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.
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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
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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 ▇▇▇▇, 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: ▇▇▇▇ ▇. ▇▇▇▇▇▇ 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