-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FdHTskeqyKqpQ9b56TciI+PtZOx1jiyL5FzY6WjoSZG1UeZUiqdw3G1DLDXEOPx9 wj8fGRke9a7Y1C63mJSk5g== /in/edgar/work/20000817/0000912057-00-038150/0000912057-00-038150.txt : 20000922 0000912057-00-038150.hdr.sgml : 20000922 ACCESSION NUMBER: 0000912057-00-038150 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000701 FILED AS OF DATE: 20000817 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROFIELD GRAPHICS INC /OR CENTRAL INDEX KEY: 0000944947 STANDARD INDUSTRIAL CLASSIFICATION: [3577 ] IRS NUMBER: 930935149 STATE OF INCORPORATION: OR FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26226 FILM NUMBER: 705003 BUSINESS ADDRESS: STREET 1: 7216 SW DURHAM RD CITY: PORTLAND STATE: OR ZIP: 97224 BUSINESS PHONE: 5036204000 MAIL ADDRESS: STREET 1: MICRFIELD GRAPHICS INC /OR STREET 2: 9216 SW DURHAM RD CITY: PORTLAND STATE: OR ZIP: 97224 10-Q 1 a10-q.txt 10-Q 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 July 1, 2000 [ ] 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.) 16112 SW 72ND AVENUE 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 July 1, 2000 was 4,572,793 shares. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] MICROFIELD GRAPHICS, INC. FORM 10-QSB INDEX
PART I FINANCIAL INFORMATION Page ---- Item 1. Financial Statements Consolidated Balance Sheet - July 1, 2000 and January 1, 2000 3 Consolidated Statement of Operations - Three and 4 Six Months Ended July 1, 2000 and July 3, 1999 Consolidated Statement of Cash Flows - Six Months Ended July 1, 2000 and July 3, 1999 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
2 MICROFIELD GRAPHICS, INC. CONSOLIDATED BALANCE SHEET
July 1, January 1, 2000 2000 ------------------- -------------------- (unaudited) Current assets: Cash $ 221,388 $ 113,041 Accounts receivable, net of allowances of $11,748 and $27,153 276,390 265,524 Inventories (Note 2) 461,515 496,696 Prepaid expenses and other 84,334 120,969 ------------------- -------------------- Total current assets 1,043,627 996,230 Property and equipment, net (Note 3) 189,822 244,714 Other assets 35,182 76,915 ------------------- -------------------- $ 1,268,631 $ 1,317,859 =================== ==================== Current liabilities: Accounts payable 475,021 338,325 Current portion of debt $ 285,667 $ 360,473 Accrued payroll and payroll taxes 94,227 133,650 Unearned income 41,469 77,687 Accrued liabilities 71,247 82,048 ------------------- -------------------- Total current liabilities 967,631 992,183 Long-term debt, net of discount 42,582 - Other long-term liabilities - 52,455 ------------------- -------------------- Total liabilities 1,010,213 1,044,638 Shareholders' equity: Common stock, no par value, 25,000,000 shares authorized, 4,572,793 and 4,132,185 shares issued and outstanding 15,750,281 15,273,912 Accumulated deficit (15,491,863) (15,000,691) ------------------- -------------------- Total shareholders' equity 258,418 273,221 ------------------- -------------------- $ 1,268,631 $ 1,317,859 =================== ====================
The accompanying notes are an integral part of these consolidated financial statements. 3 MICROFIELD GRAPHICS, INC. CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended Six months ended July 1, July 3, July 1, July 3, 2000 1999 2000 1999 ---------------- --------------- ------------------ --------------- (unaudited) (unaudited) (unaudited) (unaudited) Sales $ 681,306 807,433 1,523,462 1,860,748 Cost of goods sold 478,735 501,433 992,205 1,172,724 ---------------- --------------- -------------- --------------- Gross profit 202,571 306,000 531,257 688,024 Operating expenses Research and development 79,455 281,049 133,999 525,659 Marketing and sales 199,734 578,298 411,431 1,059,717 General and administrative 255,193 241,371 456,385 489,000 241,371 241,371 ---------------- --------------- -------------- --------------- 534,382 1,100,718 1,001,815 2,074,376 ---------------- --------------- -------------- --------------- Loss from operations (331,811) (794,718) (470,558) (1,386,352) Other income (expense) Interest income (expense), net (48,530) (12,040) (63,953) (27,284) Other income, net 44,304 (49,742) 43,339 (49,518) ---------------- --------------- -------------- --------------- Loss before provision for (336,037) (856,500) (491,172) (1,463,154) Income taxes Provision for income taxes -- -- -- -- ---------------- --------------- -------------- --------------- Net loss $ (336,037) (856,500) (491,172) (1,463,154) ================ =============== ============== =============== Net loss per share Basic $ (.08) (.22) (.12) (.37) ================ =============== ============== =============== Diluted $ (.08) (.22) (.12) (.37) ================ =============== ============== =============== Shares used in per share calculations Basic 4,160,025 3,926,753 4,146,105 3,926,753 ================ =============== ============== =============== Diluted 4,160,025 3,926,753 4,146,105 3,926,753 ================ =============== ============== ===============
The accompanying notes are an integral part of these consolidated financial statements. 4 MICROFIELD GRAPHICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six months ended ------------------------------------------------------ July 1, July 3, 2000 1999 ------------------------- -------------------- Cash Flows From Operating Activities: Net loss $ (491,172) $ (1,463,154) Adjustments to reconcile net loss to net cash Used in operating activities: Depreciation and amortization 68,570 99,845 Noncash portion of employee option exercise --- -- recorded as compensation expense 105,951 -- Changes in assets and liabilities: Accounts receivable (10,866) 300,188 Inventories 35,181 235,798 Prepaid expenses and other 36,635 57,547 Accounts payable 136,696 (178,082) Accrued payroll and payroll taxes (39,423) (192,572) Unearned income (36,218) 25,046 Accrued liabilities (10,801) (6,316) --------------------- -------------------- Net cash used in operating activities (205,447) (1,121,700) Cash flows from investing activities: Acquisition of property and equipment (3,905) (30,326) Other long-term assets 31,960 -- --------------------- -------------------- Net cash provided by investing activities 28,055 (30,326) Cash flows from financing activities: Payments on equipment line of credit (52,455) (41,667) Proceeds from (payments on) operating line of credit (74,805) (131,000) Proceeds from (payments on) Long Term Note 400,000 Proceeds from exercise of common stock options and warrants 13,000 1,210 Proceeds from issuance of common stock -- 988,754 --------------------- -------------------- Net cash provided by financing activities 285,739 817,297 Net increase (decrease) in cash and cash equivalents 108,347 (334,729) Cash and cash equivalents, beginning of period 113,041 739,628 --------------------- -------------------- Cash and cash equivalents, end of period $ 221,388 $ 404,899 ===================== ==================== Supplemental disclosure of cash flow information: Cash paid for: Interest $ 48,530 $ 17,555 ===================== ==================== Income taxes $ -- $ -- ===================== ==================== Issuance of Common Stock Warrants Recorded as debt discount $ 357,418 $ -- ===================== ====================
The accompanying notes are an integral part of these consolidated financial statements. 5 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 and six months ended July 1, 2000 and July 3, 1999 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. The financial information as of January 1, 2000 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 1, 2000. 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 July 1, 2000 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 December 30, 2000. The Company's last fiscal year was the 52-week period ended January 1, 2000. The Company's second fiscal quarters in fiscal 2000 and 1999 were the 13-week periods ended July 1, 2000 and July 3, 1999, 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:
July 1, January 1, 2000 2000 -------------------- ---------------------- Raw materials $365,817 $368,498 Finished goods 95,698 128,198 -------------------- ---------------------- $461,515 $496,696 ==================== ======================
3. PROPERTY AND EQUIPMENT
July 1, January 1, 2000 2000 -------------------- ---------------------- Machinery and equipment $1,200,490 $1,196,585 Less accumulated depreciation and amortization 1,010,668 951,871 -------------------- ---------------------- $189,822 $244,714 ==================== ======================
4. SUBORDINATED NOTE AGREEMENT 6 On June 30, 2000, the Company issued a Subordinated Promissory Note to a financing company. The promissory note plus unpaid interest (payable at an initial rate of 10 percent per annum) is due as follows: (a) interest in arrears on the last day of each quarter beginning September 30, 2000, and (b) the outstanding principal balance and all accrued and unpaid interest on the earlier of (i) June 30, 2005 or (ii) demand by holder made at any time after June 30, 2003. In connection with this Subordinated Promissory Note, the Company issued two stock warrants each to purchase individually 1,033,000 common shares at a price of $0.50 per share or $0.38722 per share, respectively. The aggregate estimated fair value of the warrants of $357,418 has been recorded as a debt discount and is being amortized using the effective interest method over the three-year term of the related debt. Amortization of the debt discount is included in interest expense. 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, interactive 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. During 1999, the Company experienced significantly reduced sales and negative cash flows from operations. The reduction was due primarily to the loss of sales from Minnesota Mining and Manufacturing Company, a major OEM customer. At the end of the second quarter of 1999, the Company concluded that it might not have sufficient funds to operate for at least twelve months. Management based such conclusions on the reduction in sales and resulting losses that occurred during the first six months of 1999, coupled with diminishing cash resources (cash and cash equivalents, and cash available under its operating line of credit). In response, management restructured its operations through a combination of staff reductions, workweek reductions, temporary executive salary reductions and reductions in general expense spending levels. However, there can be no assurance that the Company will achieve profitability on a continuing basis. The Company was incorporated in Oregon in 1986. The Company's executive offices are located at 16112 SW 72nd Avenue, Portland, OR 97224. 7 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.
