<PAGE>
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 June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-15935
ALPHAREL, INC.
----------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3634089
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9339 CARROLL PARK DRIVE, SAN DIEGO, CA 92121
-----------------------------------------------------
(Address of principal executive offices and zip code)
(619) 625-3000
---------------------------------------------------
(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 July 31, 1996: 18,897,012
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Number of Sequentially Numbered Pages: 13
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Exhibit Index at Page 12
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1
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ALPHAREL, INC.
INDEX
Page Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Notes to the Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION 11
2
<PAGE>
ALPHAREL, INC.
PART 1. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 901,000 $ 4,656,000
Short term investments 90,000 270,000
Receivables, net 8,157,000 4,207,000
Inventory, net 455,000 469,000
Other current assets 779,000 803,000
------------- -----------------
Total current assets 10,382,000 10,405,000
Property and equipment, net 2,091,000 1,645,000
Computer software, net 1,767,000 1,549,000
Goodwill 4,607,000 4,945,000
Deposits and other assets 494,000 458,000
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Total assets $ 19,341,000 $ 19,002,000
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------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,501,000 $ 2,192,000
Accrued liabilities 2,305,000 3,211,000
Notes payable 200,000 1,834,000
Convertible note payable - 1,000,000
Deferred revenue 819,000 1,229,000
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Total current liabilities 4,825,000 9,466,000
Long term note payable 397,000 475,000
Other long term liabilities 774,000 945,000
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Total liabilities 5,996,000 10,886,000
Commitments
Shareholders' equity:
Preferred stock, $1 par value, 1,000,000 shares
authorized; 650,761 designated; 62,500 shares issued and
outstanding 1,229,000 3,306,000
Common stock, no par, 40,000,000 shares authorized;
18,544,464 and 16,950,902 issued and outstanding,
respectively 59,769,000 54,085,000
Foreign currency translation adjustment 70,000 -
Accumulated deficit (47,723,000) (49,275,000)
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Total shareholders' equity 13,345,000 8,116,000
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Total liabilities and shareholders' equity $ 19,341,000 $ 19,002,000
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</TABLE>
See accompanying notes to the consolidated financial statements
3
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ALPHAREL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------------- -------------------
1996 1995 1996 1995
------- ------- ------- ------
<S> <C> <C> <C> <C>
Revenues $ 6,106 $ 3,351 $12,167 $ 6,502
Cost of revenues 2,133 1,422 4,646 3,114
------- ------- ------- -------
Gross profit 3,973 1,929 7,521 3,388
------- ------- ------- -------
Operating expenses:
Research and development 849 335 1,756 560
Marketing and sales 1,394 778 2,647 1,471
General and administrative 854 399 1,565 721
------- ------- ------- -------
Total operating expenses 3,097 1,512 5,968 2,752
------- ------- ------- -------
Income from operations 876 417 1,553 636
Interest and other income 20 36 46 70
Interest and other expense (21) (26) (47) (54)
------- ------- ------- -------
Income before taxes 875 427 1,552 652
Provision for taxes - - - -
------- ------- ------- -------
Net income $ 875 $ 427 $ 1,552 $ 652
------- ------- ------- -------
------- ------- ------- -------
Net income per share $ .05 $ .03 $ .08 $ .05
------- ------- ------- -------
------- ------- ------- -------
Weighted average shares outstanding 19,187 14,068 18,468 14,066
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
ALPHAREL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months
ended June 30,
-------------------------
1996 1995
----------- ----------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 1,552,000 $ 652,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 956,000 335,000
Changes in assets and liabilities:
Receivables (3,950,000) (64,000)
Inventory 14,000 251,000
Other assets (49,000) (292,000)
Accounts payable (691,000) 2,000
Accrued liabilities (906,000) (49,000)
Deferred revenue (410,000) (91,000)
Other long term liabilities (171,000) -
----------- ----------
Net cash (used in) provided by operating activities (3,655,000) 744,000
----------- ----------
Cash flows from investing activities:
Short term investments maturing 180,000 1,129,000
Purchases of property and equipment (764,000) (186,000)
Proceeds from sale of property and equipment - 4,000
Purchases of software (15,000) (11,000)
Computer software capitalized (466,000) (404,000)
Cash paid to former Optigraphics shareholders - (171,000)
----------- ----------
Net cash (used in) provided by investing activities (1,065,000) 361,000
----------- ----------
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 (78,000) (28,000)
Proceeds from exercise of stock options 699,000 39,000
Net proceeds from issuance of preferred stock 1,908,000 -
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Net cash provided by financing activities 895,000 11,000
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Effects of exchange rate changes on cash 70,000 -
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Net (decrease) increase in cash and cash equivalents (3,755,000) 1,116,000
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 $ 901,000 $2,152,000
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Supplemental cash flow information:
Interest paid $ 37,000 $ 73,000
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Schedule of non-cash financing activity:
Conversion of Preferred Stock and note payable to Common
Stock $ 5,003,000 -
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
ALPHAREL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated balance sheet of Alpharel, Inc. (the
"Company") as of June 30, 1996 and the consolidated statement of operations
and of cash flows for the three and six month periods ended June 30, 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 June 30, 1996 and December 31, 1995, the Company's reserve
against excess quantities totaled $2,119,000.
