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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-15935
ALPHAREL, INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3634089
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9339 CARROLL PARK DRIVE, SAN DIEGO, CA 92121
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(Address of principal executive offices and zip code)
(619) 625-3000
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(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Number of shares of Common Stock outstanding at May 2, 1996: 18,277,886
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Number of Sequentially Numbered Pages: 12
Exhibit Index at Page 1
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ALPHAREL, INC.
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INDEX
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Page Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3
Consolidated Statement of Cash Flows 4
Notes to the Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION 10
1
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ALPHAREL, INC.
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEET
--------------------------
March 31, 1996 December 31, 1995
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(unaudited)
ASSETS
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Current assets:
Cash and cash equivalents $ 1,074,000 $ 4,656,000
Short term investments 90,000 270,000
Receivables, net 5,597,000 4,207,000
Inventory, net 444,000 469,000
Other current assets 864,000 803,000
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Total current assets 8,069,000 10,405,000
Property and equipment, net 1,613,000 1,645,000
Computer software, net 1,477,000 1,549,000
Goodwill 4,763,000 4,945,000
Deposits and other assets 435,000 458,000
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$16,357,000 $ 19,002,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,317,000 $ 2,192,000
Accrued liabilities 1,757,000 3,211,000
Notes payable 200,000 1,834,000
Convertible note payable - 1,000,000
Deferred revenue 806,000 1,229,000
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Total current liabilities 5,080,000 9,466,000
Long term note payable 435,000 475,000
Other long term liabilities 822,000 945,000
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Total liabilities 6,337,000 10,886,000
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Commitments
Shareholders' equity:
Preferred stock, $1 par value,
1,000,000 shares authorized;
650,761 designated; 172,500 shares
issued and outstanding - 3,306,000
Common stock, no par, 20,000,000 shares
authorized; 18,134,886 and
16,950,902 issued and outstanding,
respectively 58,601,000 54,085,000
Foreign currency translation adjustment 17,000 -
Accumulated deficit (48,598,000) (49,275,000)
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Total shareholders' equity 10,020,000 8,116,000
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$ 16,357,000 $ 19,002,000
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2
See accompanying notes to the consolidated financial statements.
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ALPHAREL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
(Unaudited)
For the three months
ended March 31,
---------------------------------
1996 1995
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Revenues $ 6,061,000 $ 3,151,000
Cost of revenues 2,513,000 1,692,000
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Gross profit 3,548,000 1,459,000
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Operating expenses:
Research and development 907,000 225,000
Marketing and sales 1,253,000 693,000
General and administrative 711,000 322,000
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Total operating expenses 2,871,000 1,240,000
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Income from operations 677,000 219,000
Interest and other income 26,000 34,000
Interest and other expense (26,000) (28,000)
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Income before taxes 677,000 225,000
Provision for taxes - -
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Net income $ 677,000 $ 225,000
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Net income per share $ .04 $ .02
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Weighted average shares outstanding 18,813,000 14,065,000
See accompanying notes to the consolidated financial statements
3
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ALPHAREL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Unaudited)
For the three months
ended March 31,
--------------------
1996 1995
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Cash flow from operating activities:
Net income $ 677,000 $ 225,000
Adjustments to reconcile net
income to net cash used by
operating activities:
Depreciation and amortization 605,000 164,000
Changes in assets and liabilities:
Receivables (1,390,000) 521,000
Inventory 25,000 200,000
Other assets 76,000 (22,000)
Accounts payable 125,000 (113,000)
Accrued liabilities (1,454,000) (37,000)
Deferred revenue (423,000) (92,000)
Other long term liabilities (123,000) -
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Net cash provided by (used in) operating
activities (1,882,000) 846,000
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Cash flows from investing activities:
Short term investments maturing 180,000 392,000
Purchases of property and equipment (192,000) (77,000)
Purchases of software (15,000) (9,000)
Computer software capitalized (226,000) (179,000)
Cash paid to former Optigraphics
shareholders - (169,000)
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Net cash used in investing activities (253,000) (42,000)
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Cash flows from financing activities:
Principal payment under cash
advanced by a bank related to
former Optigraphics shareholder
notes payable (1,634,000) -
Principal payments under note payable (40,000) (14,000)
Proceeds from exercise of stock options 210,000 -
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Net cash used in financing activities (1,464,000) (14,000)
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Effect of exchange rate changes on cash 17,000 -
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Net increase (decrease) in cash and cash
equivalents (3,582,000) 790,000
Cash and cash equivalents at beginning of
period 4,656,000 1,036,000
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Cash and cash equivalents at end of period $ 1,074,000 $ 1,826,000
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Supplemental cash flow information:
Interest paid $ 25,000 $ 36,000
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Schedule of non-cash financing activity:
Conversion of Series B Preferred
Stock to common stock $ 3,306,000 -
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Conversion of note payable to
common stock $ 1,000,000 -
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See accompanying notes to the consolidated financial statements.
4
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ALPHAREL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated balance sheet of Alpharel, Inc. (the
"Company") as of March 31, 1996 and the consolidated statement of operations and
of cash flows for the three month periods ended March 31, 1996 and 1995 are
unaudited. The consolidated financial statements and related notes have been
prepared in accordance with generally accepted accounting principles applicable
to interim periods. In the opinion of management, the consolidated financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the consolidated financial
position, operating results and cash flows for the periods presented.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany accounts and transactions
have been eliminated.
NOTE 2 - NET INCOME PER SHARE
Net income per share is computed on the basis of weighted average shares
and common stock equivalent shares outstanding for each period presented, if
dilutive.
NOTE 3 - INVENTORY
Inventory consists of parts, supplies, and subassemblies stated at the
lower of cost or market value. Cost is determined using the first-in, first-out
(FIFO) method. As of March 31, 1996 and December 31, 1995, the Company's
reserve against excess quantities totaled $2,119,000.
NOTE 4 - NOTES PAYABLE
In September 1995, the Company entered into a revolving loan and security
agreement, which provides for borrowings of up to $1,000,000. At March 31,
1996, $635,000 was outstanding on the revolving loan agreement and $365,000 was
unused. The maximum credit available under this facility declines by $200,000
in September of each year hereafter. The loan balance is payable in monthly
installments of $16,667 with interest equal to the 30-day Commercial Paper Rate
plus 2.95% (8.30% at March 31, 1996). Total borrowings under the revolving loan
agreement are collateralized by the Company's assets. The revolving loan and
security agreement contains certain restrictive covenants including debt to
tangible net worth ratio.
At December 31, 1995, the Company had an outstanding payable for cash
advanced by a bank which acted as paying agent for the notes due to former
Optigraphics shareholders having a principal balance of $1,634,000 in which the
balance was paid in January 1996. The notes with an original maturity of
September 1995 provided for interest payable quarterly at 6% per annum and were
issued as part of the total consideration paid in connection with the
acquisition of Optigraphics Corporation.
At December 31, 1995, the Company had an outstanding convertible note in
connection with the acquisition of Trimco having a principal balance of
$1,000,000 payable at 7% per annum, due on September 27, 1996.In February 1996,
the note was converted into 250,000 shares of the Company's common stock.
5
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NOTE 5 - PREFERRED STOCK
In December 1995 the Company issued 172,500 shares of a new series of
preferred stock, the Series B Convertible Preferred Stock (the "Series B
Preferred Stock") for total proceeds of $3,450,000 before expenses. In February
1996, 172,500 shares of Series B Preferred Stock were converted into 813,234
shares of common stock.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND RESULTS OF OPERATIONS
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THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31,
- ----------------------------------------------------------------------------
1995.
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Revenues
Revenues for the three months ended March 31, 1996 increased to $6,061,000
from $3,151,000 for the three months ended March 31, 1995. The 92% increase in
revenues is primarily due to revenues generated from significant new system
sales by the Company's new wholly-owned subsidiary, Trimco Group plc ("Trimco"),
which was acquired in December 1995.
First quarter 1996 revenues consisted of $3,336,000 (55%) in new system
revenues and $2,725,000 (45%) related to system enhancements, expansion and
maintenance. This compares to first quarter 1995 revenue of $1,725,000 (55%)
in new system revenues and $1,426,000 (45%) related to system enhancements,
expansion and maintenance. The percentage distribution is comparable to first
quarter 1995, in which new system sales also accounted for 45% of total
revenues.
A small number of customers have typically accounted for a large percentage
of the Company's annual revenue. In the first quarter of 1996, two customers
accounted for 14% and 11% of total revenue. During the first quarter of 1995,
one customer accounted for 19% of total revenues. One consequence of this
dependence has been that revenue can fluctuate significantly on a quarterly
basis. The Company's reliance on relatively few customers could have a material
adverse effect on the results of its operations on a quarterly basis.
Additionally, a significant portion of the Company's revenues has historically
been derived from the sale of systems to new customers. The acquisition of
Trimco in 1995 and Optigraphics in 1993 and sales of new systems have reduced
and are expected to continue to reduce the Company's dependence on a relatively
small number of customers by providing an increasing base of customers for
expansion, enhancement and maintenance service.
Cost of Revenues
Gross profit was $3,548,000 or 59% of revenues for the first quarter of
1996, as compared to $1,459,000 or 46% of revenues for the same period a year
ago. Software and services are sold at a significantly higher margin than third
party products which are resold at a lower gross profit percentage in order for
the Company to remain competitive in the marketplace. The increase in the gross
profit percentage was due primarily to the significant increase in software
license revenue to $3,637,000 (60%) in the first quarter of 1996 compared to
$725,000 (23%) in the first quarter of 1995. Gross profit percentage can
fluctuate quarterly based on the revenue mix of Company software, services,
proprietary hardware and third party software or hardware.
Operating Expenses
Research and development expense for the three months ended March 31, 1996
was $907,000 versus $225,000 for the same period in the prior year. The
significant increase is primarily due to the addition of Trimco's research and
development activities to Alpharel's activities. Research and development
expense can vary year to year based on the amount of engineering service
contract work required for customers versus purely internal development
projects. Technical expenses on customer-funded projects are included in cost
of revenues, while expenses on internal projects are included in research and
development expense. Technical expense included in cost of revenue for the
quarter was $734,000 versus $613,000 in the first quarter of 1995.
Marketing expense for the three months ended March 31, 1996 increased to
$1,253,000 from $693,000 for the three months ended March 31, 1995. This
increase is primarily due to additional personnel and other costs resulting from
the addition of Trimco's operations versus Alpharel on a stand alone basis
before the acquisition of Trimco.
7
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General and administrative expense was $711,000 for the three months ended
March 31, 1996 as compared to $322,000 for the three months ended March 31,
1995. The increase in general and administrative expense was due primarily to
additional personnel and other administrative costs resulting from the
acquisition of Trimco.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company's cash and cash equivalents totaled
$1,074,000 as compared to $4,656,000 at December 31, 1995. Short term
investments were $90,000 at March 31, 1996 versus $270,000 at December 31, 1995.
Short term investments are comprised primarily of time deposits and U.S.
Treasury securities. At March 31, 1996, the Company's current ratio was
approximately 1 to 1.
During the first quarter of 1996, the Company used cash of $1,882,000 in
operating activities, $253,000 in investing activities and $1,464,000 in
financing activities. A substantial portion of cash used in operating
activities was in connection with the acquisition of Trimco. The reduction in
accrued liabilities, which included accrued bonuses for Trimco employees,
resulted in a cash usage of $1,454,000. A substantial portion of the cash used
in financing activities was in connection with a $1,634,000 payment of cash
advanced by a bank which acted as paying agent for the notes due to former
Optigraphics shareholders. For the first quarter of 1995, the Company generated
cash of $846,000 in operating activities while using cash of $42,000 in
investing activities and $14,000 in financing activities.
