-----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, Wa4n3eYQgM4OtfY/EOmE+SSlZ3Ln2An8ji4E5ZvH65bUuvMTGshiQs2d+loTLkg4 rgLIvW5hdth7MuAVWotkGQ== 0001047469-99-032756.txt : 19990818 0001047469-99-032756.hdr.sgml : 19990818 ACCESSION NUMBER: 0001047469-99-032756 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990703 FILED AS OF DATE: 19990817 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROFIELD GRAPHICS INC /OR CENTRAL INDEX KEY: 0000944947 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [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: 99694668 BUSINESS ADDRESS: STREET 1: 9216 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 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 3, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number : 0-26226 MICROFIELD GRAPHICS, INC. (Exact name of small business issuer as specified in its charter) OREGON 93-0935149 (State or other jurisdiction (I. R. S. Employer of incorporation or organization) Identification No.) 7216 SW DURHAM RD. PORTLAND, OREGON 97224 (Address of principal executive offices and zip code) (503) 620-4000 (Issuer's telephone number including area code) Check whether the issuer (1) filed all reports required to be filed by Section 3 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [ ] The number of shares outstanding of the Registrant's Common Stock as of July 31, 1999 was 4,132,185 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 3, 1999 and January 2, 1999 3 Consolidated Statement of Operations -Three and Six Months Ended July 3, 1999 and July 4, 1998 4 Consolidated Statement of Cash Flows -Six Months Ended July 3, 1999 and July 4, 1998 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II OTHER INFORMATION Item 1. Legal Proceedings 12 Item 3. Defaults Upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5 Other Information 12 Item 6. Exhibits and Reports on Form 8-K 13
MICROFIELD GRAPHICS, INC. CONSOLIDATED BALANCE SHEET
July 3, January 2, 1999 1999 ----------------- ----------------- Current assets: Cash $ 404,899 $ 739,628 Accounts receivable, net of allowances of $41,997 and $44,553 497,355 797,543 Inventories (Note 2) 710,305 946,103 Prepaid expenses and other 123,729 156,627 ----------------- ----------------- Total current assets 1,736,288 2,639,901 Property and equipment, net (Note 3) 319,712 379,457 Other assets 191,717 226,140 ----------------- ----------------- $ 2,247,717 $ 3,245,498 ----------------- ----------------- ----------------- ----------------- Current liabilities: Current portion of debt $ 572,611 $ 738,333 Accounts payable 354,226 532,308 Accrued payroll and payroll taxes 63,126 255,698 Unearned income 81,147 56,101 Accrued liabilities 205,826 186,403 ----------------- ----------------- Total current liabilities 1,276,936 1,768,843 Long-term debt, net of current portion 51,481 84,165 ----------------- ----------------- 1,328,417 1,853,008 Shareholders' equity: Common stock, no par value, 25,000,000 shares Authorized, 4,132,185 and 3,686,775 shares Issued and outstanding 15,352,662 14,362,698 Accumulated deficit (14,433,362) (12,970,208) ----------------- ----------------- Total shareholders' equity 919,300 1,392,490 ----------------- ----------------- $ 2,247,717 $ 3,245,498 ----------------- ----------------- ----------------- -----------------
The accompanying notes are an integral part of these consolidated financial statements. MICROFIELD GRAPHICS, INC. CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended Six months ended July 3, July 4, July 3, July 4, 1999 1998 1999 1998 -------------- ---------------- ---------------- --------------- Sales $ 807,433 1,839,122 $ 1,860,748 4,397,046 Cost of goods sold 501,433 1,130,984 1,172,724 2,555,091 -------------- ---------------- ----------------- --------------- Gross profit 306,000 708,138 688,024 1,841,955 Operating expenses Research and development 281,049 245,179 525,659 455,497 Marketing and sales 578,298 795,491 1,059,717 1,431,255 General and administrative 241,371 259,007 489,000 468,657 -------------- ---------------- ----------------- --------------- 1,100,718 1,299,677 2,074,376 2,355,409 -------------- ---------------- ----------------- --------------- Loss from operations (794,718) (591,539) (1,386,352) (513,454) Other income (expense) Interest income (expense), net (12,040) (7,618) (27,284) (31,758) Other income (expense), net (49,742) 131 (49,518) 131 -------------- ---------------- ----------------- --------------- Loss before provision for income taxes (856,500) (599,026) (1,463,154) (545,081) Provision for income taxes -- -- -- 706 -------------- ---------------- ----------------- --------------- Net loss $ (856,500) (599,026) $ (1,463,154) (545,787) -------------- ---------------- ----------------- --------------- -------------- ---------------- ----------------- --------------- Net loss per share Basic $ (.22) (.17) $ (.37) (.16) -------------- ---------------- ----------------- --------------- -------------- ---------------- ----------------- --------------- Diluted $ (.22) (.17) $ (.37) (.16) -------------- ---------------- ----------------- --------------- -------------- ---------------- ----------------- --------------- Shares used in per share calculations Basic 3,926,753 3,625,988 3,926,753 3,454,899 -------------- ---------------- ----------------- --------------- -------------- ---------------- ----------------- --------------- Diluted 3,926,753 3,625,988 3,926,753 3,454,899 -------------- ---------------- ----------------- --------------- -------------- ---------------- ----------------- ---------------
The accompanying notes are an integral part of these consolidated financial statements. MICROFIELD GRAPHICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended ---------------------------------------------- July 3, July 4, 1999 1998 ------------------- ------------------ Cash Flows From Operating Activities: Net loss $ (1,463,154) $ (545,787) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 99,845 95,574 Changes in assets and liabilities: Accounts receivable 300,188 (504,727) Inventories 235,798 (152,431) Prepaid expenses and other assets 57,547 26,068 Accounts payable (178,082) (133,535) Accrued payroll and payroll taxes (192,572) (134,450) Unearned income 25,046 843 Accrued liabilities (6,316) 55,964 ------------------ ----------------- Net cash used in operating activities (1,121,700) (1,292,481) Cash flows from investing activities: Acquisition of property and equipment (30,326) (115,516) ------------------ ----------------- Net cash used in investing activities (30,326) (115,516) Cash flows from financing activities: Payments on equipment line of credit (41,667) (41,666) Payments on operating line of credit (131,000) (200,000) Proceeds from exercise of common stock options and warrants 1,210 86,210 Proceeds from issuance of common stock 988,754 1,990,208 ------------------ ----------------- Net cash provided by financing activities 817,297 1,834,752 Net (decrease) increase in cash and cash equivalents (334,729) 426,755 Cash and cash equivalents, beginning of period 739,628 909,184 ------------------ ----------------- Cash and cash equivalents, end of period $ 404,899 $ 1,335,939 ------------------ ----------------- ------------------ ----------------- Supplemental disclosure of cash flow information: Cash paid for: Interest $ 17,555 $ 54,478 ------------------ ----------------- ------------------ ----------------- Income taxes $ -- $ 706 ------------------ ----------------- ------------------ -----------------