NOTE 4 - NOTE 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 June 30, 1996,
$597,000 was outstanding on the revolving loan agreement and $403,000 was
unused. The maximum credit available under this facility declines by $200,000
in September of each year commencing in 1996. The loan balance is payable in
monthly installments of $16,667 with interest equal to the 30-day Commercial
Paper Rate plus 2.95% (8.39% at June 30, 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.
6
<PAGE>
NOTE 5 - PREFERRED STOCK
In April 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 before expenses. 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. In June 1996, 37,500 shares of Series C Preferred Stock were
converted into 145,453 shares of common stock. In July 1996, the remaining
62,500 shares of Series C Preferred Stock were converted into 326,548 shares
of common 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, all of such shares of Series B Preferred Stock were converted into 813,234
shares of common stock.
7
<PAGE>
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE THREE AND SIX MONTHS
ENDED JUNE 30, 1995.
Revenues
Revenue for the three and six months ended June 30, 1996 was $6,106,000 and
$12,167,000, respectively, as compared to $3,351,000 and $6,502,000 for the
three and six months ended June 30, 1995. The increase of 82% and 87%,
respectively, in revenue for the three and six months ended June 30, 1996 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.
For the three and six months ended June 30, 1996 revenue consisted of new
system revenue of $4,185,000 (69%) and $7,521,000 (62%), respectively, and
revenue related to system enhancements, expansion and maintenance of $1,921,000
(31%) and $4,646,000 (38%), respectively. This compares to 1995 revenue of
$1,841,000 (55%) and $3,566,000 (55%), respectively, in new system revenue and
revenue related to system enhancements, expansion and maintenance of $1,510,000
(45%) and $2,936,000 (45%), respectively. The increase in new system revenue in
second quarter 1996 is primarily due to large orders from several new customers
including Northeast Utilities, China Light & Power, Jacksonville Electric
Authority and Phase Metrics.
A small number of customers have typically accounted for a large
percentage of the Company's annual revenue. In the first six months of 1996,
one customer accounted for 15% of total revenue. During the first six months
of 1995, one customer accounted for 13% of total revenue. 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, particularly
in light of the current prevailing adverse conditions, which have affected
certain industries, including aerospace and defense-related manufacturing, in
which many of the Company's principal customers operate. Additionally, a
significant portion of the Company's revenues have historically been derived
from the sale of systems to new customers. The Company believes that the
sale of new systems as a percent of total revenues will decline with an
increase in its customer base and as a result of expanded revenue base from
system enhancements, expansion and maintenance.
Cost of Revenues
Gross profit was $3,973,000 or 65% and $7,521,000 or 62% for the three and
six months ended June 30, 1996. For the comparable periods in 1995, gross
profit was $1,929,000 or 58% and $3,388,000 or 52%, respectively. 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 $4,187,000 (69%) and $7,799,000 (64%) for the three and six months
ended June 30, 1996. This compares to $1,324,000 (40%) and $2,054,000 (32%) for
the same period in 1995. Gross profit percentage can fluctuate quarterly based
on the revenue mix of Company software, services, proprietary hardware and third
party software or hardware.
8
<PAGE>
Operating Expenses
Research and development expense for the three and six months ended June
30, 1996 was $849,000 and $1,756,000 versus $335,000 and $560,000 for the same
periods 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. For the three and six months ended
June 30, 1996, technical expense included in cost of revenues was $741,000 and
$1,475,000, respectively, versus $510,000 and $1,123,000, respectively, for the
same period last year.
Marketing expense for the three and six months ended June 30, 1996 was
$1,394,000 and $2,647,000 as compared to $778,000 and $1,471,000 for the three
and six months ended June 30, 1995. This increase is primarily due to
additional personnel and other costs resulting from the addition of Trimco's
operations.
General and administrative expense for the three and six months ended June
30, 1996 increased to $854,000 and $1,565,000 from $399,000 and $721,000 for the
three and six months ended June 30, 1995. The increase in general and
administrative expense was due primarily to additional personnel and other
administrative costs resulting from the acquisition of Trimco.
Interest and Other Income
Interest and other income was $20,000 and $46,000 for the three and six
months ended June 30, 1996 as compared to $36,000 and $70,000 in the prior year.