In December 1995, the Company acquired Trimco. The cash portion of the
consideration paid to Trimco shareholders totaled $5,550,000. As part of the
transaction, the Company also issued a convertible note payable in September
1996, having a principal balance of $1,000,000 with interest payable at 7% per
annum. In February 1996, the note was converted into 250,000 shares of the
Company's common stock.
The Company anticipates that its combination with Trimco and the
integration of the workforce and products of the combined companies will require
a significant use of working capital. The Company believes that current working
capital and funds generated from operations will be adequate to meet expected
needs for working capital and capital expenditures for at least the next twelve
months. Through a private offering of its convertible preferred stock, the
Company recently raised funds to be utilized to pursue certain opportunities to
accelerate the development and product positioning of a new integrated product
line of Alpharel and Trimco. See "Subsequent Event" below.
Net Operating Loss Tax Carryforwards
As of December 31, 1995, the Company had a net operating loss carryforward
("NOL") for Federal income tax purposes of $34,000,000. In addition, the
Company generated but has not used research and investment tax credits for
Federal income tax purposes of approximately $600,000. Under the Internal
Revenue Code of 1986, as amended (the "Code"), the Company generally would be
entitled to reduce its future Federal income tax liabilities by carrying unused
NOL forward for a period of 15 years to offset future taxable income earned, and
by carrying unused tax credits forward for a period of 15 years to offset future
income taxes. The Company's ability to utilize any NOL and credit carryforwards
in future years may be restricted, however, in the event the Company undergoes
an "ownership change," generally defined as a change of ownership of more than
50 percentage points by one or more statutorily defined "5-percent stockholders"
of a corporation, as a result of future issuances or transfers of equity
securities of the Company within a three-year testing period. In the event of
an ownership change, the amount of NOL attributable to the period prior to the
ownership change that may be used to offset taxable income in any year
thereafter generally may not exceed the fair market value of the Company
immediately before the ownership change (subject to certain adjustments)
multiplied by the applicable long-term, tax-exempt rate announced by the
Internal Revenue Service in effect for the date of the ownership change. A
further limitation would apply to restrict the amount of credit carryforwards
that might be used in any year after the ownership change. As a result of these
limitations, in the event of an ownership change, the Company's ability to use
its NOL and credit carryforwards in future years may be delayed and, to the
extent the carryforward amounts cannot be fully utilized under these limitations
within the carryforward periods, these carryforwards will be lost. Accordingly,
the Company may be
8
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required to pay more Federal income taxes or to pay such taxes sooner than if
the use of its NOL and credit carryforwards were not restricted.
Over the past three years the Company has issued equity securities in
connection with the Trimco acquisition in December 1995, the Optigraphics
acquisition in September 1993, and through traditional stock option grants to
employees. Although there was no "ownership change" in 1995, this activity,
combined with the liquidity available to stockholders as a result of the
Company's common stock trading on The Nasdaq National Market, increases the
potential for an "ownership change" for income tax purposes.
In connection with the acquisition of Trimco, the Company acquired deferred
tax assets of approximately $926,000. The Company has recorded a $626,000
valuation allowance, offsetting the deferred tax assets. Any future recognition
of acquired tax benefits will be used first to reduce any remaining goodwill and
other intangible assets related to the acquisition; once those assets are
reduced to zero, the benefit will be included as a reduction of the Company's
income tax provision.
In connection with the acquisition of Optigraphics, the Company acquired
Optigraphics' NOL of $9,500,000 for federal income tax purposes. As a result of
the change in ownership of Optigraphics, $8,000,000 of the NOL is limited
whereby the Company may only utilize approximately $500,000 annually to offset
future taxable income of Optigraphics. The remaining portion of Optigraphics'
NOL does not have any annual limitation.
Subsequent Event
On April 25, 1996, the Company issued 100,000 shares of a new series of
preferred stock, the Series C Convertible Preferred Stock (the "Series C
Preferred Stock") in a private placement to a purchaser who is not a resident of
the United States, in reliance on the exemption set forth in Regulation S of the
Securities and Exchange Commission. In consideration for the issuance and sale
of the Series C Preferred Stock, the Company received $2,000,000 in cash
proceeds. The Series C Preferred Stock bears a dividend of 8% per annum,
accruing quarterly, and is convertible into shares of the Company's common stock
after June 9, 1996, at the option of the holder, and after August 23, 1996, at
the Company's option. The conversion ratio will be a fraction, the numerator of
which is $20.00 plus accrued but unpaid dividends, and the denominator of which
is the lessor of $5.16 (the closing price on April 24, 1996, the date preceding
the date of issuance), and 80% of the average closing trading price on the three
trading days immediately preceding the date of conversion. In the event that,
on any conversion date, the applicable conversion price then in effect is such
that the aggregate number of shares of common stock that would then be issuable
upon conversion of all shares of the Series C Preferred Stock would equal or
exceed 500,000 shares, then the Company shall be obligated to convert only a
portion of such shares subject to a notice of conversion, and will be obligated
to redeem the remainder of the shares subject to such notice of conversion out
of funds legally available for such redemption. The Certificate of
Determination for the Series C Preferred Stock also contains customary anti-
dilution provisions.
9
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PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K:
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(a) Exhibits - See Exhibit Index on Page 13.
(b) Amendment No. 1 on Form 8-K/A, dated March 8, 1996 to Form 8-K, dated
December 27, 1995
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALPHAREL, INC.
By: /s/John W. Low
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John W. Low
Chief Financial Officer
Dated: May 14, 1996
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11
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EXHIBIT INDEX
Exhibit
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4.1 Certificate of Determination of the Series C Convertible
Preferred Stock
4.2 Convertible Preferred Stock Purchase Agreement dated April 25, 1996
by and between the Company and Newsun Limited
4.3 Form of Certificate representing the Series C Convertible
Preferred Stock
11 Statement Re Computation of Net Income Per Share
12
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CERTIFICATE OF DETERMINATION OF
SERIES C CONVERTIBLE PREFERRED STOCK OF
ALPHAREL, INC.
The undersigned, Stephen P. Gardner and John W. Low, hereby certify that:
I. They are the duly elected and acting President and Secretary,
respectively, of Alpharel, Inc., a California corporation (the "Company").
II. The Company has 1,000,000 shares of preferred stock authorized, of
which 478,261 shares have been previously designated as Series A Preferred
Stock, none of which are issued and outstanding as of the date hereof, and
172,500 shares have been previously designated as Series B Convertible Preferred
Stock, none of which are issued and outstanding as of the date hereof. No other
series of preferred stock has been designated and no other shares of preferred
stock have been issued. The number of shares of preferred stock to be
designated as Series C Convertible Preferred Stock is 100,000.
III. Pursuant to authority given to it by the Company's Articles of
Incorporation, the Board of Directors of the Company has duly adopted the
following recitals and resolutions:
WHEREAS, the Articles of Incorporation of the Company, as amended, provide
for a class of shares known as preferred stock, issuable from time to time in
one or more series;
WHEREAS, the Board of Directors of the Company is authorized, within the
limitations and restrictions stated in the Articles of Incorporation, to
determine and alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of preferred stock, to fix the
number of shares constituting any such series and to determine the designation
thereof;
WHEREAS, the Board of Directors of the Company desires, pursuant to its
authority as aforesaid, to designate a new series of preferred stock and the
number of shares constituting such series and to fix the rights, preferences,
privileges and restrictions of such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of the Company
hereby designates a new series of preferred stock and the number of shares
constituting such series and fixes the rights, preferences, privileges and
restrictions relating to such series as follows:
Section 1. DESIGNATION, AMOUNT, RANKING AND PAR VALUE. The series of
Preferred Stock shall be designated as the Series C Convertible Preferred Stock
(the "Preferred Stock"), and the number of shares so designated shall be
100,000. The par value of each share of Preferred Stock shall be $1.00. Each
share of Preferred Stock shall have a stated value of $20.00 per share (the
"Stated Value"). The shares of the Preferred Stock shall rank prior to the
Junior
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Stock (as defined below) as to distribution of assets (upon liquidation
or otherwise) and payment of dividends.
Section 2. DIVIDENDS.
(a) Holders of the Preferred Stock shall be entitled to receive, when and
as declared by the Board of Directors of the Company out of funds legally
available therefor, cumulative cash dividends at the rate per share (as a
percentage of the Stated Value per share) equal to 8% per annum, payable
quarterly in arrears on March 31, June 30, September 30 and December 31 in each
year, with the first dividend payable on June 30, 1996. Dividends on the
Preferred Stock shall accrue on March 31, June 30, September 30 and December 31
of each year beginning on June 30, 1996 and shall be deemed to accrue on such
date whether or not earned or declared. Each such dividend will be payable to
holders of record as they appear on the books of the Company on such record
dates, which shall be 30 days prior to the payment dates thereof unless another
record date, which shall be no more than 45 days prior to such payment dates,
shall be fixed by the Board of Directors of the Company. The party that holds
the Preferred Stock on an applicable record date for any dividend payment will
be entitled to receive such dividend payment and any other accrued and unpaid
dividends which were accrued prior to such dividend payment date, without regard
to any sale or disposition of such Preferred Stock subsequent to the applicable
record date but prior to the applicable dividend payment date. The Company will
pay no interest on accrued and unpaid dividends on the Preferred Stock.
(b) So long as any Preferred Stock shall remain outstanding, in no event
shall any dividend or distribution (other than a dividend or distribution
described in Section 5) be paid upon, nor shall any distribution be made in
respect of, the Junior Stock, nor shall any monies be set aside for or applied
to the purchase or redemption (through a sinking fund or otherwise) of the
Junior Stock unless all dividends on the Preferred Stock for all past dividend
periods shall have been paid, but without interest.
Section 3. VOTING RIGHTS. The holders of the Preferred Stock shall not be
entitled to vote on matters submitted to the vote of the holders of Common
Stock. However, so long as any shares of the Preferred Stock are outstanding,
the Company shall not, without the affirmative vote of the holders of two-thirds
of the outstanding shares of the Preferred Stock, (i) alter or change adversely
the powers, preferences or rights given to the Preferred Stock or (ii) authorize
or create any class of stock ranking as to dividends or distribution of assets
(upon liquidation or otherwise) prior to or PARI PASSU with the Preferred Stock.
Section 4. LIQUIDATION. In the event of any complete liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary, the
holders of shares of the Preferred Stock shall be entitled to receive out of the
assets of the Company, whether such assets are capital or surplus, for each
share of the Preferred Stock an amount equal to $20.00 per share, plus an amount
equal to accrued but unpaid dividends per share, whether declared or not, but
without interest, before any distribution shall be made to the holders of Junior
Stock of the Company, and if the assets of the Company shall be insufficient to
pay in full such amounts, then such assets shall be distributed among such
holders ratably in accordance with the respective amounts that would be payable
on such shares if all amounts payable thereon were paid in full.
2
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Section 5. CONVERSION.
(a) (i) Each share of Preferred Stock shall be convertible into shares of
Common Stock at the Conversion Ratio (subject to reduction under
Section 5(a)(ii) and (iii), at the option of the holder in whole or in part at
any time after the expiration of 45 days after the Original Issue Date (as
defined in Section 7 below) (the "Conversion Term"). The holder shall effect
conversions by delivering to the Company a written notice (the "Conversion
Notice"), accompanied by the certificate representing the shares of the
Preferred Stock to be converted. Each Conversion Notice shall specify the
number of shares of Preferred Stock to be converted and the date on which such
conversion is to be effected (the "Conversion Date"), which shall in no event be
earlier than the date such Conversion Notice is given in accordance with
Section 5(j) below. Each Conversion Notice, once given, shall be irrevocable
(subject to Section 5(b) below). If the holder is converting less than all
shares of Preferred Stock, the Company shall promptly deliver to the holder a
certificate for such number of shares of Preferred Stock as have not been
converted.
