<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 27, 1995
-------------------------------
Alpharel, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
California 0-15935 95-3634089
- -------------------------------------------------------------------------------
(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
9339 Carroll Park Drive, San Diego, California 92121
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (619) 625-3000
-----------------------------
Not applicable
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(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Alpharel, Inc., a California corporation (the "Company"),
previously entered into a letter of intent dated November 20, 1995 (the
"Letter of Intent") with Jay Tanna, the founder and Managing Director of
Trimco Group plc, a United Kingdom company ("Trimco"), and Document
Management Systems Limited, a company affiliated with Mr. Tanna, providing
for the purchase of all of the outstanding shares of Trimco. This
acquisition has now been completed, pursuant to a Sale and Purchase Agreement
dated as of December 27, 1995 by and among the Company, Mr. Tanna and the
shareholders of Trimco (the "Agreement").
Pursuant to the Agreement, the Company has acquired the Trimco
shares for an aggregate purchase price of approximately $14,650,000,
comprised of $5,550,000 in cash, 1,614,189 shares of Company common stock and
a promissory note in the principal amount of $1,000,000. The shares of
common stock were issued to the Trimco shareholders, none of whom are
residents of the United States, in reliance on the exemption set forth in
Regulation S ("Regulation S") of the Securities and Exchange Commission from
the registration requirements of the Securities Act of 1933 (the "Act").
The promissory note issued in connection with the transaction bears
interest at the rate of 7% per annum and is due on September 27, 1996. The
note is convertible into common stock at a rate of $4.00 per share, or an
aggregate of 250,000 shares. The Company has agreed that, within 30 days of
the consummation of the transaction, it will provide the holder of the note
with a second-priority lien on its assets, subject to the first-priority lien
of the Company's existing revolving term loan note. The note has also been
issued in reliance on the exemption set forth in Regulation S.
A total of $3,450,000 of the cash component of the consideration
for the acquisition has been provided by the issuance of a new series of
preferred stock, the Series B Convertible Preferred Stock (the "Series B
Preferred Stock"). The Company issued an aggregate of 172,500 shares of
Series B Preferred Stock in a private placement to two purchasers, neither of
whom is a resident of the United States, in reliance on the exemption set
forth in Regulation S. The Series B Preferred Stock bears a dividend of 8%
per annum, accruing quarterly, and is convertible into shares of common stock
after February 10, 1996, at the option of the holders, and after April 18,
1996, at the option of the Company. 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 lesser of $5.19 (the closing price on December
19, 1995, the date preceding the date of issuance), and 82.5% of the average
of closing trading price on the three trading days immediately preceding the
date of the 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 B Preferred Stock would equal or exceed 1,070,000
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 B Preferred Stock also contains customary anti-dilution provisions.
The remainder of the cash component of the consideration for the
transaction was provided from the Company's available cash.
The Company intends to make cash expenditures of approximately
$1,000,000 and to issue shares of Company common stock having a value of
approximately $550,000 (at the time of closing) to provide incentives to
Trimco personnel to remain in Trimco's employ after the closing and to
facilitate the integration of the operations of the Company and Trimco.
Trimco was incorporated in 1988 in the United Kingdom and has its
principal offices in Ealing, London in the United Kingdom. Trimco has
developed a line of software products for the capture,
2
<PAGE>
viewing, mark-up editing, storage, distribution and workflow management of
documents. Trimco's products focus on applications involving technical
documents such as engineering drawings and blueprints, although many of
Trimco's customers also use Trimco's products in managing and manipulating
office documents and electronic files. The products are marketed primarily
through value-added resellers (VARs), distributors and systems integrators,
although Trimco has successfully pursued direct business with end-user
clients, particularly for larger and more complex installations of its
software.
The Company anticipates that Mr. Tanna will remain with the Company
as Managing Director of Trimco Operations. The Company anticipates that Mr.