The decrease is due primarily to reduced interest income resulting from lower
short term investment balances during the first half of 1996 versus 1995.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company's cash and cash equivalents totaled $901,000
as compared to $4,656,000 at December 31, 1995. Short term investments were
$90,000 at June 30, 1996 versus $270,000 at December 31, 1995. Short term
investments are comprised primarily of certificates of deposit and treasury
bills. At June 30, 1996, the Company's current ratio was 2 to 1.
For the first six months of 1996, the Company used cash of $3,655,000 in
operating activities, $1,065,000 in investing activities, and generated cash of
$895,000 in financing activities. A substantial portion of cash used in
operating activities was due to delays in collection of certain accounts
receivables, which resulted in a cash usage of $3,950,000. In July 1996, the
Company collected $2,288,000 in cash. 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 notes due to former
shareholders of Optigraphics Corporation which was acquired in 1993. During the
first six months of 1995, the Company generated cash of $744,000 in operating
activities, $361,000 in investing activities, and $11,000 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 which was due
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 over at least the next twelve
months; however, to accelerate the development and product positioning of a new
integrated product line of Alpharel and Trimco, the Company may explore
additional financing options.
9
<PAGE>
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 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.
10
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PART II. OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
The Annual Meeting of Shareholders was held May 20, 1996. At the meeting,
the shareholders approved a proposal to amend the Company's Articles of
Incorporation to increase the total number of authorized shares of the Company's
Common Stock from 20,000,000 to 40,000,000. The proposal was approved with
15,456,016 proxies voting for, 545,681 voting against, and 98,057 abstaining. A
proposal to amend the Company's Articles of Incorporation to increase the total
number of authorized shares of the Company's Preferred Stock from 1,000,000 to
5,000,000 did not receive 50% of the outstanding Common Stock and thus was not
adopted by the shareholders. The vote on this proposal was 6,679,435 proxies
voting for, 1,338,861 voting against, and 92,057 abstaining. The shareholders
approved a proposal for the Company's 1996 Stock Incentive Plan. The proposal
was approved with 8,697,982 proxies voting for, 648,125 voting against, and 95
abstaining.
In addition, at the meeting, the shareholders approved the election of the
following individuals as directors who will hold office until the next annual
meeting Robert T. Bruce, Dominic Chan, Stephen P. Gardner, D. Ross Hamilton,
Michael J. McGovern, Jay Tanna, and Larry D. Unruh. In May 1996, Mr. Gardner
resigned from the Board of Directors to pursue other interests.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits - See Exhibit Index on Page 12.
(b) There were no reports on Form 8-K filed for the three months ended
June 30, 1996.
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/ Jay Tanna
--------------------------------------------
Jay Tanna
President and Chief Executive Officer
By: /s/ John W. Low
--------------------------------------------
John W. Low
Chief Financial Officer
Dated: August 13, 1996
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11
<PAGE>
EXHIBIT INDEX
Exhibit
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3.1 Restated Articles of Incorporation of Alpharel, Inc.
3.4 Amendment to Registrant's Articles of Incorporation
adopted May 24, 1988
3.5 Amendment to Registrant's Articles of Incorporation
adopted March 11, 1987
3.6 Amendment to Registrant's Articles of Incorporation
adopted May 28, 1996
10.14 Certificate of Determination of Series B Convertible
Preferred Stock adopted December 15, 1995
10.19 Certificate of Determination of Series C Convertible
Preferred Stock adopted April 5, 1996
11 Statement Re Computation of Net Income Per Share
12
<PAGE>
RESTATED
ARTICLES OF INCORPORATION
OF
ALPHAREL, INC.
I
The name of the corporation is Alpharel, Inc.
II
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III
(a) This corporation is authorized to issue two classes of capital stock
designated "Common Stock" and "Preferred Stock," respectively. The number of
shares of Common Stock authorized to be issued is 7,000,000 and the number of
shares of Preferred Stock authorized to be issued is 1,000,000. The Preferred
Stock shall have a par value of $1.00 per share and an aggregate par value of
$1,000,000.00.
(b) The Preferred Stock may be divided into such number of series as the
Board of Directors may determine. The Board of Directors may determine and
alter the rights, preferences, privileges and restrictions granted to or
imposed upon and wholly unissued series of Preferred Stock, and may fix the
number of shares and the designation of shares of any such series. The Board
of Directors, within the limits and restrictions stated in any resolution of
the Board of Directors originally fixing the number of shares constituting any
series of Preferred Stock, may increase or decrease (but not below the number
of shares of such series then outstanding) the number of shares of such series
subsequent to the issuance of shares of such series.
1. DESIGNATION AND AMOUNT. The initial series of Preferred Stock shall
be designated "Series A Preferred Stock." The number of shares constituting
the Series A Preferred Stock shall be 478,261 shares.
2. DEFINITIONS. For purposes hereof, the following definitions shall
apply:
2.1 "Board" shall mean the Board of Directors of the Company.
2.2 "Common Stock" shall refer to the Common Stock of the Company.