(ii) If on the Conversion Date (as defined below) applicable to any
conversion, the Conversion Price (as defined below) then in effect is such that
the aggregate number of shares of Common Stock that would then be issuable upon
conversion of all then-outstanding shares of Preferred Stock, when combined with
any shares of Common Stock previously issued upon conversion of any shares of
Preferred Stock, would equal or exceed 500,000 shares (the "Issuable Maximum"),
then the Company shall be obligated to effect the conversion of only such
portion of each share of Preferred Stock subject to such conversion as is
represented by the Conversion Percentage (as defined in the next sentence), and
the remaining portion of such share shall be subject to the mandatory redemption
provisions of Section 6.
The "Conversion Percentage" shall be a fraction, the numerator of
which is the "Allowable Conversion Maximum" (as defined in the next sentence)
and the denominator of which is the total number of shares of Preferred Stock
outstanding prior to such conversion. The Allowable Conversion Maximum at any
time shall be the difference between the Issuable Maximum and the total number
of shares of Common Stock previously issued upon conversion of shares of
Preferred Stock. In the event of any stock split, stock dividend,
recapitalization, reorganization or other similar action or event, appropriate
adjustment shall be made to the Issuable Maximum and the Allowable Conversion
Maximum.
(iii) If on any Conversion Date for any shares of Preferred Stock
applicable to any conversion, the Per Share Market Value of the Common Stock on
the immediately preceding date exceeds $7.75, the number of shares issued upon
conversion of such shares of Preferred Stock shall be reduced by a number of
shares equal to 50% of (A) the amount by which such Per Share Market Value
exceeds $7.75, divided by (B) such Per Share Market Value, times (C) the number
of shares which would otherwise be issued upon such conversion, but for the
reduction provided for in this Section 5(a)(iii).
(b) Three Trading Days after the Conversion Date, the Company will deliver
to the holder (i) a certificate or certificates which shall be free of
restrictive legends and trading restrictions (other than those then required by
law), representing the number of shares of
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Common Stock being acquired upon the conversion of shares of Preferred Stock
(subject to any reduction required pursuant to Section 5(a)(ii) or (iii)), and
(ii) subject to Section 6 below, the certificate representing the number of
shares of Preferred Stock not converted; provided, however that the Company
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon conversion of any shares of Preferred Stock (or with respect
to shares subject to redemption pursuant to Sections 5(a)(ii) and 6, to pay the
redemption price payable under Section 6), until certificates evidencing such
shares of Preferred Stock are either delivered to the Company or any transfer
agent for the Preferred Stock or Common Stock, or the holder notifies the
Company that such certificates have been lost, stolen or destroyed and provides
a bond (or other adequate security acceptable to the Company) satisfactory to
the Company to indemnify the Company from any loss incurred by it in connection
therewith. The Company shall, upon request of the holder, use its best efforts
to deliver any certificate or certificates required to be delivered by the
Company under this Section 5(b) electronically through The Depository Trust
Company or another established clearing corporation performing similar
functions. In the case of a conversion pursuant to a Conversion Notice, if such
certificate or certificates are not delivered by the date required under this
Section 5(b), the holder shall be entitled by written notice to the Company at
any time on or before such holder's receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the shares of Preferred Stock
tendered for conversion.
(c) (i) The Conversion Price (the "Conversion Price") in effect on any
Conversion Date shall be the lesser of the Closing Price on the Trading Day
immediately preceding the Original Issue Date or 80% of the average of the
Closing Price on the three Trading Days immediately preceding the Conversion
Date. For purposes of this Section, the "Closing Price" on any Trading Day
shall mean the last reported closing price of the Common Stock of the Company on
such day on the principal securities exchange on which the Common Stock is
listed or, if the Common Stock is not so listed, the last reported bid price of
the Common Stock as reported on The Nasdaq National Market on such date or, if
the Common Stock is neither so listed nor so reported, the last reported bid
price of the Common Stock as quoted by a registered broker-dealer for which such
quotes are available on such date.
(ii) If the Company, at any time while any shares of Preferred Stock are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Junior Stock payable in shares of its capital
stock (whether payable in shares of its Common Stock or of capital stock of any
class), (b) subdivide outstanding shares of Common Stock into larger number of
shares, (c) combine outstanding shares of Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of Common Stock any shares of
capital stock of the Company, the Conversion Price designated in Section 5(c)(i)
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock of the Company outstanding before such event and of which
the denominator shall be the number of shares of Common Stock outstanding after
such event. Any adjustment made pursuant to this Section 5(c)(ii) shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
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(iii) In case the Company, at any time while any shares of the
Preferred Stock are outstanding, shall issue rights or warrants to all holders
of Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Per Share Market Value of Common Stock
at the record date mentioned below, the Conversion Price designated in
Section 5(c)(i) shall be multiplied by a fraction, of which the denominator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such rights or warrants
are issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase Common Stock
the issuance of which resulted in an adjustment in the Conversion Price
designated in Section 5(c)(i) pursuant to this Section 5(c)(iii), if any such
right or warrant shall expire and shall not have been exercised, the Conversion
Price designated in Section 5(c)(i) shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section 5 after the
issuance of such rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights or warrants been made on the basis of
offering for subscription or purchase only that number of shares of Common Stock
actually purchased upon the exercise of such rights or warrants actually
exercised.
(iv) In case the Company, at any time while shares of Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and not to holders
of Preferred Stock) evidences of its indebtedness or assets or rights or
warrants, to subscribe for or purchase any security (excluding those referred to
in Section 5(c)(iii) above) then in each such case the Conversion Price at which
each share of the Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect prior to the record
date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value of Common Stock determined as of the record date mentioned above,
and of which the numerator shall be such Per Share Market Value of the Common
Stock on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of Common Stock as determined by the Board of Directors
of the Company in good faith; provided, however that in the event of a
distribution exceeding ten percent (10%) of the net assets of the Company, then
such fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the holders of a majority in interest of the shares of Preferred
Stock; and provided, further that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in which case the fair market value shall be equal to the average of
the determinations by each such
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Appraiser. In either case the adjustments shall be described in a statement
provided to all holders of Preferred Stock of the portion of assets or evidences
of indebtedness so distributed or such subscription rights applicable to one
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(v) All calculations under this Section 5 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Conversion Price is adjusted pursuant to
Section 5(c)(ii), (iii), (iv) or (v), the Company shall promptly mail to each
holder of shares of Preferred Stock, a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(vii) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which share exchange the Common Stock is
converted into other securities, cash or property, then the holders of the
shares of Preferred Stock then outstanding shall have the right thereafter to
convert such shares only into the kind and amount of shares of stock and other
securities and property receivable upon or deemed to be held following such
reclassification, consolidation, merger, sale, transfer or share exchange by a
holder of a number of shares of the Common Stock of the Company into which such
shares Preferred Stock could have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the holder of shares of
Preferred Stock the right to receive the securities or property set forth in
this Section 5(c)(vii) upon any conversion following such consolidation, merger,
sale, transfer or share exchange. This provision shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
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(viii) In case:
(A) the Company shall declare a dividend (or any other distribution)
on its Common Stock; or
(B) the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
(C) the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
(D) the approval of any stockholders of the Company shall be required
in connection with any reclassification of the Common Stock of
the Company (other than a subdivision or combination of the
outstanding shares of Common Stock), any consolidation or merger
to which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, or any compulsory
share exchange whereby the Common Stock is converted into other
securities, cash or property, or
(E) of the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the shares of Preferred Stock, and shall cause to
be mailed to the holders of the shares of Preferred Stock at their last
addresses as they shall appear upon the stock books of the Company, at least 10
calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding-up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up (but no failure to mail such notice or
any defect therein or in the mailing thereof shall affect the validity of the
corporate action required to be specified in such notice).
(d) In case at any time conditions shall arise by reason of action taken
by the Company which in the opinion of the Board of Directors of the Company are
not adequately covered by the other provisions hereof and which might materially
and adversely affect the rights of the holders of shares of Preferred Stock
(different than or distinguished from the effect generally on the rights of
holders of any class of the Company's capital stock) or in case at any time any
such conditions are expected to arise by reason of any action contemplated by
the
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Company, an Appraiser selected by the holders of majority in interest of the
shares of Preferred Stock shall give its opinion as to the adjustment, if any
(not inconsistent with the standards established in this Section 5), of the
Conversion Price (including, if necessary, any adjustment as to the securities
into which shares of Preferred Stock may thereafter be convertible) and any
distribution which is or would be required to preserve without diluting the
rights of the holders of the shares of Preferred Stock; provided, however, that
the Company, after receipt of the determination by such Appraiser, shall have
the right to select an additional Appraiser, in which case the adjustment shall
be equal to the average of the adjustments recommended by each such Appraiser.
The Board of Directors of the Company shall make the adjustment recommended
forthwith upon the receipt of such opinion or opinions or the taking of any such
action contemplated, as the case may be; provided, however, that no such
adjustment of the Conversion Price shall be made which in the opinion of the
Appraiser(s) giving the aforesaid opinion or opinions would result in an
increase of the Conversion Price to more than the Conversion Price then in
effect.
(e) The Company covenants that it will at all times reserve and keep
available, out of its authorized and unissued Common Stock solely for the
purpose of issuance upon conversion of Preferred Stock as herein provided, free
from preemptive rights or any other actual contingent purchase rights of Persons
other than the holders of shares of Preferred Stock, such number of shares of
Common Stock as shall be issuable (taking into account the adjustments and
restrictions of Section 5(c) hereof) upon the conversion of all outstanding
shares of Preferred Stock. The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly and validly issued
and fully paid and nonassessable.
(f) Except as otherwise required by Section 6 hereof, the Company shall
not be required to issue stock certificates representing fractions of shares of
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the holder
of a share of Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a shares, one whole share of Common Stock; provided, however, that
in no event shall any such issuance of a whole share result in the issuance of a
number of shares of Common Stock in excess of the Issuable Maximum and if such
issuance would so result in the issuance of a number of shares in excess of the
Issuable Maximum, the holder shall be entitled to receive the cash payment
described above as soon as such cash payment may be lawfully made.
(g) The issuance of certificates for shares of Common Stock on conversion
of Preferred Stock shall be made without charge to the holders thereof for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate in a name other than that of the
holder of the shares of Preferred Stock converted and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
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(h) Shares of Preferred Stock converted into Common Stock shall be
canceled and shall have the status of authorized but unissued shares of
preferred stock.
(i) If the Company intends to initiate a public offering of its securities
in an amount exceeding $5 million in the aggregate and the Company reasonably
believes that the conversion of any shares of Preferred Stock may have an
adverse effect on the ability of the Company to complete such offering or the
price at which such securities could be sold therein, the Company, upon at least
30 days prior written notice to the holders of Preferred Stock, may suspend the
right of the holders of the shares of Preferred Stock to convert such shares
pursuant to Section 5 for the period commencing on the date the Company files a
registration statement with the Securities and Exchange Commission and
terminating 90 days after the closing of the public offering, provided that the
last day that the Preferred Stock is convertible (as set forth in Section 5(a))
shall be extended for such number of days as the conversion right was suspended
under this Section 5(i).
(j) Each Conversion Notice shall be given by facsimile and by mail,
postage prepaid, addressed to the attention of the Chief Financial Officer of
the Company at the facsimile telephone number and address of the principal place
of business of the Company. Any such notice shall be deemed given and effective
upon the earliest to occur of (i) receipt of such facsimile at the facsimile
telephone number specified in this Section 5(j), (ii) three days after deposit
in the United States mails or (iii) upon actual receipt by the party to whom
such notice is required to be given.
Section 6. MANDATORY REDEMPTION OF THE PREFERRED STOCK.