THREE MONTHS ENDED SIX MONTHS ENDED ----------------------------------- -------------------------------- JULY 1 JULY 3 JULY 1 JULY 3 2000 1999 2000 1999 --------------- -------------- ------------ -------------- Sales 100 % 100 % 100 % 100 % Cost of goods sold 70 62 65 63 --------------- -------------- ------------ ---------- Gross profit 30 38 35 37 Research and development (12) (35) (9) expenses (28) Marketing and sales expenses (29) (72) (27) (57) General and administrative (37) (30) (30) expenses (26) --------------- -------------- ------------ ---------- Loss from operations (49) (98) (31) (75) Other income (expense) (1) (8) (1) (4) --------------- -------------- ------------ ---------- Loss before provision for (49) (106) (32) income taxes (79) Provision for income taxes -- -- -- -- --------------- -------------- ------------ ---------- Net loss (49) % (106) % (32) % (79) % =============== ============== ============ ==========
QUARTER ENDED JULY 1, 2000 COMPARED WITH QUARTER ENDED JULY 3, 1999 SALES. Sales decreased $126,000 (16%) to $681,000 in the second quarter of 2000 from $807,000 in the second quarter of 1999. The decrease for the quarter was consistent with the Company's planned reduction in expenses for advertising and sales promotion. 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 30% in the second quarter of 2000 from 38% in the second quarter of 1999. The decrease in gross margin during the second quarter of 2000 was due primarily to lower overall sales and a one time non-recurring compensation charge, offset by lower manufacturing overhead expense. RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs are expensed as incurred. These expenses decreased $202,000 (72%) to $79,000 in the second quarter of 2000 from $281,000 in the second quarter of 1999. The reduction is due primarily to restructuring efforts implemented in the second quarter of 1999 that included significant reductions in development programs. MARKETING AND SALES EXPENSES. Marketing and sales expenses decreased $379,000 (66%) to $200,000 in the second quarter of 2000 from $578,000 in the second quarter of 1999. 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. 8 GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased $14,000 (6%) to $255,000 in the second quarter of 2000 from $241,000 in the second quarter of 1999. The increase in administrative expenses during the second quarter of 2000 was due primarily to legal expenses incurred in connection with the class action lawsuit filed against the Company and its chief executive officer in February 2000 and costs associated with a one time non-recurring settlement of certain outstanding stock options, offset by lower costs resulting from the restructuring implemented in the second quarter of 1999. OTHER INCOME (EXPENSE). Other income (expense) includes interest income, interest expense, and miscellaneous income. Other expense decreased $58,000 (94%) to ($4,000) in the second quarter of 2000 from ($62,000) the second quarter of 1999. INCOME TAXES. The Company recorded losses from operations in the second quarters of 2000 and 1999. Accordingly, no provision for income 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 public and private sales of equity securities, cash from operations, and borrowings under bank lines of credit. At July 1, 2000 the Company had working capital of approximately $76,000 and its principal source of liquidity consisted of $221,388 in cash and cash equivalents. Accounts receivable increased $11,000 to $276,000 at July 1, 2000 from $265,000 at January 1, 2000. This was primarily due to improved account collection policies implemented as part of the restructuring and cost reduction plan. Inventories decreased $35,000 to $462,000 at July 1, 2000 from $497,000 at January 1, 2000. This decrease was due primarily to the lowering of inventory levels implemented as part of the restructuring and cost reduction plan. Accounts payable increased $137,000 to $475,000 at July 1, 2000 compared to $338,000 at January 1, 2000 as a result of the implementation of more favorable payment terms with the Company's vendors. The Company has a line of credit with its bank using its accounts receivable and certain of its inventory as collateral. The Loan Agreement for the line of credit expired on September 8, 1999, at which time $524,000 was outstanding under the line of credit. The Company and the bank continued to operate under the terms of the Loan Agreement until new terms were formalized on October 25, 1999. At September 8, 1999 and at October 2, 1999, the Company was not in compliance with the minimum tangible net worth financial covenant of its Loan Agreement with the bank. On October 15, 1999, the bank delivered a notice of default and the Company subsequently entered into a Forbearance Agreement which provided for a reduction in the line of credit to $650,000, the elimination of inventory from the collateral base over a 14 month period, an interest rate increase, and certain financial covenants with which the Company was required to comply. The Forbearance Agreement period ended April 30, 2000. On April 27, 2000 the Company entered into an Accounts Receivable Purchase Agreement with the bank, which provides for financing in an amount equal to 80% of accounts receivable up to a maximum of $750,000, interest of 3% per month on the outstanding loan balance, repayment of the inventory portion of the collateral base (the "Placeholder Note"), and certain financial covenants with which the Company is required to comply. The balance of the Placeholder Note at July 1, 2000 was $109,884. The Accounts Receivable Purchase Agreement extends through December 31, 2000. 9 On June 30, 2000 the Company issued a Subordinated Promissory Note to JMW Capital Partners, Inc. ("JMW") pursuant to which the Company borrowed $400,000 from JMW. The promissory note plus unpaid interest (payable at an initial rate of 10 percent per annum) is due as follows: (a) interest in arrears on the last day of each quarter beginning September 30, 2000, and (b) the outstanding principal balance and all accrued and unpaid interest on the earlier of (i) June 30, 2005 or (ii) demand by holder made at any time after June 30, 2003. In connection with this Subordinated Promissory Note, the Company issued to JMW two stock warrants each to purchase 1,033,000 shares of the Company's common stock at a price of $0.50 per share and $0.38722 per share, respectively. The warrants, which are exercisable until June 30, 2005, have an aggregate estimated fair value of $357,418 which has been recorded as a debt discount and is being amortized using the effective interest method over the five year term of the related debt. Amortization of the debt discount is included in interest expense. The Company agreed to a number of financial and other covenants in connection with the financing, including that the Company will default under the note if at any time designees of JMW constitute less than forty percent of the Company's Board of Directors. In accordance with this agreement, Robert Jesenik and Dennis Wade, principals of JMW, were appointed to the Company's Board of Directors. The Company believes its resources are sufficient to fund its operations until December 31, 2000 if the Accounts Receivable Purchase Agreement is not terminated prior to that time. In the event that the Accounts Receivable Purchase Agreement is terminated prior to that time, and the Company is unable to obtain substitute financing at acceptable terms, the Company's business and financial condition will be materially and adversely affected. The Company has no commitments for capital expenditures in material amounts. NEW ACCOUNTING PRONOUNCEMENT On April 3, 2000, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation--an Interpretation of Accounting Principles Board Opinion No. 25" (FIN 44). FIN 44 clarifies the application of Opinion No. 25 for certain issues including the accounting consequence of various modifications to the terms of a previously fixed stock option or award. In December 1999, the Company decreased the exercise price of all outstanding incentive stock options to $0.22 per share (the "repriced options"). In accordance with FIN 44, effective July 1, 2000, any of these options which are not exercised or canceled, would be accounted for pursuant to a variable stock option plan. Accordingly, compensation expense would be recorded to the extent that the quoted market price of the Company's common stock exceeded the revised exercise price of the repriced options. Effective June 30, 2000, the Company settled all outstanding repriced options by issuing one share of the Company's common stock for each repriced option; 405,608 of the repriced options were outstanding immediately preceding the settlement. As a result, the Company recorded a one-time compensation charge of $105,951, which is equal to the aggregate fair value of the common shares issued as settlement for the repriced options. The one-time compensation charge was recorded as expense in each department (manufacturing, sales, administration) where the participating employees were assigned. 10 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS During February 2000, the Company was named in a class action lawsuit, ADAIR V. MICROFIELD GRAPHICS, INC. ET ANO., 00 Civ. 0629 (MBM), United States District Court Southern District of New York. The complaint alleges that the Company and its Chief Executive Officer issued a series of false and misleading statements concerning, among other things, the Company's purchase agreement with 3M. The complaint alleges that, as a result of these allegedly material misstatements and omissions, the Company's stock price was artificially inflated during the period from July 23, 1998 through April 2, 1999 and requests that damages be determined at trial. The Company denies the allegations and intends to vigorously defend itself. However, the ultimate outcome of the litigation is presently undeterminable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. On June 30, 2000 the Company issued to JMW two common stock purchase warrants as consideration for the financing the Company received from JMW. Each warrant is exercisable for 1,033,000 shares of the Company's common stock at any time until June 30, 2005. The exercise prices of the warrants are $0.50 per share and $0.38722 per share, respectively. This transaction was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended (the "Act"), because JMW 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 June 30, 2000 financing with JMW, William Cargile resigned from the Company's Board of Directors and Robert Jesenik and Dennis Wade, principals of JMW, were appointed to the Company's Board of Directors. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The exhibits filed as part of this report is listed below:
EXHIBIT NO. ----------- 10.14 Form of $400,000 Subordinated Promissory Note issued to JMW Capital Partners, Inc., dated June 30, 2000. 10.15 Form of Stock Purchase Warrants to Purchase Shares of Common Stock of Microfield Graphics, Inc. issued to JMW Capital Partners, Inc., dated June 30, 2000. 10.16 Form of Registration Rights Agreement between the Company and JMW Capital Partners, Inc., dated June 30, 2000. 10.17 Form of Note and Warrant Purchase Agreement between the Company and JMW Capital Partners, Inc. dated June 30, 2000. 27 Financial data schedule
(b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended July 1, 2000. 11 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: August 15, 2000 MICROFIELD GRAPHICS, INC. By: /s/ JOHN B. CONROY -------------- John B. Conroy Chief Executive Officer (Principal Executive and Financial Officer) 12 EX-10.14 2 ex-10_14.txt EXHIBIT 10.14 EXHIBIT 10.14 EXHIBIT A THE SECURITIES EVIDENCED BY THIS NOTE 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, (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 (C) THE COMPANY OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION. SUBORDINATED PROMISSORY NOTE $400,000 Portland, Oregon June 30, 2000 FOR VALUE RECEIVED, the undersigned, MICROFIELD GRAPHICS INC. ("Maker"), hereby promises to pay to the order of JMW CAPITAL PARTNERS, INC. ("Holder") in immediately available funds the principal sum of Four Hundred Thousand Dollars ($400,000), together with interest at the Applicable Rate (calculated on the basis of a 360-day year and actual days elapsed) as follows: (a) interest in arrears on the last day of each quarter beginning September 30, 2000; and (b) the outstanding principal balance and all accrued and unpaid interest on the earlier of (i) June 30, 2005 or (ii) demand by Holder made at any time (or from time to time if demand is for less than all of the then outstanding principal) after June 30, 2003. Each payment on account of the obligations evidenced by this Note shall be applied first to expenses for which Maker is liable hereunder, next to accrued interest and the balance to outstanding principal. Maker shall apply all proceeds from the exercise of Warrants (as defined in the Note Purchase Agreement) to prepay amounts due under this Note, without payment of any Prepayment Fee. On ten days' prior written notice to Holder, Maker may, at any time, prepay all or any portion of the amount due under this Note, together with (a) accrued interest to the date of such prepayment on the principal amount prepaid and (b) the applicable Prepayment Fee, provided, however, that each partial prepayment shall be in an aggregate principal amount of at least $100,000. The applicable Prepayment Fee shall also be payable upon any mandatory prepayment due to an acceleration of amounts due under this Note in connection with an Event of Default. As used herein: "APPLICABLE RATE" means, at any date, the lesser of (a) 10% per annum PLUS; during the continuation of an Event of Default, 200 basis points, or (b) the Highest Lawful Rate. "EVENT OF DEFAULT" means the occurrence of any of the following events: (i) Maker fails to pay when due any obligation evidenced hereby; (ii) Maker fails to pay any indebtedness for borrowed money when due or any event occurs or exists which gives the holder of any such indebtedness the right to accelerate the payment thereof; (iii) Maker shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of its property, or shall generally be unable to or fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; (iv) Maker shall file a voluntary petition in bankruptcy, or seek to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Code, or under any state or other Federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or other Federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Maker and is not dismissed, stayed or vacated within sixty days thereafter; Maker shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Maker shall be adjudicated a bankrupt, or an order for relief shall be entered by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or Federal law relating to bankruptcy, reorganization or other relief for debtors; (v) Any representation or warranty made by Maker (or any of its officers) under or in connection with any Transaction Document (as defined in the Note Purchase Agreement) shall prove to have been incorrect in any material respect when made; (vi) The Company shall fail to perform or observe any term, covenant or agreement contained in any Transaction Document on its part to be performed -2- or observed and such failure shall remain unremedied for 15 days after written notice thereof shall have been given to the Company by the Holder; (vii) Any judgment or order for the payment of money (net of anticipated insurance proceeds, as determined in good faith by Maker's Board of Directors) in excess of $150,000 shall be rendered against the Company and either (A) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (B) there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (viii) John B. Conroy shall at any time prior to June 30, 2002, for any reason, cease to be active in the management of Maker; (ix) Designees of JMW Capital Partners, Inc. shall represent less than 40% of all members of the Maker's Board of Directors; (x) Maker shall sell or otherwise transfer or dispose of all or substantially all of its assets or shall effect any merger, consolidation, reorganization or other transaction or series of related transactions (other than a mere reincorporation merger) resulting in the exchange of outstanding shares of Maker's capital stock for securities or consideration issued or caused to be issued by the acquiring entity or any of its affiliates and as a result of which the shareholders of Maker immediately prior to such transaction hold or receive, by virtue of their ownership of securities of Maker, less than 50% of the capital stock of the resulting entity; or (xi) Maker shall contest the enforceability of this Note, any other Transaction Document or any transaction contemplated hereby or thereby. "HIGHEST LAWFUL RATE" means, at the particular time in question, the maximum rate of interest which, under applicable law, Holder is then permitted to charge Maker on the obligations evidenced hereby, and if the maximum rate changes at any time, the Highest Lawful Rate shall increase or decrease, as the case may be, as of the effective time of each such change, without notice to Maker. "NOTE PURCHASE AGREEMENT" means the Note and Warrant Purchase Agreement dated as of June __, 2000 between Maker and JMW Capital Partners, Inc., as the same may be amended, supplemented or modified. "PREPAYMENT FEE" means, with respect to any prepayment hereunder, an amount equal to the principal amount prepaid multiplied by the appropriate percentage set forth below: -3-