2.3 "Company" shall mean Alpharel, Inc., a California corporation.
<PAGE>
2.4 "Preferred Stock" shall refer to the Class A Preferred Stock of
the Company designated herein.
2.5 "Subsidiary" shall mean any corporation at least 50% of whose
outstanding voting stock is at the time owned directly or indirectly by the
Company or by one or more Subsidiaries.
3. DIVIDENDS.
3.1 RIGHT TO DIVIDENDS. The holders of then outstanding Preferred
Stock shall be entitled to receive, when and as declared by the Board, and out
of any funds legally available therefor, cash dividends at a rate of $0.69 per
share per annum, such dividends to accrue on each share of Preferred Stock
beginning three years from the date of original issuance of such share, whether
or not earned or declared. Such dividends may be payable quarterly or
otherwise as the Board may from time to time determine.
3.2 PRIORITY; PARTICIPATION. Such dividends shall be cumulative so
that unless dividends on the Preferred Stock at the foregoing annual rate for
the then current fiscal quarter shall have been paid or declared and a sum
sufficient for the payment thereof set apart, (i) no dividend whatsoever (other
than a dividend payable solely in Common Stock) shall be paid or declared, and
no distribution shall be made, on any Common Stock, and (ii) no shares of
Common Stock shall be purchased, redeemed or acquired by the Company and no
money shall be paid into or set aside or made available for a sinking fund for
the purchase, redemption or acquisition thereof; PROVIDED, however, that this
restriction shall not apply to the repurchase of shares of Common Stock from
directors, officers, employees or consultants of the Company or any Subsidiary
pursuant to agreements under which the Company has the option or obligation to
repurchase such shares upon the occurrence of certain events, including the
termination of employment or consultation. After all cumulative dividends on
the Preferred Stock as provided above have been paid or declared and a sum
sufficient for payment thereof set apart, if the Board shall elect to make
further distributions of dividends, the holders of the Preferred Stock shall be
entitled to participate pro rata in all such dividends, as and when declared by
the Board, based on the number of full shares of Common Stock into which such
Preferred Stock is then convertible pursuant to the provisions of Section 7
hereof.
4. LIQUIDATION RIGHTS.
4.1 PREFERENCE ON PREFERRED STOCK. In the event of any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
holders of each share of Preferred Stock then outstanding shall be entitled to
be paid out of the assets of the Company available for distribution to its
shareholders, whether such assets are capital, surplus or earnings, before any
payment or declaration and setting apart for payment of any amount shall be
made in respect of the Common Stock, an amount equal to $11.50 per share plus
an amount equal to all declared and unpaid dividends thereon to and including
the date full payment shall be tendered to the holders of the Preferred Stock
with respect to such liquidation, dissolution or winding up. If upon any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, the assets to be distributed to the holders of the Preferred Stock
shall be insufficient
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to permit the payment to such shareholders of the full preferential amounts
as aforesaid, then all of the assets of the Company to be distributed shall
be distributed ratably to the holders of the Preferred Stock.
4.2 REMAINING ASSETS. After the payment or distribution of the full
preferential amounts aforesaid, the holders of the Preferred Stock shall be
entitled to no further participation in the distribution of the assets of the
Company and shall have no further rights of conversion, and the holders of
Common Stock outstanding shall be entitled to receive ratably all remaining
assets of the Company to be distributed.
4.3 REORGANIZATION. A consolidation or merger of the Company with
or into any other corporation or corporations or sale of all or substantially
all of the assets of the Company in which the shareholders of the Company
receive solely capital stock of the acquiring corporation (or of the direct or
indirect parent party of the acquiring corporation), except for cash in lieu of
fractional shares, shall not be deemed a liquidation, dissolution or winding up
of the Company for the purpose of Section 4.
4.4 VALUATION. Whenever the distribution provided for herein shall
be paid in property other than cash, the value of such distribution shall be
the fair market value of such property as determined in good faith by the Board
of Directors of the Company.
5. RESTRICTION ON REDEMPTION. The Company shall not have the right to
call or redeem any or all of the Preferred Stock. The Company shall not
purchase or otherwise acquire for value any outstanding shares of Preferred
Stock unless the Company makes a tender offer to all holders of Preferred Stock
to purchase such stock from them pro rata, based on the number of shares of
Preferred Stock held by each such holder, as the same cash purchase price for
each share.
6. VOTING RIGHTS.
6.1 PREFERRED STOCK. Each holder of shares of Preferred Stock shall
be entitled to vote on all matters submitted to a vote of the holders of Common
Stock and, except as otherwise expressly provided herein, shall be entitled to
the number of votes equal to the largest number of full shares of Common Stock
into which such shares of Preferred Stock could be converted, pursuant to the
provisions of Section 7 hereof, at the record date for the determination of the
shareholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited.