(a) If on the Conversion Date specified in any Conversion Notice the
provisions of Section 5(a)(ii) do not permit the issuance of the full number of
shares into which the shares of Preferred Stock to be converted would otherwise
be convertible, then the Company shall, with respect to each share of Preferred
Stock that is subject to such Conversion Notice, redeem, from funds legally
available therefor at the time of such redemption, a portion of such share that
is represented by the fraction that is the difference between one and the
Conversion Percentage (such fraction to be known as the "Redemption Ratio").
The redemption price for such portion of each share of Preferred Stock to be
redeemed shall be an amount equal to the product of (i) the Per Share Market
Value on the Conversion Date, (ii) the number of shares of Common Stock into
which such share of Preferred Stock would then be convertible, but for
Section 5(a)(ii), times (iii) the Redemption Ratio. If any portion of such
redemption price shall not be paid by the Company within 20 days after the
Conversion Date, such redemption price shall be increased by an amount accruing
from the twenty-first day to the fortieth day after the Conversion Date at the
rate of 10% per annum, from the forty-first day to the sixtieth day at 12.5% per
annum and from the sixty-first day until paid at the rate of 15% per annum. If,
on any such Conversion Date, the Company is prohibited under the relevant
provisions of the California General Corporation Law (the "CGCL") from paying,
in whole or in part, the redemption price for any shares of Preferred Stock, any
portion of the redemption price which may be lawfully paid in accordance with
the CGCL shall be paid pro rata to the holders of the shares of Preferred Stock
being redeemed on such Conversion Date and the remainder of such redemption
price shall
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be paid on a pro rata basis to such holders as soon as such payment is
permissible under the CGCL.
Section 7. DEFINITIONS. For the purposes hereof, the following terms
shall have the following meanings:
"Common Stock" means shares now or hereafter authorized of the class of
Common Stock, no par value, of the Company presently authorized and stock of any
other class into which such shares may hereafter have been reclassified or
changed.
"Conversion Ratio" means, at any time, a fraction, of which the numerator
is Stated Value plus accrued but unpaid dividends, and of which the denominator
is the Conversion Price at such time.
"Junior Stock" means the Common Stock of the Company and any other stock of
the Company over which shares of the Preferred Stock has preference as to
distribution of assets.
"Original Issue Date" shall mean the date of the first issuance of any
shares of the Preferred Stock.
"Per Share Market Value" means on any particular date (a) the last sale
price per share of the Common Stock on such date on The Nasdaq National Market
or other stock exchange on which the Common Stock has been listed or if there is
no such price on such date, then the last price on such exchange on the date
nearest preceding such date, or (b) if the Common Stock is not listed on The
Nasdaq National Market or any stock exchange, the average of the bid and asked
price for a share of Common Stock in the over-the-counter market, as reported by
the NASDAQ Stock Market at the close of business on such date, or (c) if the
Common Stock is not quoted on the NASDAQ Stock Market, the average of the bid
and asked price for a share of Common Stock in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or similar organization
or agency succeeding to its functions of reporting prices), or (d) if the Common
Stock is no longer publicly traded the fair market value of a share of Common
Stock as determined by an Appraiser (as defined in Section 5(c)(iv) above)
selected in good faith by the holders of a majority in interest of the shares of
the Preferred Stock; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an additional
Appraiser, in which case, the fair market value shall be equal to the average of
the determinations by each such Appraiser.
"Person" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
"Trading Day" means (a) a day on which the Common Stock is traded on The
Nasdaq National Market or principal stock exchange on which the Common Stock has
been listed, or (b) if the Common Stock is not listed on The Nasdaq National
Market or any stock exchange, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the NASDAQ Stock Market, or (c) if the
Common Stock is not quoted on the NASDAQ Stock Market, a day on which the Common
Stock is quoted in the over-the-counter
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market as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices).
RESOLVED FURTHER, that the President and Secretary of the Company be, and
they hereby are, authorized and directed to prepare, execute, verify, and file
in the Office of the California Secretary of State, a Certificate of
Determination in accordance with this resolution and as required by law.
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Each of the undersigned further declares under penalty of perjury under the
laws of the State of California that the matters set forth in this certificate
are true and correct of his own knowledge.
Executed at San Diego, California on the ____ day of April, 1996.
________________________________
Stephen P. Gardner, President
________________________________
John W. Low, Secretary
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CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") dated
April 25, 1996 between Newsun Limited, a British Virgin Islands corporation,
having its principal office at Geneva, Switzerland, and Alpharel, Inc., a
corporation organized and existing under the laws of the State of California
(the "Company").
WHEREAS, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to acquire shares of the Company's Series C Convertible
Preferred Stock, par value $1.00 per share (the "Series C Preferred").
IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and the Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED
1.1 PURCHASE AND SALE OF PREFERRED. Upon the terms and conditions
set forth herein, the Company shall issue and sell to the Purchaser, and the
Purchaser shall purchase, 100,000 shares of Series C Preferred (collectively,
the "Shares"), which shall have the respective rights, preferences and
privileges set forth in EXHIBIT A hereto.
1.2 PURCHASE PRICE. The aggregate purchase price for the Shares (the
"Aggregate Purchase Price") shall equal the product of the 100,000 Shares and
$20.00 (the "Purchase Price Per Share").
1.3 THE CLOSING.
(a) The closing of the purchase and sale of the Shares (the
"Closing") shall take place at the London offices of the Purchaser's investment
manager, Global Emerging Markets\Europe Limited, Four New Burlington Street,
London, England, W1X 1FE, immediately following the execution hereof, or at such
other time and place and/or on such other date as the Purchaser and the Company
may agree or as provided in Section 1.3(b). The date of the Closing is
hereinafter referred to as the Closing Date.
(b) At the Closing, (i) the Company shall deliver to the
Purchaser or its representative one or more stock certificates representing the
Shares, registered in the name of the Purchaser and (ii) the Purchaser shall
deliver to the Company the Aggregate Purchase Price as determined pursuant to
this Article I in United States Dollars in immediately available funds by wire
transfer to such account as shall be designated in writing by the Company. In
addition, each of the Company and the Purchaser shall deliver all documents,
instruments and writings required to be delivered by either of them pursuant to
this Agreement at or prior to Closing.
(c) The certificates representing the Shares shall bear the
legend set forth in EXHIBIT B hereto. Assuming that there are no changes in the
material facts set forth in Section 2.2 or in applicable law that would require
such a legend (i) the Common Stock into which any Shares are converted in
accordance with the terms of conversion set forth in EXHIBIT A shall not bear a
legend and (ii) after the expiration of the period commencing on the last sale
of Shares hereunder and ending 40 days thereafter (the "Restricted Period"), no
legend on the Shares shall be required.
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby makes the following representations, warranties and agreements
with and to the Purchaser.
(a) ORGANIZATION AND QUALIFICATION. The Company is a
corporation, duly incorporated and validly existing and in good standing under
the laws of the State of California and has the requisite corporate power to own
its properties and to carry on its business as now being conducted. Except as
disclosed in the SEC Documents (as hereinafter defined), as of the date hereof,
the Company does not have any subsidiaries. The Company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary and where the failure so to qualify would have a
Material Adverse Effect. "Material Adverse Effect" means any material adverse
effect on the operations, properties, prospects, or financial condition of the
Company.
(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has the
requisite corporate power and authority to enter into and perform this Agreement
and to issue the Shares in accordance with the terms hereof, (ii) the execution
and delivery of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby has been duly authorized by the Company's Board
of Directors and no further consent or authorization of the Company or its Board
of Directors or stockholders is required, (iii) this Agreement has been duly
executed and delivered by the Company and (iv) this Agreement constitutes a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
(c) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is as set forth in Schedule 2.1(c). No shares of
Common Stock are entitled to preemptive rights. Except as disclosed in Schedule
2.1(c), as of the date of this Agreement there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into any shares of
capital stock of the Company, or contracts, commitments, understandings, or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares, or securities or rights convertible into
shares, of capital stock of the Company or any of its subsidiaries. The Company
has furnished to the Purchaser true and correct copies of the Company's Restated
Articles of Incorporation as in effect on the date hereof (the "Articles of
Incorporation") and the Company's Bylaws, as in effect on the date hereof (the
"Bylaws").
(d) ISSUANCE OF SHARES. The Shares are duly authorized, and
when paid for in accordance with the terms hereof shall be validly issued, fully
paid and nonassessable. The Company has and will maintain an adequate reserve
of shares of Common Stock to enable it to perform its obligations under this
Agreement. When issued in accordance with the terms hereof and the Certificate
of Determination (as hereinafter defined), the Underlying Shares (as hereinafter
defined) will be duly authorized, validly issued, fully paid and nonassessable.
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<PAGE>
(e) NO CONFLICTS. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transaction contemplated hereby or relating hereto do not and will not
(i) result in the violation of the Company's Articles of Incorporation or Bylaws
or (ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party, or to the
actual knowledge of the Company, result in a violation of any law, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company, or by which any property or
asset of the Company is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations which either singly or in the aggregate do not have a Material
Adverse Effect. The Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Shares in accordance with
the terms hereof, except for the filing of a Certificate of Determination with
respect to the Series C Preferred with the Secretary of State of California (the
"Certificate of Determination"), which filing shall be effected prior to the
Closing Date.
(f) SEC DOCUMENTS FINANCIAL STATEMENTS. The Common Stock of the
Company is registered pursuant to section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and through and including the date
hereof, the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the Securities and Exchange
Commission (the "SEC") pursuant to the reporting requirements of the Exchange
Act, including material filed pursuant to section 13(a) or 15(d) (all of the
foregoing filed after December 20, 1995 and prior to the date hereof being
referred to herein as the "SEC Documents"). The Company has delivered to the
Purchaser true and complete copies of the SEC Documents (other than documents
incorporated by reference therein but not filed therewith). The Company has not
provided any non-public information to the Purchaser. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Exchange Act and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents, and none of the SEC Documents, when
filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Since December 31, 1995,
there has been no event, occurrence or development that has had a Material
Adverse Effect which is not disclosed in any of the SEC Documents.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby makes the following representations and warranties to the Company:
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(a) ORGANIZATION; AUTHORIZATION; ENFORCEMENT. (i) The Purchaser
is a corporation duly and validly existing and in good standing under the laws
of the British Virgin Islands and has the requisite corporate power to own its
properties and to carry on its business as now being conducted, (ii) the
Purchaser has the requisite power and authority, to enter into and perform this
Agreement, (iii) the execution and delivery of this Agreement by the Purchaser
and the consummation by it of the transactions contemplated hereby have been
duly authorized by all necessary action, and no further consent or authorization
of the Purchaser (or its Board of Directors or stockholders) is required, (iv)
this Agreement has been duly executed and delivered by the Purchaser and (v)
this Agreement constitutes a valid and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(b) NO CONFLICTS. The execution, delivery and performance of
this Agreement by the Purchaser and the consummation by the Purchaser of the
transactions contemplated hereby or relating hereto do not and will not (i)
result in the violation of the Purchaser's charter documents or by-laws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, any agreement, indenture or
instrument to which the Purchaser is a party, or, to the actual knowledge of the
Purchaser, result in a violation of any law, rule, regulation, order, judgment
or decree of any court of governmental agency applicable to the Purchaser or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on the
Purchaser). The Purchaser is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court of governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or purchase the Shares in accordance with terms hereof.
(c) NON-U.S. OWNERSHIP. The Purchaser is not a U.S. Person as
defined within Regulation S ("Regulation S") promulgated under the Securities
Act of 1933 (the "Securities Act") and is not purchasing the Shares and the
Underlying Shares for the account or benefit of a U.S. Person, and the sale of
the Shares or the Underlying Shares has not been pre-arranged with any U.S.
Person or person present in the United States. At the time of execution of this
Purchase Agreement and any offer to purchase hereunder, the Purchaser was
physically outside the United States.