The accompanying notes are an integral part of these consolidated financial statements. 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 the six months ended July 3, 1999 and July 4, 1998 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. The financial information as of January 2, 1999 is derived from the Company's Annual Report on Form 10-KSB. The accompanying consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles and should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended January 2, 1999. In the opinion of Company management, the unaudited consolidated financial statements for the interim periods presented include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for such interim periods. Operating results for the quarters and the six months ended July 3, 1999 are not necessarily indicative of the results that may be expected for the full year or any portion thereof. The Company's fiscal year is the 52- or 53-week period ending on the Saturday closest to the last day of December. The Company's current fiscal year is the 52-week period ended January 1, 2000. The Company's last fiscal year was the 53-week period ended January 2, 1999. The Company's second fiscal quarters in fiscal 1999 and 1998 were the 13-week periods ended July 3, 1999 and July 4, 1998, respectively. 2. INVENTORIES Inventories are stated at the lower of standard cost (which approximates the first-in, first-out method) or market value. Inventory costs include raw materials, direct labor and allocated overhead and consist of the following:
July 3, January 2, 1999 1999 ----------------- ------------------- Raw materials $ 390,176 $ 607,140 Finished goods 320,129 338,963 ----------------- ------------------- $ 710,305 $ 946,103 ----------------- ------------------- ----------------- -------------------
3. PROPERTY AND EQUIPMENT
July 3, January 2, 1999 1999 ----------------- ------------------- Machinery and equipment $1,253,340 $1,223,014 Less accumulated depreciation and amortization 933,628 843,557 ----------------- ------------------- $ 319,712 $ 379,457 ----------------- ------------------- ----------------- -------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Microfield Graphics, Inc. (the "Company") develops, manufactures and markets computer conferencing and telecommunications products to facilitate group communications. The principal purpose of these products is to make meetings more productive and cost effective by capturing ideas from all meeting members (whether they are located locally or linked remotely through a computer and an audio hookup) and making the information available to all of the linked systems, where everyone involved can see and interact with the information produced and presented. The Company's product lines incorporate a series of digital whiteboards and digital whiteboard rear projection systems under the brand name SoftBoard, along with a variety of application software packages, supplies and accessories. Information written or drawn on the SoftBoard surface is recorded and displayed on a personal computer simultaneously and in color using the Company's proprietary technology. The information is recorded in a computer file that can be replayed, printed, faxed, e-mailed or saved for future applications. Optional proprietary software allows the information to be communicated in real time to remote computers over standard telephone lines, networks and the Internet. The Company was incorporated in Oregon in 1986. The Company's executive offices are located at 7216 SW Durham Road, Portland, OR 97224. In July 1997 the Company entered into a General Purchase and Development Agreement with Minnesota Mining and Manufacturing Company (3M), through which 3M globally markets advanced versions of the Company's SoftBoard family of products. Under the terms of the two year agreement, the Company developed specialized versions of the SoftBoard product line exclusively for 3M. Shipments from the Company to 3M began in the fourth quarter of 1997 and continued through the second quarter of 1998. For the six months ended July 3, 1999 and July 4, 1998 approximately 0% and 58%, respectively, of the Company's sales were attributable to 3M. In April 1999, the Company was informed by 3M of their decision to exit the Advanced Meeting Solutions (AMS) Project under which the SoftBoard family of products was marketed. The Company reached an agreement with 3M under which the Company will assume responsibility for the global distribution network of whiteboard products. In this role, the Company will support digital whiteboard product sales, service and warranty obligations for all of 3M's installed base and dealer network affected by their withdrawal from the AMS Project. The reduced level of sales to 3M and their announced exit from the AMS program has had a material adverse effect on the Company's business. During the first half of 1999, the Company believes that 3M's liquidation of its inventory of Ideaboard products negatively impacted sales of its SoftBoard digital whiteboard products. Unit sales in this product line have been strengthening, reflecting completion of the 3M liquidation program, the recent expansion of the Company's dealer base as previously announced, and new product pricing strategies which the Company recently introduced. In March 1998 the Company signed a Common Stock Purchase Agreement with Steelcase Inc. (Steelcase), pursuant to which Steelcase purchased 350,000 shares of the Company's common stock and a warrant for a total of $2,012,500 in cash. The warrant gives Steelcase the right to purchase an additional 260,000 shares of the Company's common stock at $6.75 per share. The warrant is exerciseable starting on March 16, 1999 and expires on March 16, 2001. In March 1999, Steelcase purchased an additional 444,445 shares for a total of $1,000,001 in cash. As of July 3, 1999 Steelcase owned 23% of the outstanding common stock of the Company. At the end of the second quarter of 1999, the Company introduced a major restructuring to realign operating expenses with sales levels while retaining critical functions in key operational areas. Total overhead expense was reduced by approximately 50% through a combination of staff reductions, workweek reductions, temporary executive salary reductions, and reductions in general expense spending levels. As a result, the Company has delayed the previously reported Joint Development Agreement with Steelcase Inc. entered into in the first quarter of 1999. In the near term, the Company plans to focus efforts on expanding product offerings based on its current technology. It is the Company's intention to resume the joint product development program with Steelcase when the Company achieves profitablity on a sustainable basis. There is no assurance that the development program will be resumed or that the restructuring will return the Company to profitability. Also at the end of the second quarter of 1999, the Company introduced a product price reduction in its 200 Series digital whiteboard product line. Prices were adjusted to achieve closer parity with competing products in the marketplace. The Company's future results of operations will depend on continued and increased market acceptance of its SoftBoard products and the Company's ability to modify them to meet the needs of its customers. Any reduction in demand for, or increasing competition with respect to, these products could have a material adverse effect on the Company's financial condition and results of operations. RESULTS OF OPERATIONS The following table sets forth, as a percentage of sales, certain consolidated statement of operations data relating to the SoftBoard Business for the periods indicated.