6.2 COMMON STOCK. Each holder of shares of Common Stock shall be
entitled to one vote for each share thereof held. Except as otherwise
expressly provided herein or as required by law, the holders of Preferred Stock
and the holders of Common Stock shall vote together and not as separate
classes.
7. CONVERSION. The holders of Preferred Stock shall have the following
conversion rights:
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<PAGE>
7.1 RIGHT TO CONVERT. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Company or any transfer agent for
the Preferred Stock or Common Stock, into fully paid and nonassessable shares
of Common Stock, at the Conversion Price (as hereinafter defined) in effect at
the time of conversion.
7.2 CONVERSION PRICE. Each share of Preferred Stock shall be
convertible into the number of shares of Common Stock which results from
dividing the Conversion Price per share in effect at the time of conversion
into $11.50. The initial Conversion Price per share shall be $11.50. Such
Initial Conversion Price shall be subject to adjustment from time to time as
provided below.
7.3 MECHANICS OF CONVERSION. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the
office of the Company or of any transfer agent for the Preferred Stock or
Common Stock, and shall give written notice to the Company at such office that
such holder elects to convert the same and shall state therein the number of
shares of Preferred Stock being converted. Thereupon, the Company shall
promptly issue and deliver at such office to such holder a certificate or
certificates for the number of shares of Common Stock to which such holder is
entitled and shall promptly pay in cash all declared and unpaid dividends on
the shares of Preferred Stock being converted to and including the time of
conversion. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder of such shares of Common Stock on such date.
7.4 ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Company at
any time or from time to time after the original issuance of the Preferred
Stock effects a subdivision of the outstanding Common Stock, the Conversion
Price then in effect immediately before that subdivision shall be
proportionately decreased, and conversely, if the Company at any time or from
time to time after the original issuance of the Preferred Stock combines the
outstanding shares of Common Stock, the Conversion Price then in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this paragraph (d) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
7.5 ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Company at any time or from time to time after the original issuance
of the Preferred Stock makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of common Stock, then and in each such event the
Conversion Price then in effect shall be decreased as of the time of such
issuance or, in the event such a record date is fixed, as of the close of
business on such record date, by multiplying the Conversion Price then in
effect by a fraction (i) the numerator of which is the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and (ii) the denominator
of which shall be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of
4
<PAGE>
Common Stock issuable in payment of such dividend or distribution; PROVIDED,
however, that if such record date is fixed and such dividend is not fully
paid or if such distribution is not fully made on the date fixed therefor,
the Conversion Price shall be recomputed accordingly as of the close of
business on such record date and thereafter the Conversion Price shall be
adjusted pursuant to this paragraph (e) as of the time of actual payment of
such dividend or distribution.
7.6 ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Company at any time or from time to time after the original issuance of the
Preferred Stock makes, or fixes a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable
in securities of the company other than shares of Common Stock, then in each
such event provision shall be made so that the holders of Preferred Stock shall
receive upon conversion thereof, in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the Company which they
would have received had their Preferred Stock been converted into Common Stock
on the date of such event and had they thereafter, during the period from the
date of such event to and including the Conversion Date, retained such
securities receivable by them as aforesaid during such period, subject to all
other adjustments before or during such period under this Section 7 with
respect to the rights of the holders of the Preferred Stock.
7.7 ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Preferred Stock is changed
into the same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares of stock dividend or other reorganization,
merger, consolidation or sale of assets, provided for elsewhere in this
Section 7), then, and in any such event, each holder of Preferred Stock shall
have the right thereafter to convert such stock into the kind and amount of
stock and other securities and property receivable upon such recapitalization,
reclassification or other change, by holders of the number of shares of Common
Stock into which such shares of Preferred Stock might have been converted
immediately prior to such recapitalization, reclassification or change, all
subject to further adjustment as provided herein.
7.8 REORGANIZATION, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If
at any time or from time to time there is a capital reorganization of the
Common Stock (other than a recapitalization, subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this
Section 7) or a merger or consolidation of the Company with or into another
corporation, or the sale of all or substantially all of the Company's
properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of the Preferred Stock shall thereafter be entitled to receive upon
conversion of the Preferred Stock the number of shares of stock or other
securities or property of the Company, or of the successor corporation
resulting from such merger or consolidation or sale, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
capital reorganization, merger, consolidation or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 7 with respect to the rights of the holders of the Preferred Stock
after the reorganization, merger, consolidation or sale to the end that the
provisions of this Section 7 (including adjustment of the Conversion Price then
in effect and number of shares purchasable upon conversion of the Preferred
Stock) shall be
5
<PAGE>
applicable after that event and be as nearly equivalent to the provisions
hereof as may be practicable.
7.9 CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Conversion Price or the number of shares of Common Stock or
other securities issuable upon conversion of the Preferred Stock, the Chief
Financial Officer of the Company shall compute such adjustment or readjustment
in accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to each registered holder of the Preferred Stock at the
holder's address as shown in the Company's books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based.