(d) ACCESS TO INFORMATION. The Purchaser understands that its
investment in the Shares involves a high degree of risk. The Purchaser has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investments contemplated by this
Agreement. The Purchaser has been afforded, to the satisfaction of the
Purchaser, the opportunity to review the SEC Documents and obtain such
additional publicly available information concerning the Company and its
business, and to ask such questions and receive such answers (based upon
publicly available information), as the Purchaser deems necessary to make an
informed investment decision.
(e) RELIANCE ON REPRESENTATIONS OF PURCHASER. The Purchaser
understands that the Shares are being offered and sold, and the Underlying
Shares are being offered, to it in reliance on specific exemptions from the
registration requirements of the U.S. securities laws and that the Company is
relying of the truth and accuracy of, and the Purchaser's compliance with, the
representations, warranties, agreements, acknowledgments and understandings set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Purchaser to acquire the Shares and the Underlying Shares.
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(f) NO PUT OPTION OR SHORT POSITION. The Purchaser covenants
that neither it nor its affiliates nor any person acting on its or their behalf
has the intention of entering, or will enter, during the Restricted Period, into
any put option, short position, or other similar instrument or position with
respect to the Underlying Shares or securities of the same class as the Shares
and neither Purchaser nor any of its affiliates nor any person acting on its or
their behalf will use at any time Underlying Shares acquired pursuant to this
Purchase Agreement or upon conversion of the Shares to settle any put option,
short position or other similar instrument or position that may have been
entered into prior to the execution of this Purchase Agreement.
ARTICLE III
COVENANTS
3.1 REGULATION S.
(a) The Company shall take all necessary corporate action and
proceedings as may be required by applicable law, rule or regulation for the
issuance of the Shares to the Purchaser at the Closing in accordance with this
Agreement. Neither the Company nor any of its affiliates have engaged or will
engage in any "directed selling efforts" (as such term is defined under
Regulation S) with respect to the Shares or the Common Stock issuable upon
conversion of the Shares (the "Underlying Shares") and have complied and will
comply with the "offering restrictions" requirements of Regulation S.
(b) The Purchaser acknowledges that the Shares and the Underlying
Shares have not been and will not be registered under the Securities Act. The
Purchaser covenants (i) that it is not, and does not intend to be a
"distributor" (as such term is defined by Regulation S) of the Shares or the
Underlying Shares, but if it so acts then the Purchaser will comply with all
applicable requirements under Regulation S in connection therewith, (ii) that it
will not offer or sell the Shares or the Underlying Shares within the United
States or to, or for the account or benefit of, any "U.S. Person" (as each such
term is defined in Regulation S) except in accordance with the provisions of
Rule 903 or Rule 904 of Regulation S or pursuant to an exemption from the
registration requirements of the Securities Act and otherwise in accordance with
all applicable laws and (iii) that neither the Purchaser or its affiliates nor
any person acting on their behalf have engaged or will engage in "directed
selling efforts" (as such term is defined by Regulation S) with respect to the
Shares and the Underlying Shares and that each of them has complied and will
comply with the "offering restrictions" requirements of Regulation S. The
Company shall instruct its transfer agent that the Shares and the Underlying
Shares may be transferred (A) if such transfer occurs during the Restricted
Period, to any person or entity who is not a U.S. Person (or defined in
Regulation S) and is not an affiliate of the Company and who agrees to be bound
by the terms of this Agreement to the same extent as Purchaser without the entry
of a "stop transfer" order against the Shares or the Underlying Shares, provided
that such transfer is made in accordance with the Rules of the Securities and
Exchange Commission and Regulation S and (B) if such transfer occurs after the
Restricted Period, to any person or entity who is not an affiliate of the
Company without the entry of a "stop transfer" order against, or legend on, the
Shares or Underlying Shares.
3.2 COMMON STOCK.
(a) From the date hereof through the Closing Date, the Company
shall not, without the consent of the holders of a majority of the Shares then
outstanding,
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(i) amend its Articles of Incorporation or Bylaws so as to adversely affect any
rights of the Purchaser; (ii) split, combine or reclassify its outstanding
capital stock; (iii) declare or set aside or pay any dividend or other
distribution with respect to the Common Stock; (iv) repurchase or offer to
repurchase shares of its Common Stock; or (v) enter into any agreement with
respect to the foregoing.
(b) For a period commencing on the date hereof and expiring 90
days after the Closing, the Company will not, without the consent of the holders
of a majority of the Shares then outstanding, (i) sell equity or equity-
equivalent securities (except the granting of options to employees, officers and
directors under, and the issuance of shares upon exercise of options granted
under, any stock option plan heretofore or hereinafter adopted by the Company)
or enter into any agreement with respect to the foregoing or (ii) exercise its
right under Section 5(j) of the Certificate of Determination to suspend the
right of holders of the Shares to convert the Shares.
3.3 PURCHASER'S RIGHTS IF REGULATION S IS AMENDED. In the event that
at any time on or after Closing Date, the Purchaser shall notify the Company
that Regulation S has been amended or interpreted in a manner so as to adversely
affect the marketability of the Shares or Underlying Shares or the Company
notifies the Purchasers that the Company has determined that such amendment or
interpretation prohibits the Company from issuing certificates representing the
Underlying Shares upon conversion of the Shares which do not bear a restrictive
legend, then, at the Company's option exercisable within 10 days after such
notice is given by written notice from the Purchaser to the Company or from the
Company to the Purchaser, the Company shall (i) as promptly as practicable but
in any event within 90 days thereafter, cause the Underlying Shares to be
registered for sale under the Securities Act of 1933 as amended, in form or
substance satisfactory to Purchaser, or (ii) within 30 days thereafter, purchase
the Shares (or if any such Shares were theretofore converted, the Underlying
Shares), at an aggregate purchase price equal to the product of (a) the Per
Share Market Value (as defined in the Certificate of Determination) as of the
Trading Day (as defined therein) immediately preceding the day of such purchase,
times (b) the number of shares of Common Stock into which such Shares are then
convertible (or, in the case of a purchase of Underlying Shares, the number of
Underlying Shares to be purchased).
3.4 PURCHASER'S RIGHTS IF TRADING IN COMMON STOCK IS SUSPENDED. In
the event that at any time on or after the Closing Date trading in the shares of
the Company's Common stock is suspended on the principal market or exchange for
such shares (other than as a result of the suspension of trading in securities
on such market or exchange generally), for a period of five (5) consecutive
trading days, at Purchaser's option exercisable by written notice to the
Company, the Company shall repurchase the Shares and the Underlying Shares then
held by such Purchaser, at an aggregate purchase price equal to the product of
the Per Share Market Value as of the Trading Day immediately preceding the day
of such notice times the number of shares of Common Stock into which the Shares
to be purchased are then convertible (or in the case of Underlying shares, the
number of Underlying Shares to be purchased).
3.5 PUT RIGHTS UPON CERTAIN DEFAULTS. If, within the one-year period
after the Closing, (a) the Company shall default under or violate any of
Sections 3.2(b) or 3.3, (b) the Underlying Shares, when issuable under the
Certificate of Determination, shall fail to be listed on The Nasdaq National
Market or other national securities exchange or traded on The Nasdaq Stock
Market, or (c) the Company shall fail to file any reports required to be filed
under Section 13 of the Securities Exchange Act of 1934, then in any such case,
if such default, violation or failure shall continue for a period of 10 days
after written notice by any holder of the Shares to the Company, the Company
shall, at the demand of any such holder,
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repurchase the Shares and Underlying Shares then held by such holder at an
aggregate price equal to (i) the product of the Per Share Market Value as of the
Trading Day immediately preceding the day of such demand times the number of
shares of Common Stock into which the Shares to be purchased are then
convertible (or in the case of Underlying Shares, the number of Underlying
Shares to be purchased), plus (ii) interest on such amount accruing from the
twenty-first day to the fortieth day after such demand at the rate of 10% per
annum, from the forty-first to the sixtieth day at 12.5% per annum and from the
sixty-first day until paid at the rate of 15% per annum.
3.6 NO VIOLATION OF CGCL. Notwithstanding any provision of this
Agreement to the contrary, if any repurchase or redemption of shares otherwise
required under this Agreement would be prohibited by the relevant provisions of
the California General Corporation Law (the "CGCL"), such repurchase or
redemption shall be effected as soon as it is permitted under the CGCL.
3.7 TRANSFER OF SHARES. Purchaser shall not transfer any of the
Shares other than a transfer of all of the Shares to a single transferee (who
has sole dispositive power with respect to the Shares) who agrees to be bound by
this Agreement.
3.8 AGREEMENT TO SEEK ADDITIONAL FINANCING. If any Shares are
required to be redeemed, in whole or in part, under Section 6 of the Certificate
of Determination, and if the Company is unable to pay the redemption price, the
Company shall use its best efforts to seek and obtain additional financing in
order to permit it to pay the redemption price in full.
3.9 PIGGYBACK REGISTRATION RIGHTS. If the Company files a
registration statement on Form S-3 during the one-year period after the Closing
providing for the registration of shares of Common Stock to be sold by other
shareholders of the Company, the Company shall provide to the Purchasers an
option to include any of the Underlying Shares in such registration statement.
3.10 REDEMPTION OF PREFERRED STOCK; PAYMENT OF FEE. If any Shares are
required to be redeemed, in whole or in part, under Section 6 of the Certificate
of Determination and the Company fails to redeem such Shares and pay all amounts
required under the Certificate of Determination within 30 days after the date
required, the Company shall be obligated to pay the Purchaser a fee in cash
equal to 5% of the redemption price of such Shares as provided in the
Certificate of Determination, unless the Company shall have provided the
Purchaser the opportunity to provide or arrange for financing necessary to fund
such redemption on terms substantially similar to those contained in this
Agreement and the Purchaser shall not have arranged or provided for such
financing within such 30-day period.
3.11 LISTING OF UNDERLYING SHARES. The Company shall take all steps
necessary to cause the Underlying Shares to be approved for listing in The
Nasdaq National Market on or prior to the first day that the Shares become
convertible for the Underlying Shares.
3.12 MINIMUM NUMBER OF SHARES TO BE CONVERTED. The Purchaser shall
not deliver any conversion notice to the Company or exercise any right of
conversion provided in Section 5 of the Certificate of Determination with
respect to fewer than 12,500 shares.
3.13 CONVERSION RIGHTS OF THE COMPANY. The Purchaser and the Company
agree that at any time on or after the expiration of 120 days after the date of
the first issuance of any Shares (the "Original Issue Date"), the Company shall
have the right to
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cause the holders of the Series C Preferred in whole or in part to exercise
their conversion rights pursuant to Section 5 of the Certificate of
Determination. The Company shall exercise the right under this paragraph by
delivering to the holders of such shares of the Series C Preferred as to which
the Company desires to exercise such right a written notice (a "Company Exercise
Notice"), which Company Exercise Notice, once given, shall be irrevocable;
provided, however, that during the period of two years after the Original Issue
Date, the Company shall have no right to deliver a Company Exercise Notice and
cause the holders of shares of Series C Preferred to effect any conversion
unless either (i) all of such shares may be converted into shares of Common
Stock in accordance with Section 5(a)(ii) of the Certificate of Determination;
or (ii) all of such shares may be either converted into shares of Common Stock
in accordance with such Section 5(a)(ii) or may be redeemed and the entire
redemption price paid in full in accordance with Section 6 of the Certificate of
Determination without violating the CGCL. Each Company Exercise Notice
delivered pursuant to this paragraph shall specify the number of shares of
Series C Preferred that the Company desires to cause to be converted and the
date on which conversion is to be effected (the "Company Exercise Date"). The
Conversion Date for any conversion effected pursuant to the Company's election
under this paragraph shall be deemed to be the Company Exercise Date. The
Company shall give such Company Exercise Notice at least two Trading Days (as
defined in the Certificate of Determination) before the Company Exercise Date
and shall send such Company Exercise Notice by facsimile and by mail, postage
prepaid, to the facsimile telephone number and address of each holder appearing
on the stock transfer books of the Company. Any exercise of the rights granted
pursuant to this paragraph shall be effected on a pro rata basis among the
holders of the Series C Preferred. Upon the conversion of shares of Series C
Preferred, the holders of the Series C Preferred shall surrender the
certificates representing such shares at the office of the Company or of any
transfer agent for the Series C Preferred or Common Stock. If the Company is
exercising its rights hereunder with respect to less than all shares of the
Series C Preferred, the Company shall, upon conversion of such shares subject to
such Company Exercise Notice and receipt of the certificate or certificates
representing such shares of Series C Preferred, deliver to the holder or holders
a certificate for such number of shares of Series C Preferred as have not been
converted by such holder or holders. The Purchaser hereby appoints the Company
as attorney-in-fact for the purpose of delivering any notices or executing any
documents that may be necessary in order to effect the conversion of the Series
C Preferred in accordance with the provisions of Section 5(a) of the Certificate
of Determination upon the election of the Company to exercise its rights under
this paragraph. As set forth in Section 3.7 above, any transferee of the Shares
will be bound by this Section 3.12 as well as the other provisions in this
Agreement.