THREE MONTHS ENDED SIX MONTHS ENDED --------------------------- ------------------------ JULY 3, JULY 4, JULY 3, JULY 4, 1999 1998 1999 1998 ------------ ---------- --------- ---------- Sales 100 % 100 % 100 % 100 % Cost of goods sold 62 61 63 58 ----------- ---------- --------- ---------- Gross profit 38 39 37 42 Research and development expenses (35) (13) (29) (10) Marketing and sales expenses (72) (43) (57) (33) General and administrative expenses (30) (14) (26) (11) ----------- ---------- --------- ---------- Loss from operations (99) (32) (75) (12) Other income (expense) (7) -- (4) -- ----------- ---------- --------- ---------- Loss before provision for income taxes (106) (32) (79) (12) Provision for income taxes -- -- -- -- ----------- ---------- --------- ---------- ----------- ---------- --------- ---------- Net loss (106) % (32) % (79) % (12) % ----------- ---------- --------- ---------- ----------- ---------- --------- ----------
SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1999 COMPARED WITH SECOND QUARTER AND SIX MONTHS ENDED JULY 3, 1998. SALES. Sales decreased $1,032,000 (56%) to $807,000 in the second quarter of 1999 from $1,839,000 in the second quarter of 1998. Sales decreased $2,536,000 (58%) to $1,861,000 in the first six months of 1999 from $4,397,000 in the first six months of 1998. The decreases were due primarily to the decreased level of sales to 3M and reduced demand for products being sold by the Company due to 3M's liquidation of its Ideaboard inventory. There were no sales to 3M during the first and second quarters of 1999 while sales to 3M during the comparable periods in 1998 were $1,585,000 million and $958,000, respectively. SEE OVERVIEW. GROSS PROFIT. Cost of goods sold includes the cost of raw materials needed to assemble the products, assembly and preparation by vendors and direct and indirect costs associated with the procurement, testing, scheduling and quality assurance functions performed by the Company. The Company's gross margin decreased to 38% in the second quarter of 1999 from 39% in the second quarter of 1998. The Company's gross margin also decreased to 37% in the first six months of 1999 from 42% in the first six months of 1998. The decline in gross margins is due primarily to lower production volumes in the first and second quarters of 1999 compared to the comparable quarters in 1998, resulting in lower absorption of manufacturing overhead expense. In addition, increased sales through the Company's reseller channel contributes to lower margins due to discounted reseller prices. RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs are expensed as incurred. These expenses increased $36,000 (15%) to $281,000 in the second quarter of 1999 from $245,000 in the second quarter of 1998. These expenses increased $70,000 (15%) to $525,000 in the first six months of 1999 from $455,000 in the first six months of 1998. These increases were due primarily to higher development costs incurred for new technology development on the next generation SoftBoard Series 200 product line. Research and development expenses increased as a percentage of sales to 29% in the first six months of 1999 from 10% in the first six months of 1998. The increase was due to the combination of slightly higher development costs coupled with significantly lower revenue levels in the first six months of 1999 compared to the same period in 1998. MARKETING AND SALES EXPENSES. Marketing and sales expenses decreased $218,000 (27%) to $578,000 in the second quarter of 1999 from $796,000 in the second quarter of 1998. These expenses decreased $371,000 (26%) to $1,060,000 in the first six months of 1999 from $1,431,000 in the first six months of 1998. The decreases are primarily due to lower costs associated with the current advertising program and decreased participation in trade shows. Marketing and sales expenses increased as a percentage of sales to 57% in the first six months of 1999 from 33% in the first six months of 1998 due to the lower sales volume. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased $17,000 (6%) to $242,000 in the second quarter of 1999 from $259,000 in the second quarter of 1998 These expenses increased $20,000 (4%) to $489,000 in the first six months of 1999 from $469,000 in the first six months of 1998. General and administrative expenses increased as a percentage of sales to 26% in the first six months of 1999 from 11% in the first six months of 1998 primarily due to the the Company's lower sales volume. OTHER INCOME (EXPENSE). Other income (expense) includes interest income, interest expense, and miscellaneous income or expense. Other expense, net was $61,000 in the second quarter of 1999 compared to $7,000 of other expense, net in the second quarter of 1998. Other expense, net was $77,000 in the first six months of 1999 compared to $32,000 of other expense, net in the first six months of 1998. The increase in expense over the comparable three and six month periods is primarily due to a legal settlement and related legal costs of $26,000, and other minor expenses. SEE PART II, ITEM 1 - LEGAL PROCEEDINGS. INCOME TAXES. The Company recorded losses from operations in the second quarters of 1999 and 1998. Accordingly, no provision for income taxes was provided for in either of these periods. The Company recorded income in the first quarter of 1998, but did not provide for other than minimum state income taxes due to available net operating loss carryforwards of approximately $10 million for federal tax purposes. LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has financed its operations and capital expenditures through the private and public sale of equity securities, cash from operations, and borrowings under operating lines of credit. At July 3, 1999, the Company had working capital of approximately $459,000 and its principal source of liquidity consisted of approximately $405,000 in cash and cash equivalents. Accounts receivable decreased to $497,000 from $798,000 at the end of 1998, and inventory decreased to $710,000 from $946,000 at the end of 1998. The Company has a $2,000,000 operating line of credit with its bank using its accounts receivable and certain of its inventory as collateral. The operating line bears interest monthly at prime (8.0 % at July 3, 1999). At July 3, 1999 $524,000 was outstanding under the line of credit. The Company is presently not in compliance with the minimum tangible net worth financial covenant of its Loan Agreement with the bank. While the Company has requested a covenant waiver from the bank, there can be no assurance that one will be granted. In the event that a waiver is not granted, the Company's business and financial condition could be materially and adversely affected. In June 1999, the Company concluded that its existing resources at that time (cash and cash equivalents, cash available under its operating line of credit) coupled with the reduction in sales that occurred during the first six months of 1999 could possibly have resulted in the Company not having sufficient funds to operate for at least the next twelve months. In response to this, the Company significantly reduced corporate expenses through a restructuring and introduced additional interim cost savings measures (SEE OVERVIEW). The Company believes its present and expected future resources are sufficient to fund its operations for the foreseeable future. The Company is also exploring alternative means of financing the business. There is no assurance that the Company can obtain such financing, or that such financing will be on terms acceptable to the Company. The Company has no commitments for capital expenditures in material amounts. IMPACT OF THE YEAR 2000 ISSUE The Company has made an assessment of the Year 2000 issue on its internal systems and equipment, its hardware and software products, and on the systems of its vendor base. Based on this assessment, the Company believes that its internal systems have been updated to address the Year 2000 issue, its hardware and software products will properly recognize calendar dates beginning in the Year 2000, and its vendor base is appropriately addressing the Year 2000 issues. Accordingly, the Company believes it is Year 2000 ready and does not currently expect to incur material costs in connection with the Year 2000 issue. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As previously reported, on October 5, 1998 a former temporary leased employee filed a complaint in federal district court for the district of Oregon (Schmechel vs. Microfield Graphics, Inc.) alleging gender discrimination and harassment in addition to a state wrongful constructive discharge claim. The plaintiff alleged emotional distress, economic loss and punitive damages. No members of the Company's management were named in the suit. A Settlement Agreement was executed during the second quarter of 1999 and a settlement payment was made by the Company. The settlement expense and related legal costs is included in Other Expense and did not have a material effect on the Company's operating results. ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Company is presently not in compliance with the minimum tangible net worth financial covenant of its Loan Agreement with its bank. While the Company has requested a covenant waiver from the bank, there can be no assurance that one will be granted. In the event that a waiver is not granted, the Company's business and financial condition could be materially and adversely affected. SEE LIQUIDITY AND CAPITAL RESOURCES. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting was held on May 19, 1999 at which the actions below were taken. At May 19, 1999, 3,687,740 shares of Common Stock were issued and outstanding. 1. The following four nominees for directors to the Board of Directors of the Company, all of whom were existing directors and together constituted all of the directors of the issuer, received the following number of votes and were properly elected to the Board of Directors: John B. Conroy (3,476,165 shares for and 47,116 shares withheld), William P. Cargile (3,476,565 shares for and 46,716 shares withheld), Herbert S. Shaw (3,476,565 shares for and 46,716 shares withheld), and James P. Keane (3,476,565 shares for and 46,716 shares withheld). 2. The Company's 1995 Stock Incentive Plan was amended to increase the aggregate number of shares of common stock that may be issued thereunder to 850,000, an increase of 350,000 shares. The voting results were as follows: For 1,129,956; Against 169,902; Abstained 5,347; Broker Non-Votes 2,218,076. ITEM 5. OTHER INFORMATION On April 21, 1999, the Company received notice from the Nasdaq Stock Market that the Company no longer meets the requirements for continued listing on the Nasdaq SmallCap Market. Under Marketplace Rule 4310(c)(2), companies are required to maintain 1) net tangible assets of $2 million, 2) market capitalization of $35 million, or 3) net income of $500,000 in the most recently completed fiscal year, or in two of the last three most recently completed fiscal years. As of January 2, 1999, the Company's 1998 fiscal year end, the Company did not meet any of these requirements. In order for the Company to continue to be listed on the Nasdaq Stock Market, the Company is required to submit to Nasdaq a proposal for achieving compliance and subsequently meet one of the three requirements listed. The Company submitted its proposal as required and has provided a subsequent update. Should the Company's proposal be deemed not to warrant continued listing, Nasdaq will immediately issue a formal notice of deficiency specifying a delisting date for the Company's securities. Should the Company's securities be delisted from the Nasdaq Stock Market, the marketability of the Company's common stock could be seriously impaired. During the quarter ended July 3, 1999, Randall. R. Reed, the Company's Chief Financial Officer, resigned. In July 1999, the Company's Controller, Sandra K. Pleasants, was appointed Chief Financial Officer. In connection with the Company's restructuring, the Vice President of Engineering resigned and the Vice President of Operations and the Vice President of Sales positions were consolidated under a post held by Michael W. Stansell, Vice President Operations and Sales. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The exhibit filed as part of this report is listed below: Exhibit No. ----------- 10.12 Restated 1995 Stock Incentive Plan dated May 11, 1998, as amended May 19, 1999. 27 Financial data schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended July 3, 1999. SIGNATURES In accordance with 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 17, 1999 MICROFIELD GRAPHICS, INC. By: -------------------------------- John B. Conroy President and Chief Executive Officer (Principal Executive Officer) By: -------------------------------- Sandra K. Pleasants Chief Financial Officer (Principal Financial and Accounting Officer) 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 17, 1999 MICROFIELD GRAPHICS, INC. By:/s/ JOHN B. CONROY -------------------------------- John B. Conroy President and Chief Executive Officer (Principal Executive Officer) By:/s/ SANDRA K. PLEASANTS -------------------------------- Sandra K. Pleasants Chief Financial Officer (Principal Financial and Accounting Officer) EX-10.12 2 EXHIBIT 10.12 MICROFIELD GRAPHICS, INC. RESTATED 1995 STOCK INCENTIVE PLAN (Restated as of May 11, 1998) 1. PURPOSE. The purpose of this Stock Incentive Plan (the "Plan") is to enable Microfield Graphics, Inc. (the "Company") to attract and retain the services of (1) selected employees, officers and directors of the Company or of any subsidiary of the Company and (2) selected nonemployee agents, consultants, advisors, persons involved in the sale or distribution of the Company's products and independent contractors of the Company or any subsidiary. 2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below and in paragraph 13, the shares to be offered under the Plan shall consist of Common Stock of the Company, and the total number of shares of Common Stock that may be issued under the Plan shall not exceed 850,000 shares. The shares issued under the Plan may be authorized and unissued shares or reacquired shares. If an option, stock appreciation right or performance unit granted under the Plan expires, terminates or is cancelled, the unissued shares subject to such option, stock appreciation right or performance unit shall again be available under the Plan. If shares sold or awarded as a bonus under the Plan are forfeited to the Company or repurchased by the Company, the number of shares forfeited or repurchased shall again be available under the Plan. 3. EFFECTIVE DATE AND DURATION OF PLAN. (a) EFFECTIVE DATE. The Plan shall become effective as of May 11, 1995. No option, stock appreciation right or performance unit granted under the Plan to an officer who is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended (an "Officer") or a director, and no incentive stock option, shall become exercisable, however, until the Plan is approved by the affirmative vote of the holders of a majority of the shares of Common Stock represented at a shareholders meeting at which a quorum is present and any such awards under the Plan prior to such approval shall be conditioned on and subject to such approval. Subject to this limitation, options, stock appreciation rights and performance units may be granted and shares may be awarded as bonuses or sold under the Plan at any time after the effective date and before termination of the Plan. (b) DURATION. The Plan shall continue in effect until all shares available for issuance under the Plan have been issued and all restrictions on such shares have lapsed. The Board of Directors may suspend or terminate the Plan at any time except with respect to options, performance units and shares subject to restrictions then outstanding under the Plan. Termination shall not affect any outstanding options, any right of the Company to repurchase shares or the forfeitability of shares issued under the Plan. 4. ADMINISTRATION. (a) BOARD OF DIRECTORS. The Plan shall be administered by the Board of Directors of the Company, which shall determine and designate from time to time the individuals to whom awards shall be made, the amount of the awards and the other terms and conditions of the awards. Subject to the provisions of the Plan, the Board of Directors may from time to time adopt and amend rules and regulations relating to administration of the Plan, advance the lapse of any waiting period, accelerate any exercise date, waive or modify any restriction applicable to shares (except those restrictions imposed by law) and make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration of the Plan. The interpretation and construction of the provisions of the Plan and related agreements by the Board of Directors shall be final and conclusive. The Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any related agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency. (b) COMMITTEE. The Board of Directors may delegate to a committee of the Board of Directors or specified officers of the Company, or both (the "Committee") any or all authority for administration of the Plan. If authority is delegated to a Committee, all references to the Board of Directors in the Plan shall mean and relate to the Committee except (i) as otherwise provided by the Board of Directors, (ii) that only the Board of Directors may amend or terminate the Plan as provided in paragraphs 3 and 14 and (iii) that a Committee including officers of the Company shall not be permitted to grant options to persons who are officers of the Company. If awards are to be made under the Plan to Officers or directors, authority for selection of Officers and directors for participation and decisions concerning the timing, pricing and amount of a grant or award, if not determined under a formula meeting the requirements of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, shall be delegated to a committee consisting of two or more disinterested directors. 