Tanna will, in addition, be appointed Executive Vice President and a Director
of the Company. The loss of the services of Mr. Tanna in the future would
have an adverse effect on Trimco's operations and prospects. Entities
affiliated with Mr. Tanna received approximately 70% of the shares of Company
common stock issued to Trimco shareholders. These affiliated entities now
hold 1,175,511 shares, or approximately 7% of the Company's outstanding
shares. Mr. Tanna has agreed that no more than 12.5% of the shares issued to
such entities will be sold in each three-month period after the consummation
of the acquisition.
The amount of the consideration for the transaction was determined
by arm's-length negotiations between the Company and the shareholders of
Trimco.
Prior to the transaction there were no material relationships
between Trimco and the Company, or any of its affiliates, any director or
officer of the Company, or any associate of any such director or officer.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired:
Audited Consolidated Financial Statements of Trimco Group, plc:
--------------------------------------------------------------
Consolidated Profit and Loss Account for the years
ended June 30, 1994 and 1993 (1)
Consolidated Balance Sheets at June 30, 1994 and
1993 (1)
Consolidated Statement of Total Recognized Gains and
Losses for the years ended June 30, 1994 and 1993 (1)
Consolidated Cash Flow Statement for the years ended
June 30, 1994 and 1993 (1)
Notes to the Accounts for the year ended June 30,
1994 (1)
Auditors Report to the Members of Trimco Group, plc (1)
Consolidated Profit and Loss Account for the years
ended June 30, 1995 and 1994 (1)
Consolidated Balance Sheets at June 30, 1995 and
1994 (1)
Consolidated Statement of Total Recognized Gains and
Losses for the years ended June 30, 1995 and 1994 (1)
Consolidated Cash Flow Statement for the years ended
June 30, 1995 and 1994 (1)
Notes to the Accounts for the year ended June 30,
1995 (1)
Auditors Report to the Members of Trimco Group, plc (1)
Report of the Auditors to the Directors of Trimco
Group, plc (2)
Unaudited Consolidated Financial Statements of Trimco Group, plc(3):
---------------------------------------------------------------------
Consolidated Profit and Loss Account for the three
months ended September 30, 1995
Consolidated Balance Sheet at September 30, 1995
Consolidated Cash Flow Statement for the three months
ended September 30, 1995
Notes to the Accounts for the three months ended
September 30, 1995
3
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(b) Pro Forma Financial Information:
It is impracticable to provide the required pro
forma financial information at the time of filing of
this Current Report on Form 8-K. The required pro
forma financial information will be filed as soon as
it is available, but in no event later than 60 days
after the date this Current Report on Form 8-K was
due to be filed.
(c) Exhibits:
2.1 Purchase and Sale Agreement dated December 27,
1995 by and between the Company, Mr. Tanna and
the shareholders of Trimco Group, plc.
2.2 Convertible Loan Note dated December 27, 1995
issued by the Company.
4.1 Certificate of Determination of the Series B
Convertible Preferred Stock.
4.2 Convertible Preferred Stock Purchase Agreement
dated December 20, 1995 by and between the
Company and Newsun Limited.
4.3 Convertible Preferred Stock Purchase Agreement
dated December 20, 1995 by and between the
Company and THC, Inc.
4.4 Form of Certificate representing the Series B
Convertible Preferred Stock.
4.5 Letter Agreement dated January 2, 1996 by and
among the Company, Newsun Limited and THC, Inc.
23.1 Consent of Independent Accountants.
--------------------
(1) Filed as Exhibit 99.1 to the Company's Current
Report on Form 8-K dated November 20, 1995 and
incorporated herein by this reference.
(2) Attached hereto as page F-1.
(3) Attached hereto as pages F-2 through F-5.
4
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date: January 9, 1996
ALPHAREL, INC.
By: /s/ STEPHEN GARDNER
------------------------------------
Stephen Gardner, President
5
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REPORT OF THE AUDITORS TO THE DIRECTORS OF TRIMCO GROUP, PLC
COMPLIANCE WITH AUDITING STANDARDS
We refer to our auditor's reports dated 17 January, 1994, 3 January,
1995 and 17 November, 1995 on the financial statements of Trimco Group PLC
for the years ended 30 June 1993, 1994 and 1995, respectively.