3.14 PURCHASER OWNERSHIP OF COMMON STOCK. The Purchaser will not use
its ability to convert Shares hereunder or under the Certificate of
Determination which would result in the Purchaser owning more than 4.9% of the
outstanding shares of the Company's Common Stock; provided, however, that this
Section 3.14 shall not effect the Company's right under Section 3.13 of this
Agreement to cause the Purchaser to exercise its conversion rights pursuant to
Section 5 of the Certificate of Determination.
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ARTICLE IV
CONDITIONS
4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO SELL THE
SHARES. The obligation hereunder of the Company to sell the Shares to the
Purchaser is further subject to the satisfaction, at or before the Closing, of
each of the following conditions set forth below. These conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) ACCURACY OF THE PURCHASER'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time.
(b) PERFORMANCE BY THE PURCHASER. The Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchaser at or prior to the Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction applicable to Purchaser shall have been
enacted, entered, promulgated or endorsed by any court or governmental authority
of competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(d) NO CHANGE IN REGULATION S. No amendment to Regulation S has
occurred or interpretative release promulgated or issued thereunder which, in
the reasonable judgment of the Company, would materially adversely affect the
sale by the Company of the Shares.
4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASER TO
PURCHASE THE SHARES. The obligation of the Purchaser hereunder to acquire and
pay for the Shares is subject to the satisfaction, at or before the Closing, of
each of the following conditions set forth below. These conditions are for the
Purchaser's sole benefit and may be waived by such Purchaser at any time in its
sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time.
(b) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) ADVERSE CHANGES. Since December 31, 1995, no event which
had a Material Adverse Effect on the Company has occurred which is not disclosed
in the SEC Documents.
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(e) NO CHANGE IN REGULATION S. No amendment to Regulation S has
occurred or interpretative release promulgated or issued thereunder, which, in
the reasonable judgment of the Purchaser, would materially adversely affect the
purchase by the Purchaser of the Shares.
(f) NO SUSPENSIONS OF TRADING IN COMMON STOCK. The trading in
the Common Stock shall not have been suspended by the SEC or the National
Association of Securities Dealers, Inc. (except for any suspension of trading of
limited duration solely to permit dissemination of material information
regarding the Company).
(g) LEGAL OPINION. The Company shall have delivered to the
Purchaser the opinion of Gibson, Dunn & Crutcher, counsel to the Company, in
form and substance reasonably satisfactory to the Purchaser.
ARTICLE V
TERMINATION
5.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated
at any time by the mutual consent of the Company and the Purchaser.
5.2 OTHER TERMINATION. This Agreement may be terminated by either
party hereto if the Closing shall not have occurred by April 30, 1996.
ARTICLE VI
MISCELLANEOUS
6.1 FEES AND EXPENSES. Each party shall pay the fees and expenses of
its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company shall pay
all stamp and other taxes and duties levied in connection with the issuance of
the Shares pursuant hereto. The Purchaser shall be responsible for the
Purchaser's own tax liability that may arise as a result of the investment
hereunder or the transactions contemplated by this Purchase Agreement.
6.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with the
Exhibits and Schedules attached hereto and the letter agreement of even date
herewith, contain the entire understanding of the parties with respect to the
matters covered hereby and, except as specifically set forth herein, neither the
Company nor the Purchaser makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought.
6.3 NOTICES. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be deemed to have been
received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report ) at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
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received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
to the Company: Alpharel, Inc.
9339 Carroll Park Drive
San Diego, CA 92121
With copies to: Gibson, Dunn & Crutcher
2029 Century Park East
Suite 4000
Los Angeles, CA 90067
Attn: Russell C. Hansen, Esq.
If to the Purchaser: c/o ABN Amro Trust
80 Rue du Rhone
CH 1204
Geneva, Switzerland
Attn: Mrs. Marilyn Lance
With copies to: Robinson Silverman Pearce Arohnson &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104-0053
Attn: Kenneth L. Henderson, Esq.
Either party hereto may from time to time change its address for
notices under this Section 6.3 by giving at least 10 days written notice of such
changed address to the other party hereto.
6.4 WAIVERS. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter. Any waiver must be in writing.
6.5 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit of affect
any of the provisions hereof.
6.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The parties hereto may amend this Agreement without notice to or the consent of
any third party. Neither the Company nor the Purchaser shall assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other (which consent may be withheld for any reason in the sole
discretion of the party from whom consent is sought). The assignment by a party
of this Agreement or any rights hereunder shall not affect the obligations of
such party under this Agreement.
6.7 NO THIRD PARTY BENEFICIARIES. This agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
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6.8 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law.
6.9 SURVIVAL. The agreements and covenants of the Company contained
in Section 3.1 and this Article VI shall survive the termination of this
Agreement. The representations and warranties of the Company and the Purchaser
contained in Article II and the agreements and covenants set forth in
Section 3.1 and this Article VI shall survive until a date that is one year
after the Closing.
6.10 EXECUTION. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original for all purposes and any
one of which may be introduced into evidence or used for any other purpose
without the production of its duplicate counterpart, and all of which shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the
event any signature is delivered by facsimile transmission, the party using such
means of delivery shall cause four additional executed signature pages to be
physically delivered to the other party within five days of the execution and
delivery hereof.
6.11 PUBLICITY. The Company and the Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby. Neither party shall issue any
press release or otherwise make any public statement without the prior written
consent of the other, which consent shall not be unreasonably withheld or
delayed.
6.12 SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, in light of the tenor of this Agreement, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
6.13 DELIVERY OF W-8. The Purchaser has delivered and will cause each
transferee of Shares to deliver to the Company a completed and executed Form W-8
and any other documentation reasonably required for the Company to comply with
United States and foreign law.
6.14 CONVERSION PROCEDURES. Within 20 days after the Closing the
Company shall provide to the Purchaser a schedule, in form reasonably
satisfactory to the Purchaser, setting forth the procedures with respect to the
conversion of the Shares, including the forms of conversion notice to be
provided upon conversion, instructions as to the procedures for conversion, the
form of legal opinion, if necessary, to be rendered to the Company's transfer
agent and such other information and instructions as may be reasonably necessary
to enable the Purchaser to exercise its right of conversion smoothly and
expeditiously.
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IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
COMPANY:
ALPHAREL, INC.
By:
-----------------------------------
Name:
Title:
PURCHASER:
NEWSUN LIMITED
By:
-----------------------------------
Name:
Title:
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SCHEDULE 2.1(C)
CAPITALIZATION
Total authorized capital stock:
Common Stock: 20,000,000
Preferred Stock: 1,000,000
Total issued and outstanding capital stock:
Common Stock: 18,134,886
Preferred Stock: 0
(excluding Series C Preferred Stock to be issued pursuant to this
Agreement)
Total outstanding stock options: 1,178,300
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EXHIBIT A
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CERTIFICATE OF DETERMINATION OF
SERIES C CONVERTIBLE PREFERRED STOCK OF
ALPHAREL, INC.
The undersigned, Stephen P. Gardner and John W. Low, hereby certify
that:
I. They are the duly elected and acting President and Secretary,
respectively, of Alpharel, Inc., a California corporation (the "Company").
II. The Company has 1,000,000 shares of preferred stock authorized,
of which 478,261 shares have been previously designated as Series A Preferred
Stock, none of which are issued and outstanding as of the date hereof, and
172,500 shares have been previously designated as Series B Convertible Preferred
Stock, none of which are issued and outstanding as of the date hereof. No other
series of preferred stock has been designated and no other shares of preferred
stock have been issued. The number of shares of preferred stock to be
designated as Series C Convertible Preferred Stock is 100,000.
III. Pursuant to authority given to it by the Company's Articles of
Incorporation, the Board of Directors of the Company has duly adopted the
following recitals and resolutions:
WHEREAS, the Articles of Incorporation of the Company, as amended,
provide for a class of shares known as preferred stock, issuable from time to
time in one or more series;
WHEREAS, the Board of Directors of the Company is authorized, within
the limitations and restrictions stated in the Articles of Incorporation, to
determine and alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of preferred stock, to fix the
number of shares constituting any such series and to determine the designation
thereof;
WHEREAS, the Board of Directors of the Company desires, pursuant to
its authority as aforesaid, to designate a new series of preferred stock and the
number of shares constituting such series and to fix the rights, preferences,
privileges and restrictions of such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of the
Company hereby designates a new series of preferred stock and the number of
shares constituting such series and fixes the rights, preferences, privileges
and restrictions relating to such series as follows:
Section 1. DESIGNATION, AMOUNT, RANKING AND PAR VALUE. The series of
Preferred Stock shall be designated as the Series C Convertible Preferred Stock
(the
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"Preferred Stock"), and the number of shares so designated shall be 100,000.
The par value of each share of Preferred Stock shall be $1.00. Each share of
Preferred Stock shall have a stated value of $20.00 per share (the "Stated
Value"). The shares of the Preferred Stock shall rank prior to the Junior Stock
(as defined below) as to distribution of assets (upon liquidation or otherwise)
and payment of dividends.
Section 2. DIVIDENDS.
(a) Holders of the Preferred Stock shall be entitled to receive, when
and as declared by the Board of Directors of the Company out of funds legally
available therefor, cumulative cash dividends at the rate per share (as a
percentage of the Stated Value per share) equal to 8% per annum, payable
quarterly in arrears on March 31, June 30, September 30 and December 31 in each
year, with the first dividend payable on June 30, 1996. Dividends on the
Preferred Stock shall accrue on March 31, June 30, September 30 and December 31
of each year beginning on June 30, 1996 and shall be deemed to accrue on such
date whether or not earned or declared. Each such dividend will be payable to
holders of record as they appear on the books of the Company on such record
dates, which shall be 30 days prior to the payment dates thereof unless another
record date, which shall be no more than 45 days prior to such payment dates,
shall be fixed by the Board of Directors of the Company. The party that holds
the Preferred Stock on an applicable record date for any dividend payment will
be entitled to receive such dividend payment and any other accrued and unpaid
dividends which were accrued prior to such dividend payment date, without regard
to any sale or disposition of such Preferred Stock subsequent to the applicable
record date but prior to the applicable dividend payment date. The Company will
pay no interest on accrued and unpaid dividends on the Preferred Stock.
(b) So long as any Preferred Stock shall remain outstanding, in no
event shall any dividend or distribution (other than a dividend or distribution
described in Section 5) be paid upon, nor shall any distribution be made in
respect of, the Junior Stock, nor shall any monies be set aside for or applied
to the purchase or redemption (through a sinking fund or otherwise) of the
Junior Stock unless all dividends on the Preferred Stock for all past dividend
periods shall have been paid, but without interest.