7.10 NOTICES OF RECORD DATE. In the event of any taking by the
Company of a record of the holders of any class of securities for the purpose
of determining the holders thereof who are entitled to receive any dividend or
other distribution, or to vote on or consent to any capital reorganization of
the Company, any reclassification or recapitalization of the capital stock of
the Company, any consolidation or merger involving the Company, or any transfer
of all or substantially all of the assets of the Company to any other person or
any voluntary or involuntary dissolution, liquidation or winding up of the
Company, the Company shall mail to each holder of Preferred Stock at least
20 days prior to the record date specified therein, a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend
or distribution and description of such dividend or distribution, (ii) the date
on which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (iii) the time, if any, that is to be fixed, as to when the holders of
record of Common Stock (or other securities) shall be entitled to exchange
their shares of Common Stock (or other securities) for securities or other
property deliverable upon such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up.
7.11 AUTOMATIC CONVERSION.
(1) Each share of Preferred Stock shall automatically be
converted into shares of Common Stock based on the then effective Conversion
Price immediately upon (i) the closing of an underwritten public offering
pursuant to any effective Regulation A notification or a registration statement
under the Securities Act of 1933, as amended, covering the offering and sale of
Common Stock for the account of the Company in which the aggregate gross
proceeds received by the Company at the public offering price equals or exceeds
$6,000,000, the public offering price per share of which equals or exceeds
$11.50 per share of Common Stock (appropriately adjusted for subdivisions and
combinations of shares of Common Stock and dividends payable in shares of
Common Stock) and the obligation of the underwriters is that if any of the
securities being offered are purchased, all such securities must be purchased;
or (ii) the effective date of (A) a consolidation or merger of the Company with
or into another corporation or corporations; (B) a consolidation or merger in
which the Company is a constituent corporation, it survives the consolidation
or merger and its shareholders receive capital stock of another corporation; or
(C) a sale of all or substantially all of the assets of the Company, PROVIDED,
however, that one of the other constituent corporations, the acquiring
corporation or the parent of
6
<PAGE>
any such corporation has at that time a class of securities publicly traded
on a national securities exchange or quoted on a national quotation system or
otherwise has a class of securities registered under Section 12 of the
Securities Exchange Act of 1934, as amended.
(2) Upon the occurrence of the events specified in
paragraph (1) above, the outstanding shares of Preferred Stock shall be
converted automatically without any further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent; PROVIDED, however, that the
Company shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon such conversion unless the certificates evidencing
such shares of Preferred Stock are either delivered to the Company or its
transfer agent as provided below, or the holder notifies the Company or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such certificates. Upon the
occurrence of such automatic conversion of the Preferred Stock, the holders of
Preferred Stock shall surrender the certificates representing such shares at
the office of the Company or any transfer agent for the Preferred Stock or
Common Stock. Thereupon, there shall be issued and delivered to such holder
promptly at such office and in his name as shown on such surrendered
certificate or certificates, a certificate or certificates for the number of
shares of Common Stock into which the shares of Preferred Stock surrendered
were convertible on the date on which such automatic conversion occurred and
the Company shall promptly pay, or cause to be paid, in cash all declared and
unpaid dividends on the shares of Preferred Stock being converted to and
including the time of conversion.
7.12 FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of Preferred Stock. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Company shall pay cash
equal to the product of such fraction multiplied by the fair market value of
one share of the Company's Common Stock on the date of conversion, as
determined in good faith by the Board.
7.13 RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of Preferred Stock, the
Company will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
8. RESTRICTIONS AND LIMITATIONS.
8.1 So long as any shares of Preferred Stock remain outstanding, the
Company shall not, and shall not permit any Subsidiary to, without the vote or
written consent by the holders of more than 50% of the then outstanding shares
of Preferred Stock;
7
<PAGE>
(1) Redeem, purchase or otherwise acquire for value, any share
or shares of Preferred Stock, except as otherwise permitted under Section 5;
(2) Purchase, redeem or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any of the Common Stock; PROVIDED,
however, that this restriction shall not apply to the repurchase of shares of
Common Stock from directors, officers, employees or consultants of the Company
or any Subsidiary pursuant to agreements under which the Company has the option
or obligation to repurchase such shares upon the occurrence of certain events,
including the termination of their employment or consultation;
(3) Authorize or issue, or obligate itself to issue, any other
equity security senior to the Preferred Stock as to redemption rights,
liquidation preferences, conversion rights, voting rights or otherwise;
(4) Increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Preferred Stock.