In forming our opinion as regards (ii) below, we have relied on
assurances provided to us by management representatives of both Trimco Group
PLC and Alpharel Inc that, for the accounting periods concerned, there are no
matters of a material nature that would require alternative accounting
treatment or additional disclosure either in the financial statements
referred to above or otherwise in order fully to comply with US generally
accepted accounting principles and auditing standards.
We confirm that:
i) our audit work was performed in accordance with UK generally accepted
auditing standards; and
ii) on the basis of the above, we are of the opinion that our audit was
conducted substantially in accordance with US generally accepted
auditing standards.
/s/ GANE JACKSON SCOTT 22nd December, 1995
- ------------------------------
Gane Jackson Scott
F-1
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Page 1
TRIMCO GROUP PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE PERIOD ENDED 30TH SEPTEMBER 1995
30.9.94
L'000 L'000
TURNOVER 1,034 795
Cost of Sales 270 442
--------- ---------
GROSS PROFIT 764 353
Administrative Expenses 1,025 690
--------- ---------
OPERATING (LOSS)/PROFIT (261) (337)
Interest Receivable - -
Interest Payable - -
--------- ---------
(LOSS)/PROFIT ON ORDINARY
ACTIVITIES BEFORE TAXATION (261) (337)
Taxation - -
--------- ---------
(LOSS)/PROFIT ON ORDINARY
ACTIVITIES AFTER TAXATION (261) (337)
Dividends - -
--------- ---------
RETAINED PROFIT FOR THE
FINANCIAL YEAR (261) (337)
========= =========
The notes from page 4 form part of these accounts.
F-2
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Page 2
TRIMCO GROUP PLC
CONSOLIDATED BALANCE SHEET
AT 30TH SEPTEMBER, 1995
30.6.95
L'000 L'000 L'000 L'000
FIXED ASSETS
Tangible Assets 619 596
CURRENT ASSETS
Stock 74 78
Debtors 1,418 1,945
Cash at Bank 106 316
------- ------
1,598 2,342
CURRENT LIABILITIES
CREDITORS:
Amounts falling due within one year (1,584) (2,024)
-------- --------
NET CURRENT ASSETS 14 318
-------- --------
TOTAL ASSETS LESS CURRENT
LIABILITIES 633 914
CREDITORS:
Amounts falling due after more than
one year - -
PROVISIONS FOR LIABILITIES
AND CHARGES
Deferred tax 35 35
-------- --------
668 949
======== ========
CAPITAL AND RESERVES
Called up Share Capital 370 370
Reserves 298 579
-------- --------
668 949
======== ========
The notes from page 4 form part of these accounts.
F-3
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Page 3
TRIMCO GROUP PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE PERIOD ENDED 30TH SEPTEMBER, 1995
<TABLE>
<CAPTION>
30.9.95
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING 340 404
ACTIVITIES
RETURN ON INVESTMENTS AND SERVICING OF
FINANCE
Interest received - -
Interest paid - (2)
Interest element of finance lease payments - -
Dividends paid - -
------- ------
NET CASH OUTFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF FINANCE - (2)
TAXATION
Tax paid - -
INVESTING ACTIVITIES
Purchase of fixed assets (39) (40)
Proceeds of sale of fixed assets - -
------- ------
NET CASH OUTFLOW FROM INVESTING
ACTIVITIES (39) (40)
------ ------
NET CASH INFLOW/(OUTFLOW)
BEFORE FINANCING (379) 362
FINANCING
Repayment of loans - -
Capital element of hire purchase contracts
and finance leases (2) (2)
------- ------
NET CASH (OUTFLOW)/INFLOW FROM
FINANCING (2) (2)
------ ------
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS (381) 360
====== ======
</TABLE>
The notes from page 4 form part of these accounts.
