION ON FUTURE SALES.
Subject to the fiduciary duties of the officers and directors of the Company,
for six months following the Closing the Company shall not, without the prior
approval of Investor, sell any shares of the Company's Common Stock in a private
sale to a third party for a price per share less than 90% of the last trade
price of the Company's Common Stock on the Nasdaq SmallCap Market on the date
the price per share for such sale is determined.
2. OTHER AGREEMENTS.
2.1 AMENDED VOTING AGREEMENT. The Investor, the Company, and
the executive officers and directors named in Schedule 2 shall enter into the
Amended and Restated Share Ownership, Voting and Right of First Refusal
Agreement, in the form attached as EXHIBIT A (the "Amended Voting Agreement").
2.2 AMENDED REGISTRATION RIGHTS AGREEMENT. The Company agrees
to grant Investor registration rights as set forth in Amendment No.1 to the
Registration Rights Agreement attached as EXHIBIT B (the "Amended Registration
Rights Agreement").
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Investor that:
<PAGE>
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 Amended Voting
Agreement and the Amended Registration Rights Agreement, the performance of all
obligations of the Company hereunder and thereunder, and the authorization,
issuance, sale and delivery of the Purchased Stock has been taken or will be
taken prior to the Closing, and this Agreement, the Amended Voting Agreement and
the Amended 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 Amended 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, 3,686,900 of which were issued and outstanding as of
February 28, 1999.
(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, 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 Amended Voting Agreement and
the Amended Registration Rights Agreement and under applicable state and federal
securities laws.
3.5 ABSENCE OF CONFLICTING AGREEMENTS; CONSENTS. The execution
and delivery of this Agreement, the Amended Voting Agreement and the Amended
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
<PAGE>
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 Amended Voting
Agreement or the Amended 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.
3.6 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.
3.7 SEC AND OTHER REPORTS. The Company has heretofore made
available to Investor 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, 1998 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 1998, including its income statement
and balance sheet, for the fiscal year ended January 2, 1999.
3.8 LITIGATION. There is no action, proceeding or suit
pending, or, to the Company's knowledge, threatened, that questions the validity
of this Agreement, the Amended Voting Agreement or the Amended Registration
Rights Agreement or that would prevent or materially hinder the consummation of
the transactions contemplated hereby or thereby.
3.9 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.
3.10 USE OF PROCEEDS. The net proceeds to be received by the
Company from the sale of the Purchased Stock 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.
<PAGE>
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 Amended Voting Agreement and the
Amended 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 Amended 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 Amended Voting Agreement and the Amended
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 Amended Voting Agreement by Investor 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 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 Amended Voting Agreement or the Amended Registration Rights
Agreement or that would prevent or materially hinder the consummation of the
transactions contemplated hereby or thereby.
<PAGE>
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 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
Purchased Stock.
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. 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
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. Investor also represents it has not been organized for the purpose of
acquiring the Purchased Stock.
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
Purchased Stock it is purchasing is characterized as a "restricted security"
under the federal securities laws inasmuch as it is 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 resold without
registration under the Securities Act of 1933, as amended (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 Purchased Stock may bear one or all of the following legends:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT
<PAGE>
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 Purchased Stock is subject
to the Amended 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.
4.12 AFFILIATE STATUS. Investor acknowledges that it is
considered an "affiliate" of the Company under the Federal Securities Laws and
as such, resales of shares of the Company's Common Stock owned by it are subject
to certain limitations, including the SEC's Rule 144.
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.
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.
<PAGE>
5.4 AMENDED VOTING AGREEMENT. The Company, the Investor and
the Company's executive officers and directors named in Schedule 2 shall have
entered into the Amended Voting Agreement.
5.5 AMENDED REGISTRATION RIGHTS AGREEMENT. The Company and the
Investor shall have entered into the Amended Registration Rights 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.
6.4 PAYMENT OF PURCHASE PRICE. Investor shall have delivered
to the Company at the Closing the purchase price for the Purchased Stock.
6.5 AMENDED VOTING AGREEMENT. The Company, the Investor and
the Company's executive officers and directors named in Schedule 2 shall have
entered into the Amended Voting Agreement.
6.6 AMENDED REGISTRATION RIGHTS AGREEMENT. The Company and the
Investor shall have entered into the Amended 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.