APPLICABLE TIMING OF PAYMENT PERCENTAGE Prior to June 30, 2001 3% After June 30, 2001 but prior 2% to June 30, 2002 After June 30, 2002 but 1% prior to June 30, 2003
"SENIOR CREDITOR" means any bank, commercial finance company, insurance company or other institutional lender. "SENIOR INDEBTEDNESS" means all obligations now or hereafter owed by Maker to Senior Creditors for or in connection with borrowed money, capitalized leases, guaranties or other similar obligations, the aggregate principal amount of which does not exceed $1,000,000. The $1,000,000 limitation shall be applied first to include obligations owed to Maker's senior secured working capital lender, next to include other secured obligations and last to include unsecured obligations. Subject to the rights of holders of Senior Indebtedness set forth herein, if an Event of Default shall occur and be continuing, the Holder may, by notice to Maker, declare all amounts payable hereunder to be due and payable, whereupon all such amounts shall be due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Maker; PROVIDED, HOWEVER, that in the event of an entry of an order for relief with respect to Maker under the Federal Bankruptcy Code or Maker's voluntary filing under the Federal Bankruptcy Code, all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by Maker. The obligations evidenced hereby are subordinate and junior in right of payment to Senior Indebtedness. No payment shall be made pursuant to this Note if Maker is in default of any of its obligations with respect to Senior Indebtedness (or if such payment would itself constitute a default) until such default is cured to the written satisfaction of or waived by the applicable Senior Creditor, provided that Maker's failure to make any such payment shall nonetheless constitute a default by Maker of its obligations to Holder hereunder. Upon any dissolution, winding up, liquidation or reorganization of Maker, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, all Senior Indebtedness shall first be paid in full in cash, or payment thereof provided for, before any payment is made on the obligations evidenced by this Note, and any payment received by Holder in violation of the foregoing shall be paid to the holders of Senior Indebtedness for application to the payment of all Senior Indebtedness remaining unpaid to the extent -4- necessary to pay all Senior Indebtedness in full in cash, after giving effect to any concurrent payment to the holders of Senior Indebtedness. The provisions of this paragraph are included solely for the purpose of defining the relative rights of Holder and holders of Senior Indebtedness, and nothing herein shall impair, as between Maker and Holder, Maker's unconditional and absolute obligation to pay Holder all amounts owing hereunder. Maker shall pay all costs of collection, including reasonable attorneys' fees (whether incurred at the trial or appellate level, in an arbitration proceeding, in bankruptcy (including, without limitation, any adversary proceeding, contested matter or motion) or otherwise). No delay or failure on the part of Holder to exercise any of its rights hereunder shall be deemed a waiver of such rights or any other right of Holder nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of such rights or any other right on any future occasion. Maker and every surety, indorser and guarantor of this Note waive presentment, demand, protest, notice of intention to accelerate, notice of acceleration, notice of nonpayment and all other notices of every kind, and agree that their liability under this Note shall not be affected by any renewal, postponement or extension in the time of payment hereof, by any indulgence granted by any holder hereof with respect hereto, or by any release or change in any security for the payment of this Note, and they hereby consent to any and all renewals, extensions, indulgences, releases or changes, regardless of the number of such renewals, extensions, indulgences, releases or changes. Time is of the essence in the performance of all obligations of Maker under this Note. This Note shall be governed by and construed in accordance with the laws of the State of Oregon. This Note shall be binding upon and inure to the benefit of Maker and Holder and their respective successors, heirs, legal representatives and permitted assigns. Maker may not assign its rights or obligations under this Note without the prior written consent of Holder. Holder may not assign its rights or obligations under this Note without the prior written consent of Maker, which shall not be unreasonably withheld; provided, however, that no consent of Maker shall be required for any transfer by Holder to any person or entity that controls, is controlled by or is under common control with Holder. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES, AND COMMITMENTS MADE BY HOLDER AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE MAKER'S RESIDENCE, MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY HOLDER TO BE ENFORCEABLE. MICROFIELD GRAPHICS, INC. -5- By:_________________________ Title:_______________________ -6- EX-10.15 3 ex-10_15.txt EXHIBIT 10.15 EXHIBIT 10.15 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. NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE APPLICABLE SECURITIES UNDER SUCH ACT OR LAWS OR AN OPINION OF COUNSEL FOR THE HOLDER REASONABLY SATISFACTORY TO THE ISSUER STATING THAT SUCH REGISTRATION IS NOT REQUIRED. No. 2000-W-1 WARRANT TO PURCHASE 1,033,000 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 JMW Capital Partners, 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), 1,033,000 fully paid and nonassessable shares of Common Stock of the Company at the "Exercise Price" (as defined below). This Warrant may be exercised in whole or in part, but not less than 500,000 shares in a single exercise (or such lesser amount then issuable upon the entire exercise of this Warrant. 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 1,033,000 shares (adjusted as necessary in accordance with Section 7). "EXERCISE PRICE" means $0.50 per share (adjusted as necessary in accordance with Section 7). "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 June 30, 2005. 1 "HOLDER" has the meaning specified in the introductory paragraph. "INITIAL EXERCISE DATE" means June 30, 2000. "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, in whole or in part, 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 (but in no event later than five business days), (a) certificates for Warrant Shares shall be delivered, at the Company's expense, to the Holder or the transferee thereof set forth in the attached Exercise Form and (b) a new Warrant of like tenor to purchase up to that number, if any, not previously purchased by the Holder (if this Warrant has not expired) shall be delivered, at the Company's expense, to the Holder. 2 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 Warrant Shares are no longer subject to Rule 144 under the Securities Act, 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 (C) 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. 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 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. 3 3.2 LISTING OF WARRANT SHARES. The Company shall take all steps necessary to cause the Warrant Shares issuable upon exercise of this Warrant to be approved for listing on all securities exchanges or markets and all trading or quotation facilities on which the Common Stock is listed as soon as possible after the Initial Exercise Date and shall use commercially reasonable efforts to maintain such listings until the earlier of the Expiration Date or the date this Warrant is exercised in full. 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 shareholder 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 reasonably 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 or if the Company shall effect a stock dividend, 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 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). 4 (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. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 7 with respect to the rights of the Holder after the merger, consolidation, reclassification, reorganization, recapitalization or other change to the end that the provisions of this Section 7 (including adjustment of the Exercise Price then in effect and the number of shares issuable upon exercise of this Warrant) shall be applicable after that event as nearly equivalent as may be practicable. (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 (other than as provided for in Section 7.1(a) or (b) above) or any other entity 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 Initial Exercise Date and had thereafter, during the period from the Initial Exercise Date to and including the date of such exercise, retained such shares and/or all other additional stock or securities available by it as aforesaid during such period giving effect to all adjustments called for by this Section 7. (d) SALE OF SHARES BELOW EXERCISE PRICE. (i) If the Company shall issue any Additional Stock (as defined below) without consideration or for a consideration per share less than $0.50 (adjusted appropriately for stock dividends, splits, combinations and similar transactions) in effect immediately prior to the issuance of such Additional Stock in a transaction not subject to Section 7.1(a), (b) or (c) above, the Exercise Price in effect immediately prior to issuance of such Additional Stock (except as otherwise provided in this Section 7.1(d)) shall be adjusted down to a price equal to the quotient obtained by dividing the total computed under clause (x) below by the total computed under clause (y) below as follows: (x) an amount equal to the sum of (1) the result obtained by multiplying the number of shares of Common Stock deemed outstanding immediately prior to such issuance (which shall include the actual number of 5 shares outstanding plus all shares issuable upon the conversion or exercise of all outstanding convertible securities, warrants and options other than shares excluded from the definition of Additional Stock by Section 7.1(d)(vi)) by the Exercise Price then in effect, and (2) the aggregate consideration, if any, received by the Company upon the issuance of such Additional Stock; (y) the number of shares of Common Stock of the Company outstanding immediately after such issuance (including the shares deemed outstanding as provided in clause (x) above). (ii) No adjustment of the Exercise Price shall be made in an amount less than $0.01 per share; provided, however, that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be taken into account in any subsequent adjustment made to the Exercise Price. Except as provided in Sections 7.1(d)(v)(C) and (D) below, no adjustment of the Exercise Price shall have the effect of increasing the Exercise Price above the Exercise Price in effect immediately prior to such adjustment. (iii) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any discounts, commissions or other expenses allowed, paid or incurred by the Company for any underwriting or otherwise in connection with the issuance and sale thereof. (iv) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined in good faith by the Board of Directors irrespective of any accounting treatment. (v) In the case of the issuance of options or warrants to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock, or options or warrants to purchase or rights to subscribe for such convertible or exchangeable securities (which options, warrants, rights, convertible or exchangeable securities are not excluded from the definition of Additional Stock except as provided in Section 7.1(d)(vi)(B)), the following provisions shall apply: (A) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options or warrants to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options, warrants, or rights were issued for a consideration equal to the consideration (determined in the manner provided in Sections 7.1(d)(iii) and (iv) above), if any, received by the Company upon the issuance of such options, warrants or rights plus the minimum purchase price provided in such options, warrants or rights for the Common Stock covered thereby, but no further adjustment to the Exercise Price shall be made for the actual issuance of Common Stock upon the exercise of such options, warrants or rights in accordance with their terms; 6 (B) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities or upon the exercise of options or warrants to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options, warrants or rights were issued for a consideration equal to the consideration received, if any, by the Company for any such securities and any related options, warrants or rights, plus the minimum additional consideration, if any, to be received by the Company upon the conversion or exchange of such securities or the exercise of any related options, warrants or rights (the consideration in each case to be determined in the manner provided in Sections 7.1(d)(iii) and (iv) above), but no further adjustment to the Exercise Price shall be made for the actual issuance of Common Stock upon the conversion or exchange of such securities in accordance with their terms; (C) if such options, warrants, rights or convertible or exchangeable securities by their terms provide, with the passage of time or otherwise, for any change in the consideration payable to the Company or in the number of shares of Common Stock issuable upon the exercise, conversion or exchange thereof, including, without limitation, a change resulting from the antidilution provisions thereof, the Exercise Price computed upon the original issue thereof, and any subsequent adjustments based thereon, shall, upon such change becoming effective, be recomputed to reflect such change, but no further adjustment to the Exercise Price shall be made for the actual issuance of Common Stock upon the exercise of any such options, warrants or rights or the conversion or exchange of such securities in accordance with their terms; and (D) upon the expiration of any such options, warrants or rights, the termination of any such rights to convert or exchange or the expiration of any options, warrants or rights related to such convertible or exchangeable securities, the Exercise Price shall forthwith be readjusted to such Exercise Price as would have been obtained had the adjustment which was made upon the issuance of such options, warrants, rights or securities or options, warrants or rights related to such securities been made upon the basis of the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities which remain in effect) actually issued upon the exercise of such options, warrants or rights, upon the conversion or exchange of such securities or upon the exercise of the options, warrants or rights related to such securities. (vi) "Additional Stock" shall mean any shares of Common Stock or securities convertible into or exchangeable or exercisable for shares of Common Stock issued (or deemed to have been issued pursuant to Section 7.1(d)(v) above) by the Company after the Initial Exercise Date other than: (A) Common Stock issued in connection with a transaction described in Section 7.1(a), (b) or (c); 7 (B) shares of Common Stock (and options to purchase shares of Common Stock) issued or issuable to employees, officers or directors of, or consultants to, the Company pursuant to a stock option or restricted stock plan approved by the Company's Board of Directors; (C) 280,000 shares of Common Stock (adjusted appropriately for stock dividends, splits, combinations and similar transactions) issued or issuable upon the exercise of warrants outstanding on the Initial Exercise Date; (D) shares of Common Stock issued or issuable upon the exercise of any warrant issued pursuant to the Note and Warrant Purchase Agreement by and among the Company and JMW Capital Partners, Inc. dated as of the Initial Exercise Date. (E) shares of Common Stock, or securities convertible into or exchangeable or exercisable for shares of Common Stock, issued to financial institutions or equipment lessors in connection with commercial credit arrangements, equipment financings or similar transactions not primarily for equity financing purposes and which have been approved by the Company's Board of Directors; and (F) shares of Common Stock, or securities convertible into or exchangeable or exercisable for shares of Common Stock, issued in connection with business combinations or corporate partnering agreements approved by the Company's Board of Directors. (e) OTHER IMPAIRMENTS. If any event shall occur as to which the provisions of Section 7.1(a)-(d) 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. 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. 8 Section 8. MISCELLANEOUS. 