F-4
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Page 4
TRIMCO GROUP PLC
NOTES TO THE ACCOUNTS FOR THE THREE MONTHS
ENDED 30TH SEPTEMBER 1995
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated balance sheet of Trimco Group Plc (the
"Company") as of 30th September, 1995 and the consolidated profit and loss
account and cash flow statement for the three month period ended 30th
September, 1995 and 1994 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.
NOTES TO THE ACCOUNTS
30TH SEPTEMBER, 1995
DEBTORS
1995 30.9.94
L'000 L'000
Trade debtors 769 1,074
Other debtors 112 22
Amounts owed by group undertakings - -
Prepayments and accrued income 537 230
------- -------
1,418 1,326
======= =======
CREDITORS
Amounts falling due within one year - -
Loans from 3i and Government loan - 15
Obligations under Hire Purchase Contracts
and Finance Leases 4 19
Bank loans and overdrafts 363 163
Trade creditors 733 42
Corporation tax 79 119
Dividend payable 59 92
Other creditors including taxation &
social security 81 41
Accrued and deferred income 265 672
------- -------
1,584 1,963
======= =======
F-5
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2.1 Purchase and Sale Agreement dated December 27, 1995 by and
between the Company and, Mr. Tanna and the shareholders of
Trimco Group, plc.
2.2 Convertible Loan Note dated December 27, 1995 issued by the
Company.
4.1 Certificate of Determination of the Series B Convertible
Preferred Stock.
4.2 Convertible Preferred Stock Purchase Agreement dated
December 20, 1995 by and between the Company and THC, Inc.
Limited.
4.3 Convertible Preferred Stock Purchase Agreement dated
December 20, 1995 by and between the Company and Newsun Limited.
4.4 Form of Certificate representing the Series B Convertible
Preferred Stock.
4.5 Letter Agreement dated January 2, 1995 by and among the
Company, Newsun Limited and THC, Inc.
23.1 Consent of Independent Accountants.
<PAGE>
DATED 27TH DECEMBER, 1995
THE SELLERS NAMED IN SCHEDULE 1
AND
THE OPTIONHOLDERS NAMED IN SCHEDULE 1
AND
JAYANTILAL VELJI TANNA
AND
ALPHAREL, INC.
AGREEMENT
FOR THE SALE AND PURCHASE OF
ALL THE ISSUED SHARE CAPITAL
OF TRIMCO GROUP PLC
ALLEN & OVERY
LONDON
<PAGE>
CONTENTS
CLAUSE PAGE
1. Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Sale and Purchase of the Shares . . . . . . . . . . . . . . . . . . . . 3
3. Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. Purchaser's Common Stock. . . . . . . . . . . . . . . . . . . . . . . . 5
6. Completion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7. Insider Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8. Loan Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9. Guarantees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10. Protective Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . 9
11. Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
12. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
13. Resolutions and Waivers . . . . . . . . . . . . . . . . . . . . . . . .11
14. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
15. Whole Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
16. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
SCHEDULES
1. Particulars of the Sellers and the Optionholders. . . . . . . . . . . .14
2. Particulars of the Company. . . . . . . . . . . . . . . . . . . . . . .19
3. Particulars of the Subsidiaries . . . . . . . . . . . . . . . . . . . .20
4. City Code on Takeovers and Mergers. . . . . . . . . . . . . . . . . . .25
<PAGE>
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THIS AGREEMENT is made on 27th December, 1995 BETWEEN:
(1) THE PERSONS whose names and addresses are set out in column A of Part A of
Schedule 1 (each a "Seller" and together the "Sellers");
(2) THE PERSONS whose names and addresses are set out in column A of Part B of
Schedule 1 (each an "Optionholder" and together the "Optionholders");
(3) JAYANTILAL VELJI TANNA whose address is 16 Willow Chase, Hazlemere,
Buckinghamshire HP15 7QP ("Jay Tanna"); and
(4) ALPHAREL, INC. whose principal place of business is at 9339 Carroll Park
Drive, San Diego, California, United States of America (the "Purchaser")
WHEREAS:
(A) Trimco Group plc ("Trimco") is a public company limited by shares short
particulars of which are set out in Schedule 2 having an authorised capital
of L600,000 and US$50 divided into 100,000 preference shares of L1 each,
50,000 of which have been issued fully paid or credited as fully paid
("Preference Shares"), 206,600 deferred 'A' ordinary shares of L1 each,
all of which have been issued fully paid or credited as fully paid
("Deferred 'A' Ordinary Shares"), 293,400 deferred ordinary shares of L1
each, 123,400 of which have been issued fully paid or credited as fully
paid ("Deferred Ordinary Shares"), 206,600 'A' ordinary shares of US$0.0001
each, all of which have been issued fully paid or credited as fully paid
("'A' Ordinary Shares") and 293,400 ordinary shares of US$0.0001 each,
123,400 of which have been issued fully paid or credited as fully paid
("Ordinary Shares").