5. TYPES OF AWARDS; ELIGIBILITY. The Board of Directors may, from time to time, take the following action, separately or in combination, under the Plan: (i) grant Incentive Stock Options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as provided in paragraphs 6(a) and 6(b); (ii) grant options other than Incentive Stock Options ("Non-Statutory Stock Options") as provided in paragraphs 6(a) and 6(c); (iii) award stock bonuses as provided in paragraph 7; (iv) sell shares subject to restrictions as provided in paragraph 8; (v) grant stock appreciation rights as provided in paragraph 9; (vi) grant cash bonus rights as provided in paragraph 10; (vii) grant performance units as provided in paragraph 11 and (viii) grant foreign qualified awards as provided in paragraph 12. Any such awards may be made to employees, including employees who are officers or directors, and to other individuals described in paragraph 1 who the Board of Directors believes have made or will make an important contribution to the Company or any subsidiary of the Company; provided, however, that only employees of the Company shall be eligible to receive Incentive Stock Options under the Plan. The Board of Directors shall select the individuals to whom awards shall be made and shall specify the action taken with respect to each individual to whom an award is made. At the discretion of the Board of Directors, an individual may be given an election to surrender an award in exchange for the grant of a new award. No employee may be granted options or stock appreciation rights under the Plan for more than an aggregate of 200,000 shares of Common Stock in connection with the hiring of the employee or 100,000 shares of Common Stock in any calendar year otherwise. 6. OPTION GRANTS. (a) GENERAL RULES RELATING TO OPTIONS. (i) TERMS OF GRANT. The Board of Directors may grant options under the Plan. With respect to each option grant, the Board of Directors shall determine the number of shares subject to the option, the option price, the period of the option, the time or times at which the option may be exercised and whether the option is an Incentive Stock Option or a Non-Statutory Stock Option. At the time of the grant of an option or at any time thereafter, the Board of Directors may provide that an optionee who exercised an option with Common Stock of the Company shall automatically receive a new option to purchase additional shares equal to the number of shares surrendered and may specify the terms and conditions of such new options. (ii) EXERCISE OF OPTIONS. Except as provided in paragraph 6(a)(iv) or as determined by the Board of Directors, no option granted under the Plan may be exercised unless at the time of such exercise the optionee is employed by or in the service of the Company or any subsidiary of the Company and shall have been so employed or provided such service continuously since the date such option was granted. Absence on leave or on account of illness or disability under rules established by the Board of Directors shall not, however, be deemed an interruption of employment or service for this purpose. Unless otherwise determined by the Board of Directors, vesting of options shall not continue during an absence on leave (including an extended illness) or on account of disability. Except as provided in paragraphs 6(a)(iv) and 13, options granted under the Plan may be exercised from time to time over the period stated in each option in such amounts and at such times as shall be prescribed by the Board of Directors, provided that options shall not be exercised for fractional shares. Unless otherwise determined by the Board of Directors, if the optionee does not exercise an option in any one year with respect to the full number of shares to which the optionee is entitled in that year, the optionee's rights shall be cumulative and the optionee may purchase those shares in any subsequent year during the term of the option. Unless otherwise determined by the Board of Directors, if an Officer exercises an option within six months of the grant of the option, the shares acquired upon exercise of the option may not be sold until six months after the date of grant of the option. (iii) NONTRANSFERABILITY. Each Incentive Stock Option and, unless otherwise determined by the Board of Directors with respect to an option granted to a person who is neither an Officer nor a director of the Company, each other option granted under the Plan by its terms shall be nonassignable and nontransferable by the optionee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death. (iv) TERMINATION OF EMPLOYMENT OR SERVICE. (A) GENERAL RULE. Unless otherwise determined by the Board of Directors, in the event the employment or service of the optionee with the Company or a subsidiary terminates for any reason other than because of physical disability or death as provided in subparagraphs 6(a)(iv)(B) and (C), the option may be exercised at any time prior to the expiration date of the option or the expiration of 30 days after the date of such termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of such termination. (B) TERMINATION BECAUSE OF TOTAL DISABILITY. Unless otherwise determined by the Board of Directors, in the event of the termination of employment or service because of total disability, the option may be exercised at any time prior to the expiration date of the option or the expiration of 12 months after the date of such termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of such termination. The term "total disability" means a medically determinable mental or physical impairment which is expected to result in death or which has lasted or is expected to last for a continuous period of 12 months or more and which causes the optionee to be unable, in the opinion of the Company and two independent physicians, to perform his or her duties as an employee, director, officer or consultant of the Company and to be engaged in any substantial gainful activity. Total disability shall be deemed to have occurred on the first day after the Company and the two independent physicians have furnished their opinion of total disability to the Company. (C) TERMINATION BECAUSE OF DEATH. Unless otherwise determined by the Board of Directors, in the event of the death of an optionee while employed by or providing service to the Company or a subsidiary, the option may be exercised at any time prior to the expiration date of the option or the expiration of 12 months after the date of death, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of death and only by the person or persons to whom such optionee's rights under the option shall pass by the optionee's will or by the laws of descent and distribution of the state or country of domicile at the time of death. (D) AMENDMENT OF EXERCISE PERIOD APPLICABLE TO TERMINATION. The Board of Directors, at the time of grant or, with respect to an option that is not an Incentive Stock Option, at any time thereafter, may extend the 30-day and 12-month exercise periods any length of time not longer than the original expiration date of the option, and may increase the portion of an option that is exercisable, subject to such terms and conditions as the Board of Directors may determine. (E) FAILURE TO EXERCISE OPTION. To the extent that the option of any deceased optionee or of any optionee whose employment or service terminates is not exercised within the applicable period, all further rights to purchase shares pursuant to such option shall cease and terminate. (v) PURCHASE OF SHARES. Unless the Board of Directors determines otherwise, shares may be acquired pursuant to an option granted under the Plan only upon receipt by the Company of notice in writing from the optionee of the optionee's intention to exercise, specifying the number of shares as to which the optionee desires to exercise the option and the date on which the optionee desires to complete the transaction, and if required in order to comply with the Securities Act of 1933, as amended, containing a representation that it is the optionee's present intention to acquire the shares for investment and not with a view to distribution. Unless the Board of Directors determines otherwise, on or before the date specified for completion of the purchase of shares pursuant to an option, the optionee must have paid the Company the full purchase price of such shares in cash (including, with the consent of the Board of Directors, cash that may be the proceeds of a loan from the Company (provided that, with respect to an Incentive Stock Option, such loan is approved at the time of option grant)) or, with the consent of the Board of Directors, in whole