8.1 BINDING EFFECT; ASSIGNMENT. This Warrant shall inure to the benefit of and be binding upon the Company and the Holder and their respective successors, heirs, legal representatives and permitted assigns. This Warrant and the Warrant Shares (collectively, "Securities") may only be disposed of pursuant to an effective registration statement under the Securities Act or pursuant to an available exemption from or in a transaction not subject to the registration requirements of the Securities Act, and in compliance with any applicable federal and state securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement, transfer may only be made with the prior written consent of the Company, which shall not be unreasonably withheld, and the Company may require the transferor to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred securities under the Securities Act; provided, however, that notwithstanding the foregoing, no consent of the Company shall be required for the assignment or transfer of rights hereunder by a Holder to such assignor's or transferor's partners, shareholders or members or retired partners or former shareholders or members, if any, or for any other assignment or transfer to the spouse, ancestors, lineal descendants or siblings of such assignor or transferor, provided the transferee(s) certify to the Company that each is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act and that it is acquiring the Securities solely for investment purposes. The Company shall register the transfer of any portion of this Warrant, upon surrender of this Warrant with the Form of Assignment attached hereto duly completed and signed, to the Company's transfer agent or to the Company at the office specified in Section 8.2. Upon any such transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of a New Warrant by the transferee shall be deemed the acceptance of such transferee of all of the rights and obligations of a holder of a Warrant. This Warrant is exchangeable, upon the surrender hereof by the Holder to the office of the Company specified in Section 8.2, for one or more New Warrants evidencing in the aggregate the right to purchase the number of Warrant Shares which may then be purchased hereunder. Any such New Warrant will be dated the date of such exchange. 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: 9 Microfield Graphics, Inc. 16112 SW 72nd Avenue Portland, OR 97224 Attn: John B. Conroy, Chief Executive Officer Fax: (503) 620-4090 WITH A COPY TO: Stoel Rives LLP 900 SW Fifth Avenue Portland, OR 97204 Attn: Annette M. Mulee Fax: (503) 220-2480 IF TO THE HOLDER: JMW Capital Partners, Inc. 8201 SE 17th Avenue Portland, OR 97202 Attn: Robert Jesenik Fax: (503) 905-6033 WITH A COPY TO: Perkins Coie LLP Suite 1500 1211 SW Fifth Avenue Portland, OR 97204-3715 Attn: David Matheson Fax: (503) 727-2222 or such other address as such party may designate by 10 days' advance written notice to the other party. 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 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 10 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; 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 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. 11 8.9 PURCHASE AGREEMENT; REGISTRATION RIGHTS. This Warrant is one of the Warrants referred in the Note and Warrant Purchase Agreement dated as of June 30, 2000 between the Company and JMW Capital Partners, Inc. and shall entitle the Holder to all of the rights granted to holders of the Warrants thereunder, including the registration rights provided in the Registration Rights Agreement (as defined therein). Dated as of: June 30, 2000. MICROFIELD GRAPHICS, INC. By:_________________________________________ John B. Conroy Chief Executive Officer 12 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 represented by Warrant No. 2000-W-__ to purchase _________ 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:_________________________________________ If the number of shares of Common Stock to be issued upon this exercise is not all the shares that may be purchased pursuant to the Warrant, the undersigned requests that a new warrant evidencing the right to purchase the balance of such shares be registered in the name of, and be delivered to, the undersigned at the foregoing 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. 1 (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 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) INVESTOR QUALIFICATIONS. The undersigned is an Accredited Investor as defined in Rule 501 promulgated under the Securities Act or has such knowledge and experience in financial and business matters that he or it is capable of evaluating the merits and risks of investing in the Common Stock. (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. 2 5. The undersigned is a resident of the state of ________________________. Dated: _____________, 2000. [HOLDER] 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. 3 FORM OF ASSIGNMENT FOR VALUE RECEIVED, ______________________________________ hereby sells, assigns and transfers to the assignee set forth below all of the rights of the undersigned in and to the number of Warrant Shares (as defined in and evidenced by the foregoing Warrant) set opposite the name of such assignee below and in and to the foregoing Warrant with respect to said Warrant Shares:
Name of Assignee Address Number of Shares - ---------------- ------- ----------------
If the total of said Warrant Shares shall not be all such shares which may be purchased pursuant to the foregoing Warrant, the undersigned requests that a new Warrant evidencing the right to purchase the balance of such shares be issued in the name of, and delivered to, the undersigned at the undersigned's address stated below. Dated:____________ Name of holder of Warrant:_____________________________________________ (please print) Address:______________________________________________________ Signature:____________________________________________________ 1 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. NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE APPLICABLE SECURITIES UNDER SUCH ACT OR LAWS OR AN OPINION OF COUNSEL FOR THE HOLDER REASONABLY SATISFACTORY TO THE ISSUER STATING THAT SUCH REGISTRATION IS NOT REQUIRED. No. 2000-W-2 WARRANT TO PURCHASE 1,033,000 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 JMW Capital Partners, 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), 1,033,000 fully paid and nonassessable shares of Common Stock of the Company at the "Exercise Price" (as defined below). This Warrant may be exercised in whole or in part, but not less than 500,000 shares in a single exercise (or such lesser amount then issuable upon the entire exercise of this Warrant. The number of shares that may be purchased are subject to adjustment under the terms of this Warrant. Section 2. DEFINITIONS. As used in this Warrant, unless the context otherwise requires: "EXERCISE AMOUNT" means 1,033,000 shares (adjusted as necessary in accordance with Section 7). "EXERCISE PRICE" means $0.38722 per share (adjusted as necessary in accordance with Section 7). "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 June 30, 2005. 2 "HOLDER" has the meaning specified in the introductory paragraph. "INITIAL EXERCISE DATE" means June 30, 2000. "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, in whole or in part, 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 (but in no event later than five business days), (a) certificates for Warrant Shares shall be delivered, at the Company's expense, to the Holder or the transferee thereof set forth in the attached Exercise Form and (b) a new Warrant of like tenor to purchase up to that number, if any, not previously purchased by the Holder (if this Warrant has not expired) shall be delivered, at the Company's expense, to the Holder. 3 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 Warrant Shares are no longer subject to Rule 144 under the Securities Act, 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 (C) 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. 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 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. 4 3.2 LISTING OF WARRANT SHARES. The Company shall take all steps necessary to cause the Warrant Shares issuable upon exercise of this Warrant to be approved for listing on all securities exchanges or markets and all trading or quotation facilities on which the Common Stock is listed as soon as possible after the Initial Exercise Date and shall use commercially reasonable efforts to maintain such listings until the earlier of the Expiration Date or the date this Warrant is exercised in full. 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 shareholder 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 reasonably 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 or if the Company shall effect a stock dividend, 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 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). 5 (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. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 7 with respect to the rights of the Holder after the merger, consolidation, reclassification, reorganization, recapitalization or other change to the end that the provisions of this Section 7 (including adjustment of the Exercise Price then in effect and the number of shares issuable upon exercise of this Warrant) shall be applicable after that event as nearly equivalent as may be practicable. (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 (other than as provided for in Section 7.1(a) or (b) above) or any other entity 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 Initial Exercise Date and had thereafter, during the period from the Initial Exercise Date to and including the date of such exercise, retained such shares and/or all other additional stock or securities available by it as aforesaid during such period giving effect to all adjustments called for by this Section 7. (d) SALE OF SHARES BELOW EXERCISE PRICE. (i) If the Company shall issue any Additional Stock (as defined below) without consideration or for a consideration per share less than $0.38722 (adjusted appropriately for stock dividends, splits, combinations and similar transactions) in effect immediately prior to the issuance of such Additional Stock in a transaction not subject to Section 7.1(a), (b) or (c) above, the Exercise Price in effect immediately prior to issuance of such Additional Stock (except as otherwise provided in this Section 7.1(d)) shall be adjusted down to a price equal to the quotient obtained by dividing the total computed under clause (x) below by the total computed under clause (y) below as follows: (x) an amount equal to the sum of (1) the result obtained by multiplying the number of shares of Common Stock deemed outstanding immediately prior to such issuance (which shall include the actual number of 6 shares outstanding plus all shares issuable upon the conversion or exercise of all outstanding convertible securities, warrants and options other than shares excluded from the definition of Additional Stock by Section 7.1(d)(vi)) by the Exercise Price then in effect, and (2) the aggregate consideration, if any, received by the Company upon the issuance of such Additional Stock; (y) the number of shares of Common Stock of the Company outstanding immediately after such issuance (including the shares deemed outstanding as provided in clause (x) above). (ii) No adjustment of the Exercise Price shall be made in an amount less than $0.01 per share; provided, however, that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be taken into account in any subsequent adjustment made to the Exercise Price. Except as provided in Sections 7.1(d)(v)(C) and (D) below, no adjustment of the Exercise Price shall have the effect of increasing the Exercise Price above the Exercise Price in effect immediately prior to such adjustment. (iii) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any discounts, commissions or other expenses allowed, paid or incurred by the Company for any underwriting or otherwise in connection with the issuance and sale thereof. (iv) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined in good faith by the Board of Directors irrespective of any accounting treatment. (v) In the case of the issuance of options or warrants to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock, or options or warrants to purchase or rights to subscribe for such convertible or exchangeable securities (which options, warrants, rights, convertible or exchangeable securities are not excluded from the definition of Additional Stock except as provided in Section 7.1(d)(vi)(B)), the following provisions shall apply: (A) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options or warrants to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options, warrants, or rights were issued for a consideration equal to the consideration (determined in the manner provided in Sections 7.1(d)(iii) and (iv) above), if any, received by the Company upon the issuance of such options, warrants or rights plus the minimum purchase price provided in such options, warrants or rights for the Common Stock covered thereby, but no further adjustment to the Exercise Price shall be made for the actual issuance of Common Stock upon the exercise of such options, warrants or rights in accordance with their terms; 7 (B) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities or upon the exercise of options or warrants to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options, warrants or rights were issued for a consideration equal to the consideration received, if any, by the Company for any such securities and any related options, warrants or rights, plus the minimum additional consideration, if any, to be received by the Company upon the conversion or exchange of such securities or the exercise of any related options, warrants or rights (the consideration in each case to be determined in the manner provided in Sections 7.1(d)(iii) and (iv) above), but no further adjustment to the Exercise Price shall be made for the actual issuance of Common Stock upon the conversion or exchange of such securities in accordance with their terms; (C) if such options, warrants, rights or convertible or exchangeable securities by their terms provide, with the passage of time or otherwise, for any change in the consideration payable to the Company or in the number of shares of Common Stock issuable upon the exercise, conversion or exchange thereof, including, without limitation, a change resulting from the antidilution provisions thereof, the Exercise Price computed upon the original issue thereof, and any subsequent adjustments based thereon, shall, upon such change becoming effective, be recomputed to reflect such change, but no further adjustment to the Exercise Price shall be made for the actual issuance of Common Stock upon the exercise of any such options, warrants or rights or the conversion or exchange of such securities in accordance with their terms; and (D) upon the expiration of any such options, warrants or rights, the termination of any such rights to convert or exchange or the expiration of any options, warrants or rights related to such convertible or exchangeable securities, the Exercise Price shall forthwith be readjusted to such Exercise Price as would have been obtained had the adjustment which was made upon the issuance of such options, warrants, rights or securities or options, warrants or rights related to such securities been made upon the basis of the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities which remain in effect) actually issued upon the exercise of such options, warrants or rights, upon the conversion or exchange of such securities or upon the exercise of the options, warrants or rights related to such securities. (vi) "Additional Stock" shall mean any shares of Common Stock or securities convertible into or exchangeable or exercisable for shares of Common Stock issued (or deemed to have been issued pursuant to Section 7.1(d)(v) above) by the Company after the Initial Exercise Date other than: (A) Common Stock issued in connection with a transaction described in Section 7.1(a), (b) or (c); 8 (B) shares of Common Stock (and options to purchase shares of Common Stock) issued or issuable to employees, officers or directors of, or consultants to, the Company pursuant to a stock option or restricted stock plan approved by the Company's Board of Directors; (C) 280,000 shares of Common Stock (adjusted appropriately for stock dividends, splits, combinations and similar transactions) issued or issuable upon the exercise of warrants outstanding on the Initial Exercise Date; (D) shares of Common Stock issued or issuable upon the exercise of any warrant issued pursuant to the Note and Warrant Purchase Agreement by and among the Company and JMW Capital Partners, Inc. dated as of the Initial Exercise Date. (E) shares of Common Stock, or securities convertible into or exchangeable or exercisable for shares of Common Stock, issued to financial institutions or equipment lessors in connection with commercial credit arrangements, equipment financings or similar transactions not primarily for equity financing purposes and which have been approved by the Company's Board of Directors; and (F) shares of Common Stock, or securities convertible into or exchangeable or exercisable for shares of Common Stock, issued in connection with business combinations or corporate partnering agreements approved by the Company's Board of Directors. (e) OTHER IMPAIRMENTS. If any event shall occur as to which the provisions of Section 7.1(a)-(d) 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. 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. 9 Section 8. MISCELLANEOUS. 