Section 3. VOTING RIGHTS. The holders of the Preferred Stock shall
not be entitled to vote on matters submitted to the vote of the holders of
Common Stock. However, so long as any shares of the Preferred Stock are
outstanding, the Company shall not, without the affirmative vote of the holders
of two-thirds of the outstanding shares of the Preferred Stock, (i) alter or
change adversely the powers, preferences or rights given to the Preferred Stock
or (ii) authorize or create any class of stock ranking as to dividends or
distribution of assets (upon liquidation or otherwise) prior to or PARI PASSU
with the Preferred Stock.
Section 4. LIQUIDATION. In the event of any complete liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary, the
holders of shares of the Preferred Stock shall be entitled to receive out of the
assets of the Company, whether such
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assets are capital or surplus, for each share of the Preferred Stock an amount
equal to $20.00 per share, plus an amount equal to accrued but unpaid dividends
per share, whether declared or not, but without interest, before any
distribution shall be made to the holders of Junior Stock of the Company, and if
the assets of the Company shall be insufficient to pay in full such amounts,
then such assets shall be distributed among such holders ratably in accordance
with the respective amounts that would be payable on such shares if all amounts
payable thereon were paid in full.
Section 5. CONVERSION.
(a) (i) Each share of Preferred Stock shall be convertible into
shares of Common Stock at the Conversion Ratio (subject to reduction under
Section 5(a)(ii) and (iii), at the option of the holder in whole or in part at
any time after the expiration of 45 days after the Original Issue Date (as
defined in Section 7 below) (the "Conversion Term"). The holder shall effect
conversions by delivering to the Company a written notice (the "Conversion
Notice"), accompanied by the certificate representing the shares of the
Preferred Stock to be converted. Each Conversion Notice shall specify the
number of shares of Preferred Stock to be converted and the date on which such
conversion is to be effected (the "Conversion Date"), which shall in no event be
earlier than the date such Conversion Notice is given in accordance with
Section 5(j) below. Each Conversion Notice, once given, shall be irrevocable
(subject to Section 5(b) below). If the holder is converting less than all
shares of Preferred Stock, the Company shall promptly deliver to the holder a
certificate for such number of shares of Preferred Stock as have not been
converted.
(ii) If on the Conversion Date (as defined below) applicable to
any conversion, the Conversion Price (as defined below) then in effect is such
that the aggregate number of shares of Common Stock that would then be issuable
upon conversion of all then-outstanding shares of Preferred Stock, when combined
with any shares of Common Stock previously issued upon conversion of any shares
of Preferred Stock, would equal or exceed 500,000 shares (the "Issuable
Maximum"), then the Company shall be obligated to effect the conversion of only
such portion of each share of Preferred Stock subject to such conversion as is
represented by the Conversion Percentage (as defined in the next sentence), and
the remaining portion of such share shall be subject to the mandatory redemption
provisions of Section 6.
The "Conversion Percentage" shall be a fraction, the numerator of
which is the "Allowable Conversion Maximum" (as defined in the next sentence)
and the denominator of which is the total number of shares of Preferred Stock
outstanding prior to such conversion. The Allowable Conversion Maximum at any
time shall be the difference between the Issuable Maximum and the total number
of shares of Common Stock previously issued upon conversion of shares of
Preferred Stock. In the event of any stock split, stock dividend,
recapitalization, reorganization or other similar action or event, appropriate
adjustment shall be made to the Issuable Maximum and the Allowable Conversion
Maximum.
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(iii) If on any Conversion Date for any shares of Preferred
Stock applicable to any conversion, the Per Share Market Value of the Common
Stock on the immediately preceding date exceeds $7.75, the number of shares
issued upon conversion of such shares of Preferred Stock shall be reduced by a
number of shares equal to 50% of (A) the amount by which such Per Share Market
Value exceeds $7.75, divided by (B) such Per Share Market Value, times (C) the
number of shares which would otherwise be issued upon such conversion, but for
the reduction provided for in this Section 5(a)(iii).
(b) Three Trading Days after the Conversion Date, the Company
will deliver to the holder (i) a certificate or certificates which shall be free
of restrictive legends and trading restrictions (other than those then required
by law), representing the number of shares of Common Stock being acquired upon
the conversion of shares of Preferred Stock (subject to any reduction required
pursuant to Section 5(a)(ii) or (iii)), and (ii) subject to Section 6 below, the
certificate representing the number of shares of Preferred Stock not converted;
provided, however that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon conversion of any shares of
Preferred Stock (or with respect to shares subject to redemption pursuant to
Sections 5(a)(ii) and 6, to pay the redemption price payable under Section 6),
until certificates evidencing such shares of Preferred Stock are either
delivered to the Company or any transfer agent for the Preferred Stock or Common
Stock, or the holder notifies the Company that such certificates have been lost,
stolen or destroyed and provides a bond (or other adequate security acceptable
to the Company) satisfactory to the Company to indemnify the Company from any
loss incurred by it in connection therewith. The Company shall, upon request of
the holder, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section 5(b) electronically
through The Depository Trust Company or another established clearing corporation
performing similar functions. In the case of a conversion pursuant to a
Conversion Notice, if such certificate or certificates are not delivered by the
date required under this Section 5(b), the holder shall be entitled by written
notice to the Company at any time on or before such holder's receipt of such
certificate or certificates thereafter, to rescind such conversion, in which
event the Company shall immediately return the certificates representing the
shares of Preferred Stock tendered for conversion.
(c) (i) The Conversion Price (the "Conversion Price") in effect
on any Conversion Date shall be the lesser of the Closing Price on the Trading
Day immediately preceding the Original Issue Date or 80% of the average of the
Closing Price on the three Trading Days immediately preceding the Conversion
Date. For purposes of this Section, the "Closing Price" on any Trading Day
shall mean the last reported closing price of the Common Stock of the Company on
such day on the principal securities exchange on which the Common Stock is
listed or, if the Common Stock is not so listed, the last reported bid price of
the Common Stock as reported on The Nasdaq National Market on such date or, if
the Common Stock is neither so listed nor so reported, the last reported bid
price of the Common Stock as quoted by a registered broker-dealer for which such
quotes are available on such date.
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(ii) If the Company, at any time while any shares of Preferred Stock
are outstanding, (a) shall pay a stock dividend or otherwise make a distribution
or distributions on shares of its Junior Stock payable in shares of its capital
stock (whether payable in shares of its Common Stock or of capital stock of any
class), (b) subdivide outstanding shares of Common Stock into larger number of
shares, (c) combine outstanding shares of Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of Common Stock any shares of
capital stock of the Company, the Conversion Price designated in Section 5(c)(i)
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock of the Company outstanding before such event and of which
the denominator shall be the number of shares of Common Stock outstanding after
such event. Any adjustment made pursuant to this Section 5(c)(ii) shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
(iii) In case the Company, at any time while any shares of
the Preferred Stock are outstanding, shall issue rights or warrants to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value of Common
Stock at the record date mentioned below, the Conversion Price designated in
Section 5(c)(i) shall be multiplied by a fraction, of which the denominator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such rights or warrants
are issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase Common Stock
the issuance of which resulted in an adjustment in the Conversion Price
designated in Section 5(c)(i) pursuant to this Section 5(c)(iii), if any such
right or warrant shall expire and shall not have been exercised, the Conversion
Price designated in Section 5(c)(i) shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section 5 after the
issuance of such rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights or warrants been made on the basis of
offering for subscription or purchase only that number of shares of Common Stock
actually purchased upon the exercise of such rights or warrants actually
exercised.
(iv) In case the Company, at any time while shares of Preferred
Stock are outstanding, shall distribute to all holders of Common Stock (and not
to holders of Preferred Stock) evidences of its indebtedness or assets or rights
or warrants, to subscribe for
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or purchase any security (excluding those referred to in Section 5(c)(iii)
above) then in each such case the Conversion Price at which each share of the
Preferred Stock shall thereafter be convertible shall be determined by
multiplying the Conversion Price in effect prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Per Share Market Value of Common
Stock determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value of the Common Stock on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of Common Stock as determined by the Board of Directors of the
Company in good faith; provided, however that in the event of a distribution
exceeding ten percent (10%) of the net assets of the Company, then such fair
market value shall be determined by a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Company) (an "Appraiser") selected in good faith by the
holders of a majority in interest of the shares of Preferred Stock; and
provided, further that the Company, after receipt of the determination by such
Appraiser shall have the right to select an additional Appraiser, in which case
the fair market value shall be equal to the average of the determinations by
each such Appraiser. In either case the adjustments shall be described in a
statement provided to all holders of Preferred Stock of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(v) All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Conversion Price is adjusted pursuant to
Section 5(c)(ii),(iii), (iv) or (v), the Company shall promptly mail to each
holder of shares of Preferred Stock, a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(vii) In case of any reclassification of the Common Stock,
any consolidation or merger of the Company with or into another person, sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which share exchange the Common Stock is
converted into other securities, cash or property, then the holders of the
shares of Preferred Stock then outstanding shall have the right thereafter to
convert such shares only into the kind and amount of shares of stock and other
securities and property receivable upon or deemed to be held following such
reclassification, consolidation, merger, sale, transfer or share exchange by a
holder of a number of shares of the Common Stock of the Company into which such
shares Preferred Stock could have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the holder of shares of
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Preferred Stock the right to receive the securities or property set forth in
this Section 5(c)(vii) upon any conversion following such consolidation, merger,
sale, transfer or share exchange. This provision shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
(viii) In case:
(A) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(B) the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
(C) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
(D) the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company (other than a subdivision or combination
of the outstanding shares of Common Stock), any
consolidation or merger to which the Company is a
party, any sale or transfer of all or
substantially all of the assets of the Company, or
any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or
property, or
(E) of the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the shares of Preferred Stock, and shall cause to
be mailed to the holders of the shares of Preferred Stock at their last
addresses as they shall appear upon the stock books of the Company, at least 10
calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding-up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up
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(but no failure to mail such notice or any defect therein or in the mailing
thereof shall affect the validity of the corporate action required to be
specified in such notice).
(d) In case at any time conditions shall arise by reason of action
taken by the Company which in the opinion of the Board of Directors of the
Company are not adequately covered by the other provisions hereof and which
might materially and adversely affect the rights of the holders of shares of
Preferred Stock (different than or distinguished from the effect generally on
the rights of holders of any class of the Company's capital stock) or in case at
any time any such conditions are expected to arise by reason of any action
contemplated by the Company, an Appraiser selected by the holders of majority in
interest of the shares of Preferred Stock shall give its opinion as to the
adjustment, if any (not inconsistent with the standards established in this
Section 5), of the Conversion Price (including, if necessary, any adjustment as
to the securities into which shares of Preferred Stock may thereafter be
convertible) and any distribution which is or would be required to preserve
without diluting the rights of the holders of the shares of Preferred Stock;
provided, however, that the Company, after receipt of the determination by such
Appraiser, shall have the right to select an additional Appraiser, in which case
the adjustment shall be equal to the average of the adjustments recommended by
each such Appraiser. The Board of Directors of the Company shall make the
adjustment recommended forthwith upon the receipt of such opinion or opinions or
the taking of any such action contemplated, as the case may be; provided,
however, that no such adjustment of the Conversion Price shall be made which in
the opinion of the Appraiser(s) giving the aforesaid opinion or opinions would
result in an increase of the Conversion Price to more than the Conversion Price
then in effect.
(e) The Company covenants that it will at all times reserve and keep
available, out of its authorized and unissued Common Stock solely for the
purpose of issuance upon conversion of Preferred Stock as herein provided, free
from preemptive rights or any other actual contingent purchase rights of Persons
other than the holders of shares of Preferred Stock, such number of shares of
Common Stock as shall be issuable (taking into account the adjustments and
restrictions of Section 5(c) hereof) upon the conversion of all outstanding
shares of Preferred Stock. The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly and validly issued
and fully paid and nonassessable.