8.2 The Company shall not amend its Articles of Incorporation
without the approval, by vote or written consent, of the holders of more than
50% of the Preferred Stock if such amendment would change any of the rights,
preferences, privileges of or limitations provided for herein for the benefit
of any shares of Preferred Stock. Without limiting the generality of the next
preceding sentence, the Company will not amend its Articles of Incorporation
without the approval by the holders of more than 50% of the Preferred Stock if
such amendment would:
(1) Reduce the dividend rate on Preferred Stock provided for
herein, or cancel declared and unpaid dividends, or change the relative
seniority rights of the holders of Preferred Stock as to the payment of
dividends in relation to the holders or Common Stock of the Company;
(2) Reduce the amount payable to the holders of Preferred Stock
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Company, or change the relative seniority of the liquidation preferences of the
holders of Preferred Stock to the rights upon liquidation of the holders of
Common Stock of the Company;
(3) Cancel or modify the conversion rights provided for in
Section 7 hereof;
(4) Authorize any other equity security senior to the Preferred
Stock; or
(5) Make the Preferred Stock redeemable at the option of the
Company except as specified in Section 5 hereof.
9. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Preferred
Stock acquired by the Company by reason of redemption, purchase, conversion or
otherwise shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the Company shall be authorized to issue.
8
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ALPHAREL, INC.
Benjamin M. Brink and John P. Belton, Jr. certify that:
1. They are the president and secretary, respectively, of ALPHAREL,
INC., a California corporation.
2. The articles of incorporation of this corporation are amended to add
the following articles:
IV.
The liability of the directors of the corporation for
monetary damages shall be eliminated to the fullest
extent permissible under California law.
V.
This corporation is authorized to provide
indemnification of agents (as defined in Section 317
of the General Corporation Law of California) for
breach of duty to the corporation and its shareholders
through bylaw provisions or through agreements with
the agents, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of
the General Corporation Law of California, subject to
any limitations on indemnification under the General
Corporation Law of California which cannot be waived.
3. The foregoing amendment of articles of incorporation
has been duly approved by the board of directors.
4. The foregoing amendment of articles of incorporation
has been duly approved by the required vote of
shareholders in accordance with Section 902 of the
Corporations Code. The total number of outstanding
shares of the corporation is 9,187,407. The number of
shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote
required was more than 50%.
<PAGE>
We further declare 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 our own knowledge.
Dated: May 24, 1988
/S/ Benjamin M. Brink
------------------------------------
Benjamin M. Brink, President
/S/ John P. Belton, Jr.
------------------------------------
John P. Belton, Jr., Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ALPHAREL, INC.
MICHAEL J. McGOVERN and VIVIAN TEASLEY certify that:
1. They are the President and the Secretary, respectively, of
Alpharel, Inc., a California corporation.
2. Article III(a) of the Articles of Incorporation of this
corporation is amended to read as follows:
(a) This corporation is authorized to issue two
classes of capital stock designated as "Common Stock"
and "Preferred Stock," respectively. The number of
shares of Common Stock authorized to be issued is
1,000,000. The Preferred Stock shall have a par value
of $1.00 per share and an aggregate par value of
$1,000,000.00. Upon the amendment of this Article to
read as herein set forth, each outstanding share of
Common Stock is split up and converted into two
shares.
3. The foregoing amendment of articles of incorporation has been
duly approved by the board of directors.
4. The foregoing Amendment of Articles of Incorporation has been
duly approved by the required vote of shareholders in accordance with Section
902 and 903 of the Corporations Code. The total number of outstanding shares
of the corporation is 2,596,549 shares of Common Stock and 478,261 shares of
Series A Preferred Stock. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote required
was more than 50% of the Common Stock and more than 50% of the Series A
Preferred Stock.
We further declare 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 our own knowledge.
Dated: March 11, 1987
/S/ Michael J. McGovern
----------------------------------
MICHAEL J. McGOVERN, President
/S/ Vivian Teasley
----------------------------------
VIVIAN TEASLEY, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ALPHAREL, INC.
The undersigned, Richard J. Kennedy and John W. Low, certify that:
1. They are the Vice President, Operations and Chief Financial
Officer and Secretary, respectively, of Alpharel, Inc., a California
corporation (the "Corporation").
2. Article III of the Articles of Incorporation of this
Corporation is amended and restated to read in its entirety as follows:
(a) This corporation is authorized to issue two classes of
shares of stock, designated, respectively as "Common Stock" and
"Preferred Stock." The total number of shares of all classes of stock
that this corporation is authorized to issue is Forty-One Million
(41,000,000), consisting of Forty Million (40,000,000) shares of Common
Stock and One Million (1,000,000) shares of Preferred Stock.