8.1 BINDING EFFECT; ASSIGNMENT. This Warrant shall inure to the benefit of and be binding upon the Company and the Holder and their respective successors, heirs, legal representatives and permitted assigns. This Warrant and the Warrant Shares (collectively, "Securities") may only be disposed of pursuant to an effective registration statement under the Securities Act or pursuant to an available exemption from or in a transaction not subject to the registration requirements of the Securities Act, and in compliance with any applicable federal and state securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement, transfer may only be made with the prior written consent of the Company, which shall not be unreasonably withheld, and the Company may require the transferor to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred securities under the Securities Act; provided, however, that notwithstanding the foregoing, no consent of the Company shall be required for the assignment or transfer of rights hereunder by a Holder to such assignor's or transferor's partners, shareholders or members or retired partners or former shareholders or members, if any, or for any other assignment or transfer to the spouse, ancestors, lineal descendants or siblings of such assignor or transferor, provided the transferee(s) certify to the Company that each is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act and that it is acquiring the Securities solely for investment purposes. The Company shall register the transfer of any portion of this Warrant, upon surrender of this Warrant with the Form of Assignment attached hereto duly completed and signed, to the Company's transfer agent or to the Company at the office specified in Section 8.2. Upon any such transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of a New Warrant by the transferee shall be deemed the acceptance of such transferee of all of the rights and obligations of a holder of a Warrant. This Warrant is exchangeable, upon the surrender hereof by the Holder to the office of the Company specified in Section 8.2, for one or more New Warrants evidencing in the aggregate the right to purchase the number of Warrant Shares which may then be purchased hereunder. Any such New Warrant will be dated the date of such exchange. 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: 10 Microfield Graphics, Inc. 16112 SW 72nd Avenue Portland, OR 97224 Attn: John B. Conroy, Chief Executive Officer Fax: (503) 620-4090 WITH A COPY TO: Stoel Rives LLP 900 SW Fifth Avenue Portland, OR 97204 Attn: Annette M. Mulee Fax: (503) 220-2480 IF TO THE HOLDER: JMW Capital Partners, Inc. 8201 SE 17th Avenue Portland, OR 97202 Attn: Robert Jesenik Fax: (503) 905-6033 WITH A COPY TO: Perkins Coie LLP Suite 1500 1211 SW Fifth Avenue Portland, OR 97204-3715 Attn: David Matheson Fax: (503) 727-2222 or such other address as such party may designate by 10 days' advance written notice to the other party. 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 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 11 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; 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 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. 12 8.9 PURCHASE AGREEMENT; REGISTRATION RIGHTS. This Warrant is one of the Warrants referred in the Note and Warrant Purchase Agreement dated as of June 30, 2000 between the Company and JMW Capital Partners, Inc. and shall entitle the Holder to all of the rights granted to holders of the Warrants thereunder, including the registration rights provided in the Registration Rights Agreement (as defined therein). Dated as of: June 30, 2000. MICROFIELD GRAPHICS, INC. By:_________________________________________ John B. Conroy Chief Executive Officer 13 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 represented by Warrant No. 2000-W-__ to purchase _________ 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:_________________________________________ If the number of shares of Common Stock to be issued upon this exercise is not all the shares that may be purchased pursuant to the Warrant, the undersigned requests that a new warrant evidencing the right to purchase the balance of such shares be registered in the name of, and be delivered to, the undersigned at the foregoing 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. 1 (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 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) INVESTOR QUALIFICATIONS. The undersigned is an Accredited Investor as defined in Rule 501 promulgated under the Securities Act or has such knowledge and experience in financial and business matters that he or it is capable of evaluating the merits and risks of investing in the Common Stock. (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. (c) 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. 2 5. The undersigned is a resident of the state of ________________________. Dated: _____________, 2000. [HOLDER] 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. 3 FORM OF ASSIGNMENT FOR VALUE RECEIVED, ______________________________________ hereby sells, assigns and transfers to the assignee set forth below all of the rights of the undersigned in and to the number of Warrant Shares (as defined in and evidenced by the foregoing Warrant) set opposite the name of such assignee below and in and to the foregoing Warrant with respect to said Warrant Shares:
Name of Assignee Address Number of Shares - ---------------- ------- ----------------
If the total of said Warrant Shares shall not be all such shares which may be purchased pursuant to the foregoing Warrant, the undersigned requests that a new Warrant evidencing the right to purchase the balance of such shares be issued in the name of, and delivered to, the undersigned at the undersigned's address stated below. Dated:____________ Name of holder of Warrant:_____________________________________________ (please print) Address: __________________________________________________ Signature: __________________________________________________ 1 EX-10.16 4 ex-10_16.txt EXHIBIT 10.16 EXHIBIT 10.16 EXHIBIT C REGISTRATION RIGHTS AGREEMENT This Agreement, dated June ____, 2000, is between Microfield Graphics, Inc. (the "Company") and JMW Capital Partners, Inc. (the "Investor"). SECTION 8 contains an index of all defined terms. RECITALS A. The Company has issued to Investor, pursuant to the Note and Warrant Purchase Agreement dated as of the date hereof, warrants to purchase 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 the date hereof, a written request from the Holders of at least 50% of the Registrable Securities (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, provided that the aggregate proceeds from the sale of Registrable Securities under such registration are reasonably expected to be at least $5 million. Any written request from the Holders pursuant to this SECTION 1.1 shall state that the request is being made pursuant to this SECTION 1.1. The Company will promptly give written notice of a request for a proposed registration to all Holders and include all Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after the date of such written notice from the Company. The Company is obligated to effect only three such registrations pursuant to this SECTION 1.1 (counting for this purpose only registrations that have been declared or ordered effective and registrations that have been withdrawn by the Holders as to which the Holders have not elected to bear the expenses of such registration 1 pursuant to Section 3.3 and would, absent such election, have been required to bear such expenses). 1.2 SHARES INCLUDED. The Holders shall include in such registration an aggregate of at least 200,000 shares (appropriately adjusted for any stock dividend, stock split, or combination applicable to the Registrable Securities) of the Registrable Securities then held by them, or all of the remaining Registrable Securities then held by the Holders if less. 1.3 UNDERWRITING. If any Holders intend 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 Holders 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 Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Holders agrees to limit the number of shares of Registrable Securities that may be included in the underwriting; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities, including any shares offered by the Company, are first entirely excluded from 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 Holders at least 20 days before the beginning of the Preclusion Period and (b) if the Company shall furnish to the Holders 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 90 days after receipt of the Holder Notice; provided, however, that the Company may not exercise this right more than twice (for a total of up to 120 days) in any 12-month period. 1.5 COMPANY REGISTRATION. If (but without any obligation to do so) the Company proposes to register any of its stock or other securities under the 1933 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 2 such time, promptly give the Holders written notice of such registration. Upon the written request of a Holder given within ten (10) business 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 such Holder has requested to be registered. The Holder's rights under this Section may be exercised an unlimited number of times. 1.6 FORM S-3 REGISTRATION. In the event that the Company receives a written request from the Holder that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned thereby, the Company will, as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of the Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holders joining in such request as are specified in a written request given within twenty (20) days after receipt of a written notice from the Company of the proposed registration; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.6 (i) if Form S-3 is not available for such offering by the Holders; (ii) if the Company believes in good faith that it will file a registration statement pertaining to an underwritten public offering of securities for the account of the Company within 90 days of receiving a request to register pursuant to this Section 1.6 or a registration statement relating to such an offering by the Company has been declared effective within 90 days of the Company receiving such notice; (iii) if the anticipated aggregate offering price of the Registrable Securities to be registered (before deductions for underwriters' discounts and commissions) does not exceed $500,000; (iv) if the Company shall have effected a registration under this Section 1.6 within the 12-month period preceding such request for registration under this Section 1.6; or (v) if the Company shall furnish to the Holders a certificate signed by the President 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 and its shareholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request for registration under this Section 1.6; provided, however, that the Company shall not utilize this right to delay any requested registration more than twice (for a total of up to 120 days) in any 12-month period. Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request of the Investor. Registrations effected pursuant to this Section 1.6 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.1 or 1.5, respectively. 3 2. OBLIGATIONS OF THE COMPANY. Whenever required under SECTION 1 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 participating Holders have sold the Registrable Securities held by them). 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 Holders 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 Holders, 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 Holders, 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. Cause all such Registrable Securities registered hereunder to be listed on each securities exchange on which the Common Stock is then listed. 2.8 OPINIONS AND COMFORT LETTERS. Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such 4 Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (a) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (b) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 3. EXPENSES. 3.1 REGISTRATION EXPENSES. All expenses (other than underwriting discounts and commissions relating to Registrable Securities), including without limitation, all registration, filing, and qualification fees, printing and accounting fees and legal fees and expenses of the Company's counsel and counsel for the Holders (which counsel shall be selected by the Holders and shall be reasonably acceptable to the Company) incurred in connection with a registration pursuant to SECTION 1.1, SECTION 1.5 OR Section 1.6 shall be borne by the Company. 3.2 UNDERWRITING EXPENSES. All underwriting discounts and commissions relating to the Registrable Securities shall be borne by the Holders. 3.3 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 Holders agree to forfeit their right to a demand registration pursuant to SECTION 1.1. Notwithstanding the foregoing, however, if the Holders' request for such withdrawal is preceded by and a consequence of a material adverse change in the condition, business or prospects of the Company that the Holders were not aware of at the time of their request, 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. 5 4.2 DELAY OF REGISTRATION. So long as the Company has given any notice required by this Agreement, the Holders 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. 4.3 LIMITS ON REGISTRATIONS. The Company shall not be obligated to register any Registrable Securities under this Agreement at any time after June ____, 2005. This Agreement shall automatically expire on June ____, 2005. Notwithstanding the foregoing, 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 1.5 to include any of the Holders' 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 (including, without limitation, Steelcase) 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 (including, without limitation, Steelcase) 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) but in no event shall the amount of Registrable Securities included in the offering be reduced below 25% of the total amount of securities included in the offering. 4.5 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. (a) Schedule A attached hereto lists all registration rights granted by the Company as of the date hereof. (b) From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement or modify or amend any existing agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder to (i) include such securities in any registration filed under Section 1.1, 1.5 or 1.6, unless under the terms of such agreement such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of its securities will not reduce the amount of the Registrable Securities of the Holders which is 6 included or (ii) make a demand registration which could result in such registration statement being declared effective prior to the date set forth in Section 1.1 or within 270 days of the effective date of any registration effected pursuant to Section 1.1. 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 Holders, the officers and directors of the Investor, any underwriter (as defined in the 1933 Act) for the Holders 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 Holders and each such officer or director, or underwriter 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 Holders, underwriter or controlling person. 5.2 BY THE HOLDERS. To the extent permitted by law, the Holders 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, 7 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 a Holder expressly for use in connection with such registration; and the Holders 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 Holders, 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 party of any liability to the indemnified party under this SECTION 5 except to the extent the indemnifying party is prejudiced as to its ability to defend such action 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. 5.5 CONTRIBUTION. To the extent the indemnification provided for in this Section 1.5 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other, in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying 8 party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or allegedly untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 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 Holders 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 any Holder, so long as the Holder 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 Holder 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 rights to cause the Company to register Registrable Securities pursuant to this Agreement may not be assigned by a Holder to a transferee or assignee of such securities without the Company's prior written consent, which shall not be unreasonably withheld (the Company shall be deemed to have consented to any transfer of rights under this Agreement in connection with the transfer or assignment of the Warrants, in whole or in part, as permitted under the terms of the Warrants); provided that such transferee or assignee assumes the transferor's or assignor's obligations hereunder; provided, further, the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; provided, further, in each of the foregoing instances, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act. For the purpose of determining the number of shares of Registrable Securities held by a transferee or assignee, the holdings of transferees and assignees of a partnership, corporation or limited liability company who are partners, shareholders or members or retired partners or former shareholders or members of such entity (including spouses and ancestors, lineal descendants 9 and siblings of such partners, shareholders or members or spouses who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with the entity; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Agreement. 