(B) The Sellers are beneficially entitled to all the Shares (as defined in
clause 1).
(C) Trimco is the beneficial owner of the entire issued share capitals of all
the companies short details of which are set out in Schedule 3.
(D) The Sellers wish to sell and, in reliance upon the undertakings set out in
this agreement, the Purchaser wishes to purchase all the issued share
capital of Trimco on the terms set out in this agreement.
(E) The Optionholders are beneficially entitled to the Options.
(F) The Optionholders wish to waive all of their rights in respect of the
Options and to cancel the Options at Completion on the terms set out in
this agreement.
G) For the purposes of the City Code on Takeovers and Mergers (the "Code"),
each of the Sellers, who together comprise all of the holders of the entire
issued share capital of Trimco, acknowledges the terms of Schedule 4,
whereby the Seller waives the application of the Code.
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2
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IT IS AGREED as follows:
1. INTERPRETATION
(1) In this agreement:
"Agreed Form" means, in relation to any document, the form of that document
which has been initialled for the purpose of identification by the Seller's
Solicitors and the Purchaser's Solicitors;
"Business Day" means a day (other than a Saturday or a Sunday) on which
banks are generally open in London and San Diego for normal business;
"Companies" means Trimco and the Subsidiaries and "Company" means any of
them;
"Completion" means completion of the sale and purchase of the Shares in
accordance with clause 6;
"Deferred Shares" means all of the Deferred 'A' Ordinary Shares and the
Deferred Ordinary Shares;
"Disclosure Letter" means the letter of the same date as this agreement
from the Sellers to the Purchaser in the Agreed Form;
"Group" means Trimco and the Subsidiaries;
"Non-Deferred Shares" means all of the Preference Shares, the 'A' Ordinary
Shares and the Ordinary Shares;
"Options" means those share option agreements granted by Trimco to the
Optionholders;
"Purchaser's Solicitors" means Allen & Overy of One New Change,
London EC4M 9QQ;
"Sellers' Solicitors" means Nabarro Nathanson of 50 Stratton Street, London
W1X 6NX;
"Shares" means all of the Ordinary Shares, the 'A' Ordinary Shares, the
Preference Shares, the Deferred 'A' Ordinary Shares and the Deferred
Ordinary Shares;
"subsidiary" means a subsidiary for the purposes of the Companies Act 1985;
and
"Subsidiaries" means all the companies mentioned in Schedule 3 and
"Subsidiary" means any of them.
(2) Words denoting persons shall include bodies corporate and unincorporated
associations of persons.
(3) Subclauses (1) and (2) above apply unless the contrary intention appears.
(4) The headings in this agreement do not affect its interpretation.
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3
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(5) The expression "with full title guarantee" means that the person selling,
or agreeing to sell:
(a) has the right to dispose of the relevant property, undertaking or
asset as it purports to;
(b) will, at its own cost, do all it reasonably can to give its transferee
the title it purports to give. This includes doing all it reasonably
can to ensure that the transferee is registered with the same class of
title and, in the case of any property or asset not yet registered,
giving all reasonable assistance to establish the transferee's right
to be so registered;
(c) disposes of the whole interest in the relevant property, undertaking
or asset;
(d) covenants that there is no subsisting breach which could result in
forfeiture of the relevant property, undertaking or asset; and
(e) disposes of the relevant property, undertaking or asset free from all
encumbrances (whether monetary or not) and from all other rights
exercisable by third parties.