or in part, in Common Stock of the Company valued at fair market value, restricted stock, performance units or other contingent awards denominated in either stock or cash, promissory notes and other forms of consideration. The fair market value of Common Stock provided in payment of the purchase price shall be determined by the Board of Directors. If the Common Stock of the Company is not publicly traded on the date the option is exercised, the Board of Directors may consider any valuation methods it deems appropriate and may, but is not required to, obtain one or more independent appraisals of the Company. If the Common Stock of the Company is publicly traded on the date the option is exercised, the fair market value of Common Stock provided in payment of the purchase price shall be the closing price of the Common Stock as reported in THE WALL STREET JOURNAL on the last trading day preceding the date the option is exercised, or such other reported value of the Common Stock as shall be specified by the Board of Directors. No shares shall be issued until full payment for the shares has been made. With the consent of the Board of Directors (which, in the case of an Incentive Stock Option, shall be given only at the time of option grant), an optionee may request the Company to apply automatically the shares to be received upon the exercise of a portion of a stock option (even though stock certificates have not yet been issued) to satisfy the purchase price for additional portions of the option. Each optionee who has exercised an option shall immediately upon notification of the amount due, if any, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If additional withholding is or becomes required beyond any amount deposited before delivery of the certificates, the optionee shall pay such amount to the Company on demand. If the optionee fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the optionee, including salary, subject to applicable law. With the consent of the Board of Directors an optionee may satisfy this obligation, in whole or in part, by having the Company withhold from the shares to be issued upon the exercise that number of shares that would satisfy the withholding amount due or by delivering to the Company Common Stock to satisfy the withholding amount. Upon the exercise of an option, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued upon exercise of the option. (b) INCENTIVE STOCK OPTIONS. Incentive Stock Options shall be subject to the following additional terms and conditions: (i) LIMITATION ON AMOUNT OF GRANTS. No employee may be granted Incentive Stock Options under the Plan if the aggregate fair market value, on the date of grant, of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by that employee during any calendar year under the Plan and under all incentive stock option plans (within the meaning of Section 422 of the Code) of the Company or any parent or subsidiary of the Company exceeds $100,000. (ii) LIMITATIONS ON GRANTS TO 10 PERCENT SHAREHOLDERS. An Incentive Stock Option may be granted under the Plan to an employee possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary of the Company only if the option price is at least 110 percent of the fair market value, as described in paragraph 6(b)(iv), of the Common Stock subject to the option on the date it is granted and the option by its terms is not exercisable after the expiration of five years from the date it is granted. (iii) DURATION OF OPTIONS. Subject to paragraphs 6(a)(ii) and 6(b)(ii), Incentive Stock Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors, except that no Incentive Stock Option shall be exercisable after the expiration of 10 years from the date it is granted. (iv) OPTION PRICE. The option price per share shall be determined by the Board of Directors at the time of grant. Except as provided in paragraph 6(b)(ii), the option price shall not be less than 100 percent of the fair market value of the Common Stock covered by the Incentive Stock Option at the date the option is granted. The fair market value shall be determined by the Board of Directors. If the Common Stock of the Company is not publicly traded on the date the option is granted, the Board of Directors may consider any valuation methods it deems appropriate and may, but is not required to, obtain one or more independent appraisals of the Company. If the Common Stock of the Company is publicly traded on the date the option is exercised, the fair market value shall be deemed to be the closing price of the Common Stock as reported in THE WALL STREET JOURNAL on the day preceding the date the option is granted, or, if there has been no sale on that date, on the last preceding date on which a sale occurred or such other value of the Common Stock as shall be specified by the Board of Directors. (v) LIMITATION ON TIME OF GRANT. No Incentive Stock Option shall be granted on or after the tenth anniversary of the effective date of the Plan. (vi) CONVERSION OF INCENTIVE STOCK OPTIONS. The Board of Directors may at any time without the consent of the optionee convert an Incentive Stock Option to a Non-Statutory Stock Option. (c) NON-STATUTORY STOCK OPTIONS. Non-Statutory Stock Options shall be subject to the following terms and conditions in addition to those set forth in Section 6(a) above: (i) OPTION PRICE. The option price for Non-Statutory Stock Options shall be determined by the Board of Directors at the time of grant and may be any amount determined by the Board of Directors. (ii) DURATION OF OPTIONS. Non-Statutory Stock Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors. 7. STOCK BONUSES. The Board of Directors may award shares under the Plan as stock bonuses. Shares awarded as a bonus shall be subject to the terms, conditions, and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability and forfeiture of the shares awarded, together with such other restrictions as may be determined by the Board of Directors. If shares are subject to forfeiture, all dividends or other distributions paid by the Company with respect to the shares shall be retained by the Company until the shares are no longer subject to forfeiture, at which time all accumulated amounts shall be paid to the recipient. The Board of Directors may require the recipient to sign an agreement as a condition of the award, but may not require the recipient to pay any monetary consideration other than amounts necessary to satisfy tax withholding requirements. The agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares awarded shall bear any legends required by the Board of Directors. Unless otherwise determined by the Board of Directors, shares awarded as a stock bonus to an Officer may not be sold until six months after the date of the award. The Company may require any recipient of a stock bonus to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the recipient fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the recipient, including salary or fees for services, subject to applicable law. With the consent of the Board of Directors, a recipient may deliver Common Stock to the Company to satisfy this withholding obligation. Upon the issuance of a stock bonus, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued. 8. RESTRICTED STOCK. The Board of Directors may issue shares under the Plan for such consideration (including promissory notes and services) as determined by the Board of Directors. Shares issued under the Plan shall be subject to the terms, conditions and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability, repurchase by the Company and forfeiture of the shares issued, together with such other restrictions as may be determined by the Board of Directors. If shares are subject to forfeiture or repurchase by the Company, all dividends or other distributions paid by the Company with respect to the shares shall be retained by the Company until the shares are no longer subject to forfeiture or repurchase, at which time all accumulated amounts shall be paid to the recipient. All Common Stock issued pursuant to this paragraph 8 shall be subject to a purchase agreement, which shall be executed by the Company and the prospective recipient of the shares prior to the delivery of certificates representing such shares to the recipient. The purchase agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares shall bear any legends required by the Board of Directors. Unless otherwise determined by the Board of Directors, shares issued under this paragraph 8 to an Officer may not be sold until six months after the shares are issued. The Company may require any purchaser of restricted stock to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the purchaser fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the purchaser, including salary, subject to applicable law. With the consent of the Board of Directors, a purchaser may deliver Common Stock to the Company to satisfy this