<PAGE>
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 Purchased Stock). 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,
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.
<PAGE>
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.
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS AGREEMENT AS OF THE
DATE FIRST ABOVE WRITTEN.
THE COMPANY:
MICROFIELD GRAPHICS, INC.
By:
- --------------------------------------------------------------------------------
John B. Conroy
President and Chief Executive Officer
Address: 7216 SW Durham Road
Portland, OR 97224
INVESTOR:
STEELCASE INC.
By:
- --------------------------------------------------------------------------------
James P. Hackett
President and Chief Executive Officer
Address: 901 - 44th Street, S.E.
Grand Rapids, MI 49508
<PAGE>
SCHEDULE 2
EXECUTIVE OFFICERS AND DIRECTORS
John B. Conroy
Ross K. Summers
Randall R. Reed
Michael W. Stansell
Donald H. Zurstadt
William P. Cargile
Herbert S. Shaw
<PAGE>
AMENDMENT NO. 1 TO
REGISTRATION RIGHTS AGREEMENT
This Amendment No. 1 to Registration Rights Agreement, dated March
25, 1999, is between Microfield Graphics, Inc. (the "Company") and Steelcase
Inc. (the "Investor").
RECITALS
A. The Company and the Investor are parties to that certain
Registration Rights Agreement dated March 19, 1998 (the "Original Agreement").
B. The Company and the Investor are parties to a Common Stock
Purchase Agreement ("Second Purchase Agreement") dated March 25, 1999, pursuant
to which the Investor is purchasing shares of Common Stock from the Company.
C. The Company and the Investor wish to amend the Original Agreement
to encompass the shares of Common Stock of the Company that Investor is
acquiring pursuant to the Second Purchase Agreement.
AGREEMENT
The parties agree to amend Section 8 of the Original Agreement as
follows:
1. The subsection titled "REGISTRABLE SECURITIES" shall be amended and
restated in its entirety as follows:
"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, (c) the Common
Stock issuable or issued pursuant to the Second Purchase Agreement, (d)
the 157,000 shares of Common Stock acquired by Steelcase in open market
transactions prior to March 16, 1999, and (e) any stock issued in
connection with the Common Stock described in (a), (b), (c) or (d) of
this provision;
2. A new subsection titled "SECOND PURCHASE AGREEMENT" shall be added, and
shall read in its entirety as follows:
"SECOND PURCHASE AGREEMENT" means that certain Common Stock
Purchase Agreement between the Company and the Investor dated March 25,
1999;
<PAGE>
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
STEELCASE INC.
By:
------------------------------
James P. Hackett, President and
Chief Executive Officer
<PAGE>
AMENDED AND RESTATED
SHARE OWNERSHIP, VOTING
AND RIGHT OF FIRST REFUSAL AGREEMENT
This AMENDED AND RESTATED SHARE OWNERSHIP, VOTING AND RIGHT OF FIRST
REFUSAL AGREEMENT (the "Agreement") is entered into as of March 25, 1999 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. The parties hereto (other than Herbert S. Shaw and Ross K.
Summers) are parties to that certain Share Ownership, Voting and Right of First
Refusal Agreement dated as of March 19, 1998 (the "Original Agreement").
B. Steelcase proposes to acquire, pursuant to a Common Stock Purchase
Agreement dated as of March 25, 1999, 444,445 shares of the Company's Common
Stock (the "Additional Shares").
C. Steelcase, the Company and the Executives wish to amend and
restate the Original Agreement in its entirety to reflect the acquisition of the
Additional Shares, to add Herbert S. Shaw and Ross K. Summers as parties, to
acknowledge that Scott McVay and Peter Zinsli are not parties to this Agreement
and to incorporate certain other changes contained 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:
"ADDITIONAL SHARES" shall have the meaning set forth in the
recitals of this Agreement.
"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,
<PAGE>
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.
"BUSINESS DAY" shall have the meaning given in Rule 14d-l(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.
"SECOND CLOSING" means the closing of the purchase by Steelcase
pursuant to the Second Stock Purchase Agreement.
"SECOND STOCK PURCHASE AGREEMENT" shall mean that Common Stock
Purchase Agreement dated March 25, 1999 between the Company and Steelcase
pursuant to which Steelcase shall acquire the Additional Shares.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
<PAGE>
"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.