6.3 "MARKET STAND-OFF" AGREEMENT. The Holders hereby agree that they 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 agree to be similarly bound) any Registrable Securities during the period requested by such underwriter (not to exceed 90 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 Binding Effect; NO THIRD PARTY BENEFITS. This Agreement shall be binding upon and inure to the benefit of the Company, the Investor, the Holders and their respective successors, heirs, legal representatives and permitted assigns. 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. 10 7.6 AMENDMENT; WAIVERS. No amendment or modification of this Agreement shall be effective unless it is set forth in a writing 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 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; "COMMON STOCK" means the common stock of the Company; "COMPANY" means Microfield Graphics, Inc., an Oregon corporation; "HOLDER" means Investor and any assignees of Registrable Securities pursuant to Section 6.2. "INVESTOR" means JMW Capital Partners, Inc., an Oregon corporation; "NOTE" shall have the meaning set forth in Recital A; "NOTICE" shall have the meaning set forth in SECTION 1.1; "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; 11 "REGISTRABLE SECURITIES" means (a) the Common Stock issuable or issued upon exercise of the Warrants and (b) any Common Stock issued (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of such Common Stock; "SEC" means the Securities and Exchange Commission; "STEELCASE" means Steelcase, Inc. "VIOLATION" shall have the meaning set forth in SECTION 5.1; and "WARRANTS" means Warrants Nos. 2000-W-1 and 2000-W-2 issued to the Investor for the purchase of an aggregate of 2,066,000 shares of the Company's Common Stock, of even date hereof, and all other Warrants issued in connection therewith. 12 The parties have executed this Registration Rights Agreement as of the date first written above. MICROFIELD GRAPHICS, INC. By:____________________________________ John B. Conroy Chief Executive Officer Mailing Address: 16112 SW 72nd Avenue Portland, OR 97224 Attention: John B. Conroy Chief Executive Officer Fax: 503/620-4090 JMW CAPITAL PARTNERS, INC. By:____________________________________ Name: Its: Mailing Address: 8201 SE 17th Avenue Portland, OR 97702 Attn: Robert Jesenik Fax: 503/905-6033 13 SCHEDULE A EXISTING REGISTRATION RIGHTS Those registration rights granted pursuant to that certain Registration Rights Agreement dated as of March 19, 1998 between the Company and Steelcase, Inc., as amended March 25, 1999. 14 EX-10.17 5 ex-10_17.txt EXHIBIT 10.17 EXHIBIT 10.17 MICROFIELD GRAPHICS, INC. Note and Warrant Purchase Agreement DATED AS OF JUNE 30, 2000 TABLE OF CONTENTS
1. Purchase and Sale of Note and Issuance of the Warrant...........................................1 1.1. Sale and Purchase of the Note..........................................................1 1.2. Issuance of Warrants...................................................................1 1.3. Authorization of Note and Securities...................................................1 1.4. Issuance and Delivery of the Note and Warrants.........................................1 2. Representations and Warranties of the Company...................................................2 2.1. Due Incorporation, Qualification, etc..................................................2 2.2. Authority; Enforceability..............................................................2 2.3. Non-Contravention......................................................................2 2.4. Approvals..............................................................................2 2.5. Capitalization.........................................................................3 2.6. Subsidiaries and Affiliates............................................................3 2.7. Securities.............................................................................3 2.8. SEC Documents..........................................................................3 2.9. Absence of Undisclosed Liabilities and Certain Changes.................................4 2.10. Compliance with Laws...................................................................4 2.11. Claims and Legal Proceedings...........................................................4 2.12. Full Disclosure........................................................................4 2.13. Directors' and Officers' Insurance.....................................................5 2.14. Brokers or Finders.....................................................................5 2.15. Intellectual Property Rights...........................................................5 3. Representations and Warranties of the Purchaser.................................................5 3.1. Purchase for Own Account...............................................................5 3.2. Unregistered Securities................................................................6 3.3. Receipt of Information.................................................................6 3.4. Purchaser Status and Risk..............................................................6 3.5. Knowledge and Experience...............................................................7 3.6. Residence..............................................................................7 3.7. Authorization of Agreement.............................................................7 4. Conditions to Company's Obligations at the Closing..............................................7 4.1. Representations and Warranties.........................................................7 4.2. Payment of Purchase Price and Performance..............................................8 4.3. Covenants..............................................................................8 4.4. Transaction Documents..................................................................8 5. Conditions to Purchaser's Obligations at the Closing............................................8 5.1. Representations and Warranties.........................................................8 5.2. Performance............................................................................8 5.3. Covenants..............................................................................8 5.4. Transaction Documents..................................................................8 5.5. Board of Directors Seats...............................................................9 5.6. Loan Restructuring.....................................................................9 5.7. Consents...............................................................................9 6. General and Financial Covenants.................................................................9 6.1. Payment of Notes and Maintenance of Office.............................................9 6.2. Debt Restrictions......................................................................9 6.3. Merger, Consolidation, etc............................................................10 6.4. Charter Amendments....................................................................10 7. Reporting Covenants............................................................................10 7.1. Financial and Business Information....................................................10 7.2. Officer's Certificates; Management Reports............................................13 7.3. Accountants' Certificates.............................................................13 7.4. Inspection............................................................................14 7.5. Confidential Information..............................................................14 8. Additional Covenants...........................................................................15 8.1. Use of Proceeds.......................................................................15 8.2. Publicity.............................................................................15 8.3. Blue Sky Laws.........................................................................15 8.4. Directors' and Officers' Insurance....................................................15 8.5. Further Assurances....................................................................15 9. General Provisions.............................................................................16 9.1. Survival of Warranties................................................................16 9.2. Notices...............................................................................16 9.3. Amendments and Waivers................................................................16 9.4. Governing Law.........................................................................16 9.5. Expenses..............................................................................16 9.6. Successors and Assigns................................................................17 9.7. Severability..........................................................................17 9.8. Entire Agreement and Counterparts.....................................................17
MICROFIELD GRAPHICS, INC. NOTE AND WARRANT PURCHASE AGREEMENT THIS CONVERTIBLE NOTE PURCHASE AGREEMENT (this "Agreement") is made as of June30, 2000, by and among Microfield Graphics, Inc., an Oregon Corporation (the "Company"), and JMW Capital Partners, Inc. (the "Purchaser"). Certain capitalized terms used herein have the meanings ascribed thereto in Schedule A attached hereto. 1. PURCHASE AND SALE OF NOTE AND ISSUANCE OF THE WARRANT 1.1. SALE AND PURCHASE OF THE NOTE Upon the terms and subject to the conditions contained herein, the Purchaser hereby agrees to lend to the Company Four Hundred Thousand and No/100 Dollars ($400,000) in exchange for a subordinated, promissory note in the form attached as Exhibit A (the "Note"). 1.2. ISSUANCE OF WARRANTS The Company will issue to the Purchaser two stock purchase warrants, each in the form attached as EXHIBIT B (collectively, the "Warrants"), to purchase 1,033,000 shares of the Company's Common Stock ("Common Stock") at an exercise price of $0.50 per share and 1,033,000 shares of Common Stock at an exercise price of $0.38722 per share, respectively. The Warrants are being issued in aggregate consideration for $100.00. The Warrants will be exercisable for a period of five years. 1.3. AUTHORIZATION OF NOTE AND SECURITIES The Company will, prior to the Closing (as defined in Section 1.4), authorize the issuance of the Note in the principal amount of Four Hundred Thousand and No/100 Dollars ($400,000), the Warrants and the shares of Common Stock issuable upon exercise of the Warrants (the "Warrant Shares"). 1.4. ISSUANCE AND DELIVERY OF THE NOTE AND WARRANTS The issuance of the Note and the Warrants shall take place at the closing to be held at such place and time and on such date (the "Closing Date") as the Company and Purchaser may determine (the "Closing"). At the Closing, the Company will deliver to Purchaser the Note, which shall be registered in the name of "JMW Capital Partners, Inc.," against receipt by the Company, at account number 153600083502 at U.S. Bank in the name of the Company of amount in immediately available funds equal to Four Hundred Thousand and No/100 Dollars ($400,000), which amount shall be a loan under the Note. PAGE 1 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Purchaser as follows as of the date hereof: 2.1. DUE INCORPORATION, QUALIFICATION, ETC. The Company is (i) a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; and (ii) is duly qualified, licensed to do business and in good standing as foreign corporation in each jurisdiction where the failure to be so qualified or licensed could reasonably be expected to have a material adverse effect on the Company and its subsidiaries taken as a whole. 2.2. AUTHORITY; ENFORCEABILITY The execution, delivery and performance of the Company of this Agreement, the Note, the Warrants, the Registration Rights Agreement and the Engagement Letter (collectively, the "Transaction Documents") will be, at or prior to Closing, duly authorized by all requisite action of the Company and its directors and shareholders. This Agreement and each of the other Transactions Documents has been duly executed and delivered by the Company, and this Agreement constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 2.3. NON-CONTRAVENTION The execution and delivery by the Company of this Agreement and the other Transaction Documents and the performance and consummation of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Warrant Shares pursuant to the Warrants, do not and will not (i) violate the Articles of Incorporation or Bylaws of the Company or any judgment, order, writ, decree, statute, rule or regulation applicable to the Company; (ii) violate any provision of, or result in the breach or the acceleration of, or entitle any other person to accelerate (whether after the giving of notice or lapse of time or both), any mortgage, indenture, agreement, instrument or contract to which the Company is a party or by which it is bound; or (iii) result in the creation or imposition of any lien upon any property, asset or revenue of the Company or the suspension, revocation, impairment, forfeiture, or renewal of any material permit, license, authorization or approval applicable to the Company, its business or operations, or any of its assets or properties. 2.4. APPROVALS No consent, approval, order of authorization of, or registration, declaration or filing with any governmental authority or other person or entity (including, without limitation the shareholders of the Company or any other person or entity) is required in connection with the execution and delivery of this Agreement and the other Transaction Documents and the performance and consummation of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Warrant Shares PAGE 2 pursuant to the Warrants), other than those that may be necessary to perfect exemptions from the registration requirements federal and state securities laws. 2.5. CAPITALIZATION The authorized capital stock of the Company consists of 25,000,000 shares of Common Stock and no shares of the Company's Preferred Stock. As of April 11, 2000, the issued and outstanding capital stock of the Company consisted solely of 4,135,185 shares of Common Stock. All of such shares are duly authorized and validly issued, fully paid and nonassessable, and have been issued in compliance with all applicable federal and state securities laws. Other than (a) options to purchase up to 481,881 shares of Common Stock which have been granted under the Company's 1986 Stock Option Plan and Restated 1995 Stock Incentive Plan (the "Plans") and were outstanding as of January 1, 2000, (b) warrants to purchase up to 280,000 shares of Common Stock, and (c) pursuant to that certain Amended and Restated Share Ownership, Voting and Right of First Refusal Agreement dated as of March 25, 1999 by and among the Company, Steelcase, Inc. and the Executives named therein, there are no outstanding rights of first refusal or offer, co-sale rights, preemptive rights, options (other than options granted under the Plans since January 1, 2000 in the ordinary course of business and consistent with past practice), warrants, or other rights or agreements, either directly or indirectly, for the purchase or acquisition from the Company of any shares of Company capital stock or any securities convertible into or exchangeable for shares of Company capital stock, and the Company is not committed to issue or grant any such rights, options, warrants or other agreements. 2.6. SUBSIDIARIES AND AFFILIATES Other than the Company's wholly-owned foreign sales corporation formed under the laws of Barbados, the Company does not own or control, and has not in the past owned or controlled, directly or indirectly, any corporation, partnership, limited liability company or other business entity or any interest therein, and the Company has no agreement or commitment to purchase any such interest. 2.7. SECURITIES The Warrant Shares have been duly reserved and authorized for issuance, and the Warrant Shares, when issued and delivered pursuant to the exercise of the Warrants in accordance with the terms thereof, shall be validly issued, fully paid and nonassessable. Assuming the accuracy of the representations and warranties contained in Section 3, the Warrants are being issued in compliance with applicable federal and state securities laws. 2.8. SEC DOCUMENTS The Company has furnished or made available to Purchaser true and complete copies of its Annual Report on Form 10-K for the fiscal year ended January 1, 2000, and all Forms 10-Q and 8-K filed after the date of such Form 10-K (collectively, the "SEC Documents"). As of their respective filing dates, each of the SEC Documents complied in all material respects with the requirements of the Securities Exchange Act of 1934, as PAGE 3 amended (the "Exchange Act"), and the rules and regulations of the SEC promulgated thereunder. All contracts and agreements to which the Company is a party or by which it is bound and that are described by Item 601 of Regulation S-K under the Securities Act are included as Exhibits to the SEC Documents. 