withholding obligation. Upon the issuance of restricted stock, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued. 9. STOCK APPRECIATION RIGHTS. (a) GRANT. Stock appreciation rights may be granted under the Plan by the Board of Directors, subject to such rules, terms, and conditions as the Board of Directors prescribes. (b) EXERCISE. (i) Each stock appreciation right shall entitle the holder, upon exercise, to receive from the Company in exchange therefor an amount equal in value to the excess of the fair market value on the date of exercise of one share of Common Stock of the Company over its fair market value on the date of grant (or, in the case of a stock appreciation right granted in connection with an option, the excess of the fair market value of one share of Common Stock of the Company over the option price per share under the option to which the stock appreciation right relates), multiplied by the number of shares covered by the stock appreciation right or the option, or portion thereof, that is surrendered. No stock appreciation right shall be exercisable at a time that the amount determined under this subparagraph is negative. Payment by the Company upon exercise of a stock appreciation right may be made in Common Stock valued at fair market value, in cash, or partly in Common Stock and partly in cash, all as determined by the Board of Directors. (ii) A stock appreciation right shall be exercisable only at the time or times established by the Board of Directors. If a stock appreciation right is granted in connection with an option, the following rules shall apply: (1) the stock appreciation right shall be exercisable only to the extent and on the same conditions that the related option could be exercised; (2) the stock appreciation rights shall be exercisable only when the fair market value of the stock exceeds the option price of the related option; (3) the stock appreciation right shall be for no more than 100 percent of the excess of the fair market value of the stock at the time of exercise over the option price; (4) upon exercise of the stock appreciation right, the option or portion thereof to which the stock appreciation right relates terminates; and (5) upon exercise of the option, the related stock appreciation right or portion thereof terminates. Unless otherwise determined by the Board of Directors, no stock appreciation right granted to an Officer or director may be exercised during the first six months following the date it is granted. (iii) The Board of Directors may withdraw any stock appreciation right granted under the Plan at any time and may impose any conditions upon the exercise of a stock appreciation right or adopt rules and regulations from time to time affecting the rights of holders of stock appreciation rights. Such rules and regulations may govern the right to exercise stock appreciation rights granted prior to adoption or amendment of such rules and regulations as well as stock appreciation rights granted thereafter. (iv) For purposes of this paragraph 9, the fair market value of the Common Stock shall be determined as of the date the stock appreciation right is exercised, under the methods set forth in paragraph 6(b)(iv). (v) No fractional shares shall be issued upon exercise of a stock appreciation right. In lieu thereof, cash may be paid in an amount equal to the value of the fraction or, if the Board of Directors shall determine, the number of shares may be rounded downward to the next whole share. (vi) Each stock appreciation right granted in connection with an Incentive Stock Option, and unless otherwise determined by the Board of Directors with respect to a stock appreciation right granted to a person who is neither an Officer nor a director of the Company, each other stock appreciation right granted under the Plan by its terms shall be nonassignable and nontransferable by the holder, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the holder's domicile at the time of death, and each stock appreciation right by its terms shall be exercisable during the holder's lifetime only by the holder. (vii) Each participant who has exercised a stock appreciation right shall, upon notification of the amount due, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If the participant fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the participant including salary, subject to applicable law. With the consent of the Board of Directors a participant may satisfy this obligation, in whole or in part, by having the Company withhold from any shares to be issued upon the exercise that number of shares that would satisfy the withholding amount due or by delivering Common Stock to the Company to satisfy the withholding amount. (viii) Upon the exercise of a stock appreciation right for shares, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued. Cash payments of stock appreciation rights shall not reduce the number of shares of Common Stock reserved for issuance under the Plan. 10. CASH BONUS RIGHTS. (a) GRANT. The Board of Directors may grant cash bonus rights under the Plan in connection with (i) options granted or previously granted, (ii) stock appreciation rights granted or previously granted, (iii) stock bonuses awarded or previously awarded and (iv) shares sold or previously sold under the Plan. Cash bonus rights will be subject to rules, terms and conditions as the Board of Directors may prescribe. Unless otherwise determined by the Board of Directors with respect to a cash bonus right granted to a person who is neither an Officer nor a director of the Company, each cash bonus right granted under the Plan by its terms shall be nonassignable and nontransferable by the holder, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the holder's domicile at the time of death. The payment of a cash bonus shall not reduce the number of shares of Common Stock reserved for issuance under the Plan. (b) CASH BONUS RIGHTS IN CONNECTION WITH OPTIONS. A cash bonus right granted in connection with an option will entitle an optionee to a cash bonus when the related option is exercised (or terminates in connection with the exercise of a stock appreciation right related to the option) in whole or in part if, in the sole discretion of the Board of Directors, the bonus right will result in a tax deduction that the Company has sufficient taxable income to use. If an optionee purchases shares upon exercise of an option and does not exercise a related stock appreciation right, the amount of the bonus, if any, shall be determined by multiplying the excess of the total fair market value of the shares to be acquired upon the exercise over the total option price for the shares by the applicable bonus percentage. If the optionee exercises a related stock appreciation right in connection with the termination of an option, the amount of the bonus, if any, shall be determined by multiplying the total fair market value of the shares and cash received pursuant to the exercise of the stock appreciation right by the applicable bonus percentage. The bonus percentage applicable to a bonus right, including a previously granted bonus right, may be changed from time to time at the sole discretion of the Board of Directors but shall in no event exceed 75 percent. (c) CASH BONUS RIGHTS IN CONNECTION WITH STOCK BONUS. A cash bonus right granted in connection with a stock bonus will entitle the recipient to a cash bonus payable when the stock bonus is awarded or restrictions, if any, to which the stock is subject lapse. If bonus stock awarded is subject to restrictions and is repurchased by the Company or forfeited by the holder, the cash bonus right granted in connection with the stock bonus shall terminate and may not be exercised. The amount and timing of payment of a cash bonus shall be determined by the Board of Directors. (d) CASH BONUS RIGHTS IN CONNECTION WITH STOCK PURCHASES. A cash bonus right granted in connection with the purchase of stock pursuant to paragraph 8 will entitle the recipient to a cash bonus when the shares are purchased or restrictions, if any, to which the stock is subject lapse. Any cash bonus right granted in connection with shares purchased pursuant to paragraph 8 shall terminate and may not be exercised in the event the shares are repurchased by the Company or forfeited by the holder pursuant to applicable restrictions. The amount of any cash bonus to be awarded and timing of payment of a cash bonus shall be determined by the Board of Directors. (e) TAXES. The Company shall withhold from any cash bonus paid pursuant to paragraph 10 the amount necessary to satisfy any applicable federal, state and local withholding requirements. 