(f) Except as otherwise required by Section 6 hereof, the Company
shall not be required to issue stock certificates representing fractions of
shares of Common Stock, but may if otherwise permitted, make a cash payment in
respect of any final fraction of a share based on the Per Share Market Value at
such time. If the Company elects not, or is unable, to make such a cash
payment, the holder of a share of Preferred Stock shall be entitled to receive,
in lieu of the final fraction of a shares, one whole share of Common Stock;
provided, however, that in no event shall any such issuance of a whole share
result in the issuance of a number of shares of Common Stock in excess of the
Issuable Maximum and if such issuance would so result in the issuance of a
number of shares in excess of the
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Issuable Maximum, the holder shall be entitled to receive the cash payment
described above as soon as such cash payment may be lawfully made.
(g) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate in a name
other than that of the holder of the shares of Preferred Stock converted and the
Company shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
(h) Shares of Preferred Stock converted into Common Stock shall be
canceled and shall have the status of authorized but unissued shares of
preferred stock.
(i) If the Company intends to initiate a public offering of its
securities in an amount exceeding $5 million in the aggregate and the Company
reasonably believes that the conversion of any shares of Preferred Stock may
have an adverse effect on the ability of the Company to complete such offering
or the price at which such securities could be sold therein, the Company, upon
at least 30 days prior written notice to the holders of Preferred Stock, may
suspend the right of the holders of the shares of Preferred Stock to convert
such shares pursuant to Section 5 for the period commencing on the date the
Company files a registration statement with the Securities and Exchange
Commission and terminating 90 days after the closing of the public offering,
provided that the last day that the Preferred Stock is convertible (as set forth
in Section 5(a)) shall be extended for such number of days as the conversion
right was suspended under this Section 5(i).
(j) Each Conversion Notice shall be given by facsimile and by mail,
postage prepaid, addressed to the attention of the Chief Financial Officer of
the Company at the facsimile telephone number and address of the principal place
of business of the Company. Any such notice shall be deemed given and effective
upon the earliest to occur of (i) receipt of such facsimile at the facsimile
telephone number specified in this Section 5(j), (ii) three days after deposit
in the United States mails or (iii) upon actual receipt by the party to whom
such notice is required to be given.
Section 6. MANDATORY REDEMPTION OF THE PREFERRED STOCK.
(a) If on the Conversion Date specified in any Conversion Notice the
provisions of Section 5(a)(ii) do not permit the issuance of the full number of
shares into which the shares of Preferred Stock to be converted would otherwise
be convertible, then the Company shall, with respect to each share of Preferred
Stock that is subject to such Conversion Notice, redeem, from funds legally
available therefor at the time of such
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redemption, a portion of such share that is represented by the fraction that is
the difference between one and the Conversion Percentage (such fraction to be
known as the "Redemption Ratio"). The redemption price for such portion of each
share of Preferred Stock to be redeemed shall be an amount equal to the product
of (i) the Per Share Market Value on the Conversion Date, (ii) the number of
shares of Common Stock into which such share of Preferred Stock would then be
convertible, but for Section 5(a)(ii), times (iii) the Redemption Ratio. If any
portion of such redemption price shall not be paid by the Company within 20 days
after the Conversion Date, such redemption price shall be increased by an amount
accruing from the twenty-first day to the fortieth day after the Conversion Date
at the rate of 10% per annum, from the forty-first day to the sixtieth day at
12.5% per annum and from the sixty-first day until paid at the rate of 15% per
annum. If, on any such Conversion Date, the Company is prohibited under the
relevant provisions of the California General Corporation Law (the "CGCL") from
paying, in whole or in part, the redemption price for any shares of Preferred
Stock, any portion of the redemption price which may be lawfully paid in
accordance with the CGCL shall be paid pro rata to the holders of the shares of
Preferred Stock being redeemed on such Conversion Date and the remainder of such
redemption price shall be paid on a pro rata basis to such holders as soon as
such payment is permissible under the CGCL.
Section 7. DEFINITIONS. For the purposes hereof, the following terms
shall have the following meanings:
"Common Stock" means shares now or hereafter authorized of the class
of Common Stock, no par value, of the Company presently authorized and stock of
any other class into which such shares may hereafter have been reclassified or
changed.
"Conversion Ratio" means, at any time, a fraction, of which the
numerator is Stated Value plus accrued but unpaid dividends, and of which the
denominator is the Conversion Price at such time.
"Junior Stock" means the Common Stock of the Company and any other
stock of the Company over which shares of the Preferred Stock has preference as
to distribution of assets.
"Original Issue Date" shall mean the date of the first issuance of any
shares of the Preferred Stock.
"Per Share Market Value" means on any particular date (a) the last
sale price per share of the Common Stock on such date on The Nasdaq National
Market or other stock exchange on which the Common Stock has been listed or if
there is no such price on such date, then the last price on such exchange on the
date nearest preceding such date, or (b) if the Common Stock is not listed on
The Nasdaq National Market or any stock exchange, the average of the bid and
asked price for a share of Common Stock in the over-the-counter market, as
reported by the NASDAQ Stock Market at the close of business on such date, or
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(c) if the Common Stock is not quoted on the NASDAQ Stock Market, the average of
the bid and asked price for a share of Common Stock in the over-the-counter
market as reported by the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting prices), or
(d) if the Common Stock is no longer publicly traded the fair market value of a
share of Common Stock as determined by an Appraiser (as defined in
Section 5(c)(iv) above) selected in good faith by the holders of a majority in
interest of the shares of the Preferred Stock; provided, however, that the
Company, after receipt of the determination by such Appraiser, shall have the
right to select an additional Appraiser, in which case, the fair market value
shall be equal to the average of the determinations by each such Appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Trading Day" means (a) a day on which the Common Stock is traded on
The Nasdaq National Market or principal stock exchange on which the Common Stock
has been listed, or (b) if the Common Stock is not listed on The Nasdaq National
Market or any stock exchange, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the NASDAQ Stock Market, or (c) if the
Common Stock is not quoted on the NASDAQ Stock Market, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices).
RESOLVED FURTHER, that the President and Secretary of the Company be,
and they hereby are, authorized and directed to prepare, execute, verify, and
file in the Office of the California Secretary of State, a Certificate of
Determination in accordance with this resolution and as required by law.
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Each of the undersigned further declares under penalty of perjury
under the laws of the State of California that the matters set forth in this
certificate are true and correct of his own knowledge.
Executed at San Diego, California on the 5th day of April, 1996.
----------------------------------------
Stephen P. Gardner, President
----------------------------------------
John W. Low, Secretary
12
<PAGE>
EXHIBIT B
NEITHER THESE PREFERRED SHARES NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF THESE PREFERRED SHARES HAVE BEEN REGISTERED WITH THE U.S.
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER REGULATION S PROMULGATED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NEITHER THESE
PREFERRED SHARES NOR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
THESE PREFERRED SHARES MAY BE OFFERED OR SOLD IN THE UNITED STATES OR TO ANY
U.S. PERSON (AS SUCH TERM IS DEFINED IN REGULATION S) EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE PROVISIONS OF THE ACT.
<PAGE>
EXHIBIT 4.3
[FRONT SIDE OF CERTIFICATE]
INCORPORATED UNDER THE LAWS OF
[GRAPHIC OF EAGLE]
CALIFORNIA
NUMBER SHARES
- ------ ------
---- ------
ALPHAREL, INC.
SERIES C CONVERTIBLE PREFERRED STOCK
PAR VALUE $1.00
This certifies that ___________ is the owner of _________ shares of
the Capital Stock of Alpharel, Inc. transferable only on the books of the
Corporation by the holder hereof in person or by Attorney upon surrender of this
Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate
to be signed by its duly authorized officers and its corporate seal to be
hereonto affixed this ______ day of ____________ A.D. 19__.
- --------------------------------------- ----------------------------------
Secretary President
[Corporate Seal]
SEE THE REVERSE SIDE HEREOF FOR CERTAIN RESTRICTIONS AND RIGHTS.
<PAGE>
[REVERSE SIDE OF CERTIFICATE]
THE PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE ARE REDEEMABLE UPON THE
OCCURRENCE OF CERTAIN EVENTS. THE PREFERRED SHARES REPRESENTED BY THIS
CERTIFICATE ARE CONVERTIBLE BY THE HOLDER HEREOF AT ANY TIME AFTER 45 DAYS FROM
THE ORIGINAL DATE OF ISSUANCE AND BY ALPHAREL, INC. AT ANY TIME AFTER 120 DAYS
FROM THE ORIGINAL DATE OF ISSUANCE. ALPHAREL, INC. WILL FURNISH AT ITS
PRINCIPAL OFFICE, WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS, A COMPLETE
STATEMENT OF THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS GRANTED TO OR
IMPOSED ON THE PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE.
NEITHER THESE PREFERRED SHARES NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF THESE PREFERRED SHARES HAVE BEEN REGISTERED WITH THE U.S.
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER REGULATION S PROMULGATED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NEITHER THESE
PREFERRED SHARES NOR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
THESE PREFERRED SHARES MAY BE OFFERED OR SOLD IN THE UNITED STATES OR TO ANY
U.S. PERSON (AS SUCH TERM IS DEFINED IN REGULATION S) EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE PROVISIONS OF THE ACT.
Alpharel, Inc.
Series C Convertible Preferred Stock
Par Value $1.00 Per Share
Certificate
for
_______ shares of
Capital Stock
Issued to
--------------------------------------
Dated
---------------------
For value received, ___________________ hereby sell, assign and
transfer unto _________________, ___________ shares of the Capital Stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint ________ to transfer the said stock on the books of the within-named
corporation with full power of substitution in the premises.
Dated ___________________, 19___.
In presence of ______________________________________________
[Notice: The signature of this assignment must correspond with the
name as written upon the face of the certificate in every particular, without
alteration, enlargement or any change whatever.]
<PAGE>
EXHIBIT 11
ALPHAREL, INC.
STATEMENT RE COMPUTATION OF NET INCOME PER SHARE
------------------------------------------------
(Unaudited)
For the three months
ended March 31,
---------------------
1996 1995
---- ----
Net income per consolidated financial
statements $ 677,000 $ 225,000
Primary net income per share:
Weighted average common shares 18,053,000 13,741,000
Common stock equivalents:
Common stock options - 324,000
Common stock warrants 760,000 -
------------- -------------
Weighted average shares outstanding 18,813,000 14,065,000
------------- -------------
------------- -------------
Fully diluted net income per share:
Weighted average common shares 18,053,000 13,741,000
Common stock equivalents:
Common stock options - 324,000
Common stock warrants 760,000 -
------------- -------------
Weighted average shares outstanding 18,813,000 14,065,000
------------- -------------
------------- -------------
Net income per share:
Primary $ .04 $ .02
------------- -------------
------------- -------------
Fully diluted $ .04 $ .02
------------- -------------
------------- -------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and statement of operations found on pages 3 and 4 of
the Company's Form 10-Q for the year to date 3/31/96 and is qualified in its
entirety by reference to such financial statments.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,074
<SECURITIES> 0
<RECEIVABLES> 5,597
<ALLOWANCES> 0
<INVENTORY> 444
<CURRENT-ASSETS> 8,069
<PP&E> 6,247
<DEPRECIATION> (4,634)
<TOTAL-ASSETS> 16,357
<CURRENT-LIABILITIES> 5,080
<BONDS> 0
0
0
<COMMON> 58,601
<OTHER-SE> (48,598)
<TOTAL-LIABILITY-AND-EQUITY> 16,357
<SALES> 6,061
<TOTAL-REVENUES> 6,061
<CGS> 2,513
<TOTAL-COSTS> 2,513
<OTHER-EXPENSES> 907
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 677
<INCOME-TAX> 0
<INCOME-CONTINUING> 677
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 677
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