2.9. ABSENCE OF UNDISCLOSED LIABILITIES AND CERTAIN CHANGES The Company has no liabilities or obligations of any nature (absolute, contingent or otherwise) that are not fully reflected or reserved against in the January1, 2000 audited balance sheet included in the SEC Documents, except (x) liabilities or obligations incurred since the date of such balance sheet in the ordinary course of business and consistent with past practice and (y) such other liabilities and obligations incurred prior to such date that have not had, or could reasonably be expected to have, a material adverse effect on the business, operations, assets, liabilities, condition (financial or other) or prospects of the Company (a "Material Adverse Effect"). Since the January 1, 2000 financial statements included in the SEC Documents, there has not been any change which by itself or in conjunction with all other such changes, has had, or could reasonably be expected to have, a Material Adverse Effect, except as disclosed in the SEC Documents. 2.10. COMPLIANCE WITH LAWS The Company is in compliance in all material respects with all federal, state, local and foreign laws, rules, regulations, ordinances, decrees and orders applicable to it, to its employees or to any of its properties, including, without limitation, all such laws, rules, regulations, ordinances, decrees and orders relating to intellectual property protection, environmental protection, equal employment opportunity, health and occupational safety, pension and employee benefit matters, securities and investor protection matters, and labor and employment matters. Except as disclosed in the SEC Documents, the Company has not received any notification of any asserted present or past unremedied failure by the Company to comply with any of such laws, rules, regulations, ordinances, decrees or orders. 2.11. CLAIMS AND LEGAL PROCEEDINGS Except as disclosed in the SEC Documents, there are no material claims, actions, suits, arbitrations, investigations or proceedings pending or involving or, to the Company's knowledge, threatened against the Company before or by any court or governmental or nongovernmental department, commission, board, bureau, agency or instrumentality, or any other person or entity. There are no outstanding or unsatisfied judgments, orders, decrees or stipulations to which the Company is a party. 2.12. FULL DISCLOSURE No information furnished by the Company to Purchaser in connection with this Agreement or the other Transaction Documents contains any untrue statement of a PAGE 4 material fact or omits to state a material fact necessary in order to make the statements so made or information so delivered not misleading. 2.13. DIRECTORS' AND OFFICERS' INSURANCE The Company has provided to Purchaser a true and complete copy of its current directors' and officers' liability insurance policy. Such policy is in full force and effect as of the date hereof. 2.14. BROKERS OR FINDERS The Company has not incurred, and will not incur, directly or indirectly, as a result of any action taken by or on behalf of the Company, any liability for brokerage or finders' fees or agents' commissions or any similar changes in connection with this Agreement or any transaction contemplated hereby, except pursuant to the Engagement Letter. 2.15. INTELLECTUAL PROPERTY RIGHTS The Company owns or otherwise has a right to use all patented inventions, trademarks, trade names, service marks and copyrights (collectively "Intellectual Property Rights") used by the Company in the conduct of its business as currently conducted, except for those Intellectual Property Rights the lack of which could not reasonably be expected to have a Material Adverse Effect. There is no material claim, action or cause of action challenging the Company's use of the Intellectual Property Rights or challenging or questioning the validity or effectiveness of any Intellectual Property Rights. To the Company's knowledge, neither the Company's operations nor the Intellectual Property Rights infringe upon any validly issued or pending patent, trademark, trade name, service mark, copyright or other right of any person or entity. 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser represents and warrants to the Company as follows: 3.1. PURCHASE FOR OWN ACCOUNT Purchaser is acquiring the Warrants and/or Warrant Shares and the Note (collectively, the "Securities") for Purchaser's own account, not as nominee or agent, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). By executing this Agreement, Purchaser further represents that Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to any such person or to any third person, with respect to the Warrants. PAGE 5 3.2. UNREGISTERED SECURITIES Purchaser understands that (i) the Securities have not been registered under either the Securities Act or the securities laws of any state by reason of specific exemptions therefrom; (ii) the Securities must be held by indefinitely, and, therefore, must bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the Securities Act and the securities laws of any applicable state or is exempt from such registrations; (iii) each of the Securities will be endorsed with a legend substantially as follows: THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS PURSUANT TO SEC RULE 144 OR UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT AND THE SECURITIES LAWS OF ANY STATE COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT AND THE SECURITIES LAWS OF ANY STATE. and (iv) the Company will instruct any transfer agent not to register the transfer of the Securities unless the conditions specified in the foregoing legend are satisfied. 3.3. RECEIPT OF INFORMATION Purchaser has been furnished with such materials and has been given access to such information relating to the Company as Purchaser has requested and Purchaser has been afforded the opportunity to ask questions regarding the Company and the Securities, all as Purchaser has found necessary to make an informed investment decision. Without limiting the foregoing, Purchaser and Designees have reviewed the Company's filings under the Securities Exchange Act of 1934, as amended. Purchaser has been solely responsible for its own due diligence investigation of the Company and its proposed business, for its own analysis of the merits and risks of its investment made pursuant to this Agreement and for its own analysis of the terms of its investment. 3.4. PURCHASER STATUS AND RISK Purchaser is an "accredited investor" as defined in Rule 501 promulgated under the Securities Act of 1933, as amended. Purchaser is in a financial position to hold the Securities and is able to bear the economic risk and withstand a complete loss of Purchaser's investment in the Securities. Purchaser recognizes that the Securities as an PAGE 6 investment involve a high degree of risk. Purchaser understands and acknowledges that there can be no assurance that the Company will be able to meet its projected goals and that the Company will need significant additional capital to be successful, which capital may not be readily available. 3.5. KNOWLEDGE AND EXPERIENCE Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Company and is able to bear the economic risks of an investment in the Company. Purchaser acknowledges hereby that it has been advised to and has obtained, to the extent Purchaser deems necessary, professional (including legal) advice with respect to the risks inherent in the investment in the Securities, the condition of the Company, the suitability of the investment in the Securities in light of Purchaser's condition and investment needs, and the terms and conditions of this Agreement and documents relating to the investment in the Securities. The investment in the Securities is suitable for Purchaser based upon Purchaser's investment objectives and financial needs, and Purchaser has adequate net worth and means for providing for its current financial needs and contingencies and has no need for liquidity of the investment with respect to the Securities. Purchaser's overall commitments to investments that are illiquid or not readily marketable are not disproportionate to Purchaser's net worth, and investment in the Securities will not cause such overall commitment to become excessive. 3.6. RESIDENCE For purposes of the application of state securities laws, Purchaser represents that it is domiciled in the state of Oregon. 3.7. AUTHORIZATION OF AGREEMENT The execution, delivery and performance by Purchaser of this Agreement have been duly authorized by all requisite action of Purchaser. This Agreement has been duly executed and delivered by Purchaser and constitutes a legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms. 4. CONDITIONS TO COMPANY'S OBLIGATIONS AT THE CLOSING The obligations of the Company to the Purchaser under this Agreement are subject to the fulfillment on or before the Closing of the following conditions, unless waived in writing by the Purchaser: 4.1. REPRESENTATIONS AND WARRANTIES The representations and warranties of Purchaser contained in Section 3 of this Agreement shall be true in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made as of the Closing. PAGE 7 4.2. PAYMENT OF PURCHASE PRICE AND PERFORMANCE Purchaser shall have delivered the purchase price specified in Section 1.3 of this Agreement to be delivered at the closing, in the form specified in Section 1.3 of this Agreement. Purchaser shall also have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before Closing. 4.3. COVENANTS Purchaser shall have performed all covenants set forth in this Agreement required to be performed prior to the Closing. 4.4. TRANSACTION DOCUMENTS Purchaser shall have duly executed and delivered to Company this Agreement, the Registration Rights Agreement in the form attached as EXHIBIT C (the "Registration Rights Agreement"), and the Engagement Letter in the form attached as EXHIBIT D (the "Engagement Letter"). 5. CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSING The obligations of Purchaser to Company under this Agreement are subject to the fulfillment at or before Closing (unless otherwise specified) to each of the following conditions, unless waive in writing by the Company. 5.1. REPRESENTATIONS AND WARRANTIES The representations and warranties of the Company contained in Section 2 of this Agreement shall be true in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made as of the date of the Closing. 5.2. PERFORMANCE The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before such Closing. 5.3. COVENANTS Company shall have performed all covenants set forth in this Agreement required to be performed prior to the Closing. 5.4. TRANSACTION DOCUMENTS Company shall have duly executed and delivered to Purchaser this Agreement, the Warrants, the Note, the Registration Rights Agreement and the Engagement Letter. PAGE 8 5.5. BOARD OF DIRECTORS SEATS The Board of Directors of the Company shall have elected to the Board of Directors, contingent upon the Closing, two individuals selected by Purchaser. 5.6. LOAN RESTRUCTURING The Company's inventory loan with Silicon Valley Bank (the "Loan") shall have been restructured to Purchaser's satisfaction to provide for a maximum pay-down of $75,000, with the balance to be repaid over a period of no less than six months from the Closing Date. 5.7. CONSENTS The Company shall have delivered to Purchaser copies of all consents required to authorize or approve the transactions contemplated by the Transaction Documents. 6. GENERAL AND FINANCIAL COVENANTS The Company covenants for the benefit of the holders of the Note that on and after the Closing Date and so long as the Note shall be outstanding: 6.1. PAYMENT OF NOTES AND MAINTENANCE OF OFFICE The Company will punctually pay, or cause to be paid, the principal of and interest on the Note, as and when the same shall become due according to the terms hereof and of the Note, and the Company will maintain an office at the address of the Company as provided in Section 9.2. Such office will be maintained at such address until such time as the Company notifies Purchaser of any change of location of such office, which office will in any event be located within the United States of America. 6.2. DEBT RESTRICTIONS (a) COMPANY DEBT RESTRICTIONS. The Company will not directly or indirectly, at any time create, incur, issue, assume, guarantee or otherwise become liable with respect to any Debt, except: (i) Debt evidenced by the Note; (ii) Senior Debt (as defined in the Note); and (iii) Qualified Revolving Facility Debt, PROVIDED, that the aggregate principal amount outstanding in respect thereof does not at any time exceed the Company's total revenues for the immediately preceding 90 days and, PROVIDED FURTHER, that immediately after giving effect to the incurrence from time to time of such Debt and the PAGE 9 application of the proceeds thereof, no Default or Event of Default would exist. (b) COMPLIANCE WITH LAW. The Company will, and will cause each Subsidiary to, comply with all laws, ordinances and governmental rules and regulations to which it is subject and obtain all licenses, certificates, permits, franchises and other governmental authorizations necessary for the ownership of its Properties and the conduct of its business except for such violations and failures to obtain that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 6.3. MERGER, CONSOLIDATION, ETC. The Company will not, nor will the Company permit any Subsidiary to, merge into, consolidate with, or sell, lease, transfer or otherwise dispose of all or substantially all of its Property to, any other Person or permit any other Person to consolidate with or merge into it. 6.4. CHARTER AMENDMENTS The Company will not amend, or permit any of its Subsidiaries to amend, its articles or certificate of incorporation or bylaws (or other similar documents). 7. REPORTING COVENANTS 7.1. FINANCIAL AND BUSINESS INFORMATION The Company shall deliver to Purchaser: (a) MONTHLY FINANCIAL STATEMENTS -- as soon as practicable after the end of each monthly fiscal period in each fiscal year of the Company, and in any event within thirty (30) days thereafter: (i) a consolidated balance sheet as of the end of such month; and (ii) consolidated statements of income, changes in shareholders' equity and cash flows for such month and for the portion of such fiscal year ending with such month; for the Company and its Subsidiaries, setting forth in each case, in comparative form, the financial statements for such month and for the portion of such fiscal year ending with and including such month, together with the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to monthly financial statements generally, certified by a senior financial officer of the Company that such financial statements present fairly, in all material respects, the financial position of the companies being reported PAGE 10 upon and their results of operations and cash flows and have been prepared in conformity with GAAP applicable to monthly financial statements generally, subject to adjustment, and accompanied by the certificate as required by Section 7.2; PROVIDED that delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission (or any successor agency) shall be deemed to satisfy the requirements of this Section 7.1(a), so long as such financial statements are contained therein; (b) ANNUAL FINANCIAL STATEMENTS -- as soon as practicable after the end of each fiscal year of the Company, and in any event within ninety (90) days thereafter: (i) a consolidated balance sheet as at the end of such year; and (ii) consolidated statements of income, changes in shareholders' equity and cash flows for such year; for the Company and its Subsidiaries, setting forth, in the case of each financial statement, in comparative form, the financial statement for the immediately preceding fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by: (A) an opinion thereon of independent certified public accountants of recognized national standing (or independent certified public accountants approved by Purchaser in writing) selected by the Company, which opinion shall, without qualification, state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances; (B) a certification by a senior financial officer of the Company that such statements are complete and correct in all material respects; and (C) the certificates as required by Section 7.2 and Section 7.3; PROVIDED that the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 PAGE 11 under the Securities Exchange Act of 1934, as amended) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission, together with the accountant's certificate described in clause (A) above, shall be deemed to satisfy the requirements of this Section 7.1(b), so long as such financial statements are contained therein; (c) AUDIT REPORTS AND MANAGEMENT LETTERS -- promptly upon receipt thereof, a copy of each other report (including, without limitation, any letters to the Company from the Company's auditors concerning the internal accounting controls of the Company) submitted to the Company by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company or any of the Subsidiaries; (d) SEC AND OTHER REPORTS -- promptly upon their becoming available: (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to shareholders or creditors generally; (ii) each regular or periodic report (including, without limitation, each Form 10-K, Form 10-Q and Form 8-K), any registration statement which shall have become effective, and each final prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission (or any successor agency) or any securities exchange (including, without limitation, any electronic stock quotation system); and (iii) all press releases and other statements made available by the Company or any Subsidiary to the public concerning material developments in the business of the Company or any Subsidiary; (e) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- within two business days of any officer of the Company becoming aware of the existence of any condition or event which constitutes a Default or an Event of Default, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (f) NOTICE OF CLAIMED DEFAULT -- within two business days of any officer of the Company becoming aware that the holder of the Note, or of any Debt or other security of the Company, shall have given notice or taken any other action with respect to a claimed Default, Event of Default or default or event of default, a written notice specifying the nature of the claimed Default, Event of Default or default or event of default and the notice given or action taken (if any) by such holder and what action the Company is taking or proposes to take with respect thereto; PAGE 12 (g) REQUESTED INFORMATION -- with reasonable promptness, such other data and information as from time to time may be reasonably requested by Purchaser. 