"STOCK PURCHASE AGREEMENT" shall mean that Common Stock Purchase
Agreement dated March 16, 1998 between the Company and Steelcase.
"STRATEGIC PARTNER" shall mean any other person or entity that is
not an Affiliate of Steelcase with whom Steelcase intends to enter into a
business transaction relating to Steelcase's investment in the Company. The
selection of a Strategic Partner requires the prior written approval of the
Company, which the Company may not unreasonably withhold.
"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. 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 and the Second Stock Purchase Agreement; (b)
except as permitted by this Agreement, the Stock Purchase Agreement or the
Second 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, the
Stock Purchase Agreement or the Second 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
<PAGE>
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 1,054,445 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 proviso in the preceding sentence, his successor shall be selected
in the manner described in Schedule 3.3.
3.4 AFFILIATES AND STRATEGIC PARTNERS. 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 or to a Strategic Partner and
that prior to any such transfer such Affiliates or Strategic Partner 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. In addition, each Executive has not
transferred since March 16, 1999 through the date of this Agreement and shall
not transfer any of his Shares, including Shares acquired by the exercise of
stock options, in a market transaction until after the Company publicly
announces its earnings for the second quarter of fiscal year 1999 (the "Earnings
Announcement"). Each Executive agrees that in the event that he has transferred
since March 16, 1999 or does transfer any of his Shares in a market transaction
prior to the
<PAGE>
Earnings Announcement, he shall immediately pay to the Company the amount of any
gain he realized on such transfer to the extent that the purchase price paid for
his Shares in such transaction exceeded $2.25 per share.
4.2 STEELCASE. Steelcase shall not transfer any Shares until
the second anniversary of the Closing, other than (a) to a Steelcase Affiliate
or (b) up to 50% of the Steelcase Shares (as determined immediately prior to the
first transfer of Shares by Steelcase to any transferee) to any one Strategic
Partner. Notwithstanding the foregoing, the obligations set forth in this
Agreement shall continue to be applicable to (y) any Steelcase Affiliate or
Strategic Partner who is a transferee of Steelcase's Shares, and (z) 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 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.
<PAGE>
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 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. The obligations and
restrictions set forth in this Agreement shall cease to apply to any Executive
after such Executive ceases to be a director or executive officer of the
Company. The Company
<PAGE>
shall give Steelcase notice within a reasonable period after any Executive
ceases to be a director or officer of the Company.
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 of 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.
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.
<PAGE>
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.
17. REMOVAL OF PARTIES. This Agreement hereby acknowledges that Scott
McVay and Peter Zinsli, who are parties to the Original Agreement, are no longer
executive officers of the Company and therefore are not parties to this
Agreement.
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
EXECUTIVES:
-------------------------------------
John B. Conroy
-------------------------------------
Ross K. Summers
-------------------------------------
Randall R. Reed
<PAGE>
-------------------------------------
Michael W. Stansell
-------------------------------------
Donald H. Zurstadt
-------------------------------------
William P. Cargile
-------------------------------------
Herbert S. Shaw
<PAGE>
SCHEDULE A
EXECUTIVES
John B. Conroy
Ross K. Summers
Randall R. Reed
Michael W. Stansell
Donald H. Zurstadt
William P. Cargile
Herbert S. Shaw
<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)
Herbert S. 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 Amended and Restated Share Ownership, Voting and
Right of First Refusal Agreement.
<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 10-QSB FOR THE
THREE MONTH PERIODS ENDED APRIL 3, 1999, 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-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> APR-03-1999
<CASH> 1,296
<SECURITIES> 0
<RECEIVABLES> 570
<ALLOWANCES> 44
<INVENTORY> 748
<CURRENT-ASSETS> 2,734
<PP&E> 348
<DEPRECIATION> 50
<TOTAL-ASSETS> 3,291
<CURRENT-LIABILITIES> 1,440
<BONDS> 0
0
0
<COMMON> 15,364
<OTHER-SE> (13,577)
<TOTAL-LIABILITY-AND-EQUITY> 3,291
<SALES> 1,053
<TOTAL-REVENUES> 1,053
<CGS> 671
<TOTAL-COSTS> 671
<OTHER-EXPENSES> 974
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> (607)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (607)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