(b) Shares of Preferred Stock may be issued from time to time
in one or more series. The Board of Directors is authorized to determine
the designation of any such series. The Board of Directors is also
authorized to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock, including, without limitation, the dividend rights (and
whether dividends are cumulative), conversion rights, if any, voting rights
(including the number of votes, if any, per share, as well as the number of
members, if any, the Board of Directors or the percentage of members, if
any, of the Board of Directors that each series of Preferred Stock may be
entitled to elect), rights and terms of redemption (including sinking fund
provisions, if any), redemption price and liquidation preferences, and,
within the limits and restrictions stated in any resolution or resolutions
of the Board of Directors originally fixing the number of shares
constituting any series, to increase or decrease (but not below the number
of shares of such series then outstanding) the number of shares of any such
series subsequent to the issuance of shares of that series. In case the
number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status that they had prior to
the adoption of the resolution originally fixing the number of shares of
such series.
<PAGE>
3. The foregoing amendment of the Articles of Incorporation has
been duly approved by the Board of Directors.
4. The foregoing amendment of the Articles of Incorporation has
been duly approved by the required vote of shareholders in accordance with
Section 902 of the California Corporations Code. The total number of
outstanding shares of the Corporation entitled to vote thereon is 18,175,809,
all of which are shares of Common Stock. There are presently no shares of
Preferred Stock outstanding. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote required
was greater than 50%.
We further declare 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 our own knowledge.
DATED: May 28, 1996
/S/ Richard J. Kennedy
-----------------------------------------
Richard J. Kennedy
Vice President, Operations
/S/ John W. Low
-----------------------------------------
John W. Low
Chief Financial Officer and
Secretary
2
<PAGE>
CERTIFICATE OF DETERMINATION OF
SERIES B 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. 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 B Convertible Preferred Stock is 172,500.
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 B Convertible Preferred
Stock (the "Preferred Stock"), and the number of shares so designated shall be
172,500. 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.
<PAGE>
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 March 31, 1996. Dividends on the
Preferred Stock shall accrue on March 31, June 30, September 30 and December 31
of each year beginning on March 31, 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.
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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 1,070,000
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 Common Stock being acquired upon the
conversion of shares of Preferred Stock (subject to any
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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 Corporation 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 82.5% 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.
(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
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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 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
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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.
(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
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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 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
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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.
(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
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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 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.
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"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 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.
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 15th day of December, 1995.
/s/ Stephen P. Gardner
----------------------------------
Stephen P. Gardner, President
/s/ John W. Low
----------------------------------
John W. Low, Secretary
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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 Stock (as defined below) as to distribution of assets (upon liquidation
or otherwise) and payment of dividends.
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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.
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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 Common Stock being acquired upon the
conversion of shares of Preferred Stock (subject to any
3
<PAGE>
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.
(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
4
<PAGE>
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 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
5
<PAGE>
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.
(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
6
<PAGE>
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 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
7
<PAGE>
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.
(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
8
<PAGE>
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 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.
9
<PAGE>
"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 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.
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.
/S/ Stephen P. Gardner
----------------------------------
Stephen P. Gardner, President
/S/ John W. Low
----------------------------------
John W. Low, Secretary
10
<PAGE>
EXHIBIT 11
ALPHAREL, INC.
STATEMENT RE COMPUTATION OF NET INCOME PER SHARE
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income per consolidated financial statements $ 875 $ 427 $ 1,552 $ 652
--------- --------- --------- ---------
--------- --------- --------- ---------
Primary net income per share:
Weighted average common shares 18,404 13,913 17,696 13,827
Common stock equivalents:
Common stock options 608 155 684 239
Common stock warrants - - - -
Convertible preferred stock 175 - 88 -
--------- --------- --------- ---------
Weighted average shares outstanding 19,187 14,068 18,468 14,066
--------- --------- --------- ---------
--------- --------- --------- ---------
Fully diluted net income per share:
Weighted average common shares 18,404 13,913 17,696 13,827
Common stock equivalents:
Common stock options 608 155 684 239
Common stock warrants - - - -
Convertible preferred stock 175 - 88 -
--------- --------- --------- ---------
Weighted average shares outstanding 19,187 14,068 18,468 14,066
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per share:
Primary $ .05 $ .03 $ .08 $ .05
--------- --------- --------- ---------
--------- --------- --------- ---------
Fully diluted $ .05 $ .03 $ .08 $ .05
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<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 2 AND 3 OF
THE COMPANY'S FORM 10-Q FOR THE YEAR TO DATE 06/30/96 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 901
<SECURITIES> 0
<RECEIVABLES> 8,157
<ALLOWANCES> 0
<INVENTORY> 455
<CURRENT-ASSETS> 10,382
<PP&E> 6,819
<DEPRECIATION> (4,728)
<TOTAL-ASSETS> 19,341
<CURRENT-LIABILITIES> 4,825
<BONDS> 0
0
0
<COMMON> 59,769
<OTHER-SE> (47,723)
<TOTAL-LIABILITY-AND-EQUITY> 19,341
<SALES> 12,167
<TOTAL-REVENUES> 12,167
<CGS> 4,646
<TOTAL-COSTS> 4,646
<OTHER-EXPENSES> 1,756
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> 1,552
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,552
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,552
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