11. PERFORMANCE UNITS. The Board of Directors may grant performance units consisting of monetary units which may be earned in whole or in part if the Company achieves certain goals established by the Board of Directors over a designated period of time, but not in any event more than 10 years. The goals established by the Board of Directors may include earnings per share, return on shareholders' equity, return on invested capital, and such other goals as may be established by the Board of Directors. In the event that the minimum performance goal established by the Board of Directors is not achieved at the conclusion of a period, no payment shall be made to the participants. In the event the maximum corporate goal is achieved, 100 percent of the monetary value of the performance units shall be paid to or vested in the participants. Partial achievement of the maximum goal may result in a payment or vesting corresponding to the degree of achievement as determined by the Board of Directors. Payment of an award earned may be in cash or in Common Stock or in a combination of both, and may be made when earned, or vested and deferred, as the Board of Directors determines. Deferred awards shall earn interest on the terms and at a rate determined by the Board of Directors. Unless otherwise determined by the Board of Directors with respect to a performance unit granted to a person who is neither an Officer nor a director of the Company, each performance unit granted under the Plan by its terms shall be nonassignable and nontransferable by the holder, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the holder's domicile at the time of death. Each participant who has been awarded a performance unit shall, upon notification of the amount due, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If the participant fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the participant, including salary or fees for services, subject to applicable law. With the consent of the Board of Directors a participant may satisfy this obligation, in whole or in part, by having the Company withhold from any shares to be issued that number of shares that would satisfy the withholding amount due or by delivering Common Stock to the Company to satisfy the withholding amount. The payment of a performance unit in cash shall not reduce the number of shares of Common Stock reserved for issuance under the Plan. The number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued upon payment of an award. 12. FOREIGN QUALIFIED GRANTS. Awards under the Plan may be granted to such officers and employees of the Company and its subsidiaries and such other persons described in paragraph 1 residing in foreign jurisdictions as the Board of Directors may determine from time to time. The Board of Directors may adopt such supplements to the Plan as may be necessary to comply with the applicable laws of such foreign jurisdictions and to afford participants favorable treatment under such laws; provided, however, that no award shall be granted under any such supplement with terms which are more beneficial to the participants than the terms permitted by the Plan. 13. CHANGES IN CAPITAL STRUCTURE. (a) STOCK SPLITS; STOCK DIVIDENDS. If the outstanding Common Stock of the Company is hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any stock split, combination of shares or dividend payable in shares, recapitalization or reclassification appropriate adjustment shall be made by the Board of Directors in the number and kind of shares available for grants under the Plan. In addition, the Board of Directors shall make appropriate adjustment in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable, so that the optionee's proportionate interest before and after the occurrence of the event is maintained. Notwithstanding the foregoing, the Board of Directors shall have no obligation to effect any adjustment that would or might result in the issuance of fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Board of Directors. Any such adjustments made by the Board of Directors shall be conclusive. (b) MERGERS, REORGANIZATIONS, ETC. In the event of a merger, consolidation, plan of exchange, acquisition of property or stock, separation, reorganization or liquidation to which the Company or a subsidiary is a party or a sale of all or substantially all of the Company's assets (each, a "Transaction"), the Board of Directors shall, in its sole discretion and to the extent possible under the structure of the Transaction, select one of the following alternatives for treating outstanding options under the Plan: (i) Outstanding options shall remain in effect in accordance with their terms. (ii) Outstanding options shall be converted into options to purchase stock in the corporation that is the surviving or acquiring corporation in the Transaction. The amount, type of securities subject thereto and exercise price of the converted options shall be determined by the Board of Directors of the Company, taking into account the relative values of the companies involved in the Transaction and the exchange rate, if any, used in determining shares of the surviving corporation to be issued to holders of shares of the Company. Unless otherwise determined by the Board of Directors, the converted options shall be vested only to the extent that the vesting requirements relating to options granted hereunder have been satisfied. (iii) The Board of Directors shall provide a 30-day period prior to the consummation of the Transaction during which outstanding options may be exercised to the extent then exercisable, and upon the expiration of such 30-day period, all unexercised options shall immediately terminate. The Board of Directors may, in its sole discretion, accelerate the exercisability of options so that they are exercisable in full during such 30-day period. (c) DISSOLUTION OF THE COMPANY. In the event of the dissolution of the Company, options shall be treated in accordance with paragraph 13(b)(iii). (d) RIGHTS ISSUED BY ANOTHER CORPORATION. The Board of Directors may also grant options, stock appreciation rights, performance units, stock bonuses and cash bonuses and issue restricted stock under the Plan having terms, conditions and provisions that vary from those specified in this Plan provided that any such awards are granted in substitution for, or in connection with the assumption of, existing options, stock appreciation rights, stock bonuses, cash bonuses, restricted stock and performance units granted, awarded or issued by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a Transaction. 14. AMENDMENT OF PLAN. The Board of Directors may at any time, and from time to time, modify or amend the Plan in such respects as it shall deem advisable because of changes in the law while the Plan is in effect or for any other reason. Except as provided in paragraphs 6(a)(iv), 9, 10 and 13, however, no change in an award already granted shall be made without the written consent of the holder of such award. 15. APPROVALS. The obligations of the Company under the Plan are subject to the approval of state and federal authorities or agencies with jurisdiction in the matter. The Company will use its best efforts to take steps required by state or federal law or applicable regulations, including rules and regulations of the Securities and Exchange Commission and any stock exchange on which the Company's shares may then be listed, in connection with the grants under the Plan. The foregoing notwithstanding, the Company shall not be obligated to issue or deliver Common Stock under the Plan if such issuance or delivery would violate applicable state or federal securities laws. 16. EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or any award pursuant to the Plan shall (i) confer upon any employee any right to be continued in the employment of the Company or any subsidiary or interfere in any way with the right of the Company or any subsidiary by whom such employee is employed to terminate such employee's employment at any time, for any reason, with or without cause, or to decrease such employee's compensation or benefits, or (ii) confer upon any person engaged by the Company any right to be retained or employed by the Company or to the continuation, extension, renewal, or modification of any compensation, contract, or arrangement with or by the Company. 17. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan shall have no rights as a shareholder with respect to any Common Stock until the date of issue to the recipient of a stock certificate for such shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued. Adopted: May 11, 1995; amendments adopted February 1, 1996, January 27, 1997; restated May 8, 1998 Approved by Shareholders: June 8, 1995; amendments approved April 24, 1996, June 3, 1997, May 19, 1999 EX-27 3 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 THREE AND SIX MONTH PERIODS ENDED JULY 3, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JAN-01-2000 JAN-03-1999 JUL-03-1999 405 0 539 42 710 1,736 320 100 2,248 1,277 0 0 0 15,353 (14,433) 2,248 1,861 1,861 1,173 1,173 2,074 0 17 (1,463) 0 0 0 0 0 (1,463) (.37) (.37)
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