7.2. OFFICER'S CERTIFICATES; MANAGEMENT REPORTS (a) CERTIFICATE OF SENIOR OFFICER -- Each set of financial statements delivered pursuant to Section 7.1(a) and Section 7.1(b) shall be accompanied by a certificate of a senior financial officer of the Company, which certificate shall: (i) COVENANT COMPLIANCE - set forth the financial information (including calculations in reasonable detail and determinations of all defined values used therein) required in order to establish whether the Company was in compliance with the requirements of Section 6.4, Section 6.5, Section 6.7 and Section 6.9, in each case where such Sections impose numerical financial requirements at all times during, or as of the end of, the period covered by the financial statements then being furnished (including with respect to each such requirement, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and (ii) EVENT OF DEFAULT - set forth a statement that the signer has reviewed the relevant terms of this Agreement and the Note and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company from the beginning of the accounting period covered by the income statements being delivered therewith to the date of the certificate and that such review did not disclose the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. 7.3. ACCOUNTANTS' CERTIFICATES Each set of annual financial statements delivered pursuant to Section 7.1(b) shall be accompanied by a certificate of the accountants who certify such financial statements, stating: (a) that their audit examination has included a review of Section 6.4 through Section 6.10, inclusive, as such Sections relate to accounting matters and that such review is sufficient to enable them to make the statement referred to in clause (c) of this Section 7.3; (b) whether, in the course of their audit examination, there has been disclosed the existence, during the fiscal year covered by such financial statements (or whether they have knowledge of the existence as of the date of PAGE 13 such accountants' certificate), of any condition or event which constitutes a Default or Event of Default, and if during their audit examination there has been disclosed (or if they have knowledge of) such a condition or event, specifying the nature and period of existence thereof (it being understood, however, that such accountants shall not be liable to any Person by reason of their failure to obtain knowledge of any Default or Event of Default which would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards); and (c) that based on their annual audit examination nothing came to their attention which caused them to believe that the Company was not in compliance with the provisions of Section 6.4 through Section 6.10, inclusive, as set forth in the officer's certificate delivered therewith pursuant to Section 7.2. 7.4. INSPECTION The Company shall permit the representatives of Purchaser, at the expense of Purchaser (or, if a Default or Event of Default shall exist at such time, at the expense of the Company), to visit and inspect any of the Properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants (and by this provision the Company authorizes said accountants to discuss the finances and affairs of the Company and the Subsidiaries) all at such reasonable times and as often as may be reasonably requested. 7.5. CONFIDENTIAL INFORMATION For the purposes of this Section 7.5, "Confidential Information" means information delivered to Purchaser by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by Purchaser as being confidential information of the Company or such Subsidiary, PROVIDED that such term does not include information that (a) was publicly known or otherwise known to Purchaser prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by Purchaser or any Person acting on its behalf, (c) otherwise becomes known to Purchaser other than through disclosure by the Company or any Subsidiary or (d) constitutes financial statements delivered to Purchaser under Section 7.1 that are otherwise publicly available. Purchaser will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by Purchaser in good faith to protect confidential information of third parties delivered to it, PROVIDED that Purchaser may deliver or disclose Confidential Information to (i) its directors, officers, employees, agents, attorneys and affiliates (to the extent such disclosure relates to the administration of the transaction contemplated by this Agreement), (ii) its financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 7.5, (iii) any other PAGE 14 holder of the Note, (iv) any federal or state regulatory authority having jurisdiction over Purchaser, or (v) any other Person to whom such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to Purchaser, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which Purchaser is a party or (z) if an Event of Default has occurred and is continuing, to the extent Purchaser may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under this Agreement and the Note. In the event of any proposed disclosure pursuant to clauses (x) and (y) of clause (v) above, Purchaser will use reasonable efforts to notify the Company of such proposed disclosure prior to effecting such proposed disclosure. 8. ADDITIONAL COVENANTS 8.1. USE OF PROCEEDS The Company will use up to $75,000 of the proceeds of the loan evidenced by the Note to pay-down the Loan and the balance for working capital. The Company will use no proceeds to redeem or repurchase any Company equity or equity-equivalent securities. 8.2. PUBLICITY The Company shall issue within one business day of the Closing Date a press release acceptable to Purchaser disclosing the transaction contemplated hereby. The parties shall issue no other press releases or public statements regarding the transaction contemplated hereby without the prior consent of the other party (which shall not be unreasonably withheld). 8.3. BLUE SKY LAWS The Company shall take all commercially reasonable steps as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable to the issuance of the Warrant Shares issuable upon exercise of the Warrants. 8.4. DIRECTORS' AND OFFICERS' INSURANCE Without the prior written consent of Purchaser, the Company will not let its directors' and officers' liability insurance policy lapse or terminate or reduce any levels of coverage thereunder from levels existing as of the date hereof. 8.5. FURTHER ASSURANCES Upon Purchaser's request, the Company shall take, at its own expense, such further actions and execute such additional instruments, certificates and agreements as shall be reasonably required to effect the transactions contemplated by the Transaction Documents. PAGE 15 9. GENERAL PROVISIONS 9.1. SURVIVAL OF WARRANTIES The warranties and representations contained in this Agreement shall survive the execution and delivery of this Agreement and the Closing for a period of two years from Closing. The covenants contained in this Agreement shall survive the execution and delivery of this Agreement for so long as the Company has obligations outstanding under the Note, except for the covenants contained in Sections 8.1 and 8.2, which shall survive for a period of two years from Closing. 9.2. NOTICES Unless otherwise provided, any notice under this Agreement shall be given in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified; (b) upon confirmation of receipt by fax by the party to be notified; (c) one business day after deposit with a reputable overnight courier, prepaid for overnight delivery and addressed as set forth in (d); or (d) three days after deposit with the United States Post Office, postage prepaid, registered or certified with return receipt requested and addressed to the party to be notified at the address designated for such party in the Registration Rights Agreement. 9.3. AMENDMENTS AND WAIVERS Any term of this Agreement may be amended and the observance of any term may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the holder of the Note and the holders of a majority of the aggregate then outstanding Warrant Shares, if any. Any amendment or waiver effected in accordance with this section shall be binding on each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of any such securities, and the Company. 9.4. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Oregon, as such laws are applied to contracts made and to be wholly performed in Oregon by persons domiciled in Oregon. 9.5. EXPENSES The Company agrees, whether or not the transactions contemplated hereby are consummated, to pay, and hold the Investor and the holders of the Securities harmless from liability for the payment of: (a) the fees and expenses of Investor's counsel arising in connection with the negotiation and execution of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and PAGE 16 thereby (which fees and expenses shall be paid by check delivered to such counsel at the Closing); (b) the fees and expenses incurred in respect of the enforcement of the rights granted under this Agreement and the other Transaction Documents; and (c) if (i) the Investor or other holder of Securities desires to sell or otherwise transfer any or all of the Securities held by it, (ii) a legal opinion is required prior to effecting such transfer and (iii) counsel for the Company declines to render such legal opinion to the Investor or such holder (without cost or expense to the Investor or such holder), the fees and expenses of counsel for the Investor or such holder in rendering such opinion. 9.6. SUCCESSORS AND ASSIGNS This Agreement shall be timely upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither Company nor Purchaser may assign its right or obligations under this Agreement without the prior written consent of the other party, which shall not be unreasonably withheld, provided, however, that Company and Purchaser may, without consent of the other party, assign its rights or obligations under this Agreement to any person or entity that controls, is controlled by or is under common control with such assignor. Notwithstanding the foregoing, Purchaser's rights to assign its rights or obligations under the Note and the Warrants are as set forth therein. 9.7. 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, and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 9.8. ENTIRE AGREEMENT AND COUNTERPARTS This Agreement and the other documents delivered at the Closing constitute the entire agreement between the parties regarding their subject matter and supersede all prior agreements. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] PAGE 17 IN WITNESS WHEREOF, each of the parties has caused this Note and Warrant Purchase Agreement to be duly executed and delivered by its duly authorized representative as of the date first above written.
MICROFIELD GRAPHICS, INC. JMW CAPITAL PARTNERS, INC. By: ___________________________ By: __________________________ Name: John B. Conroy Name: _______________________ Title: Chief Executive Officer Title: ________________________
[NOTE PURCHASE AGREEMENT SIGNATURE PAGE] PAGE 18 SCHEDULE A CERTAIN DEFINED TERMS CAPITAL LEASE -- means, at any time, a lease with respect to which the lessee is required to recognize, for accounting purposes, the acquisition of an asset and the incurrence of a liability at such time. DEBT -- means, at any time, with respect to any Person, without duplication: (a) its liabilities for borrowed money (whether or not evidenced by a Security); (b) any liabilities for borrowed money secured by any Lien existing on Property owned by such Person (whether or not such Person is personally liable in respect thereof); (c) any obligations in respect of any Capital Lease of such Person; (d) all obligations of such Person in respect of banker's acceptances, other acceptances, letters of credit and other instruments serving a similar function issued or accepted by banks and other financial institutions for the account of such Person (whether or not incurred in connection with the borrowing of money); (e) Swaps of such Person; and (f) any Guaranty of such Person of any obligation or liability of another Person of a type described in any of clause (a) through clause (e), inclusive, of this definition. As used in this definition, SWAPS -- means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. PAGE 1 DEFAULT -- means an event or condition the occurrence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. EVENT OF DEFAULT has the meaning ascribed thereto in the Note. GUARANTY -- means with respect to any Person (for the purposes of this definition, the "GUARANTOR") any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, obligations incurred through an agreement, contingent or otherwise, by the Guarantor: (a) to purchase such indebtedness or obligation or any Property constituting security therefor; (b) to advance or supply funds: (i) for the purchase or payment of such indebtedness, dividend or obligation; or (ii) to maintain working capital or other balance sheet condition or any income statement condition of the Primary Obligor or otherwise to advance or make available funds for the purchase or payment of such indebtedness, dividend or obligation; (c) to lease Property or to purchase securities or other Property or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of the Primary Obligor to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of the indebtedness or obligation of the Primary Obligor against loss in respect thereof. For purposes of computing the amount of any Guaranty in connection with any computation of indebtedness or other liability, it shall be assumed that the amount of the Guaranty is the amount of the direct obligation then due or outstanding. LIEN -- means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property (for purposes of this definition, the "Owner"), whether such interest is based on the common law, statute or contract, and includes but is not limited to: (a) the security interest lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes, and the filing of any financing statement under the Uniform PAGE 2 Commercial Code of any jurisdiction, or an agreement to give any of the foregoing; (b) reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting real Property; (c) stockholder agreements, voting trust agreements, buy-back agreements and all similar arrangements affecting the Owner's rights in stock owned by the Owner; and (d) any interest in any Property held by the Owner evidenced by a conditional sale agreement, Capital Lease or other arrangement pursuant to which title to such Property has been retained by or vested in some other Person for security purposes. The term "Lien" does not include negative pledge clauses in loan agreements and equal and ratable security clauses in loan agreements or any Lien created pursuant to the terms of the Transaction Documents. PERSON -- means an individual, partnership, corporation, limited liability company, trust, joint venture, unincorporated organization, or a government or agency or political subdivision thereof. PROPERTY -- means any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. QUALIFIED REVOLVING FACILITY DEBT -- means Debt of the Company: (a) in respect of loans, advances, letters of credit, acceptances and other similar credit facilities provided to the Company by any commercial bank or similar financial institution; and (b) all of the proceeds of which are used by the Company and any of the Subsidiaries for their working capital purposes or to repay previously existing Qualified Revolving Facility Debt, PROVIDED that the agreements and instruments governing such Debt do not restrict, in any manner, the ability of the Company to make any payments on the Note. SUBSIDIARY -- means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which fifty percent (50%) or more of the total Voting Stock is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Company. PAGE 3 EX-27 6 ex-27.txt EXHIBIT 27
5 This schedule contains summary financial information extracted from the consolidated financial statements found in the Company's Form 10-QSB for the six month period ended July 1, 2000, and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-30-2000 JAN-1-2000 JUL-1-2000 221 0 228 12 461 1,044 1,200 1,010 1,269 968 0 0 0 15,750 (15,492) 1,269 1,523 1,523 992 992 1,002 0 64 (491) 0 0 0 0 0 (491) (.12) (.12)
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