2. SALE AND PURCHASE OF THE SHARES
(1) Each of the Sellers shall sell the number of Shares set out against its
name in Schedule 1 with full title guarantee and the Purchaser shall
purchase the Shares together with all rights attaching to them other than
the dividends provided for in the audited accounts of Trimco to 30th June,
1995 and the dividend which has accrued in respect of the Preference Shares
up until Completion.
(2) Each of the Sellers covenant with the Purchaser as follows:
(a) that it has the right to sell and transfer the full legal and
beneficial interest in the Shares set out against its name in Schedule
1 to the Purchaser on the terms set out in this agreement; and
(b) that on or after Completion it will, at its own cost and expense,
execute and do (or procure to be executed and done by any other
necessary party) all such deeds, documents, acts and things as the
Purchaser may from time to time reasonably require in order to vest
any of the Shares set out against its name in Schedule 1 in the
Purchaser or its nominee or as otherwise may be necessary to give
full effect to this agreement.
(3) Each of the Sellers covenants that the Shares set out against its name in
Schedule 1 shall be sold free from all liens, charges, equities and
encumbrances and other rights exercisable by third parties.
(4) The parties expressly acknowledge that no representations and warranties
have been given in relation to the sale and purchase of the Shares and the
cancellation of the Options. Each of the Sellers and the Optionholders
acknowledge that prior to the date of this agreement Jay Tanna has provided
or arranged to provide information to the Purchaser, the Purchaser's
accountants and the Purchaser's solicitors in response to written requests
from them. Provided that there has been no fraud or recklessness as to the
accuracy or completeness of information provided to the Purchaser, the
Purchaser's accountants and the Purchaser's solicitors, the Purchaser shall
have no claim against the Sellers or the Optionholders in respect of such
information.
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<PAGE>
4
- -------------------------------------------------------------------------------
If there has been fraud or recklessness as to the accuracy or completeness
of the information provided to the Purchaser, the Purchaser's accountants
or the Purchaser's solicitors, the Sellers and the Optionholders shall be
liable to the Purchaser for any loss suffered by the Purchaser as a result
of such fraud or recklessness provided that the maximum liability of each
Seller and each Optionholder shall not exceed the total consideration
received by the Seller or the Optionholder (as the case may be), which, in
the case of a Seller shall equal the aggregate of:
(a) the sum of cash paid to, or to the direction of, that Seller under
clause 3(1)(a); and
(b) the value of the Common Stock allotted to that Seller under clause
3(1)(b) determined by multiplying the number of shares allotted to the
Seller by US$5.018.
For the purposes of this subclause (4):
(a) there shall have been fraud or recklessness as to the accuracy or
completeness of the information provided to the Purchaser, the
Purchaser's accountants or the Purchaser's solicitors if the person
who provided such information:
(i) made a statement, which he knew to be misleading, false or
deceptive or dishonestly concealed any material fact; or
(ii) recklessly made (dishonestly or otherwise) a statement, which is
misleading, false or deceptive;
(b) references to the Sellers or to a Seller shall exclude 3i plc and 3i
Group plc.
(5) The Optionholders shall waive all rights relating to the Options.
(6) The Optionholders covenant with the Purchaser as follows:
(a) that they have the right to waive all rights to the Options on the
terms set out in this agreement; and
(b) that on or after Completion they will, at their own cost and expense,
execute and do (or procure to be executed and done by any necessary
party) all such deeds, documents, acts and things as the Purchaser may
from time to time require in order to cancel all of the Options as may
be necessary to give full effect to this agreement.
3. CONSIDERATION
(1) The consideration for the sale of the Shares shall be:
(a) the sum of US$6,521,133 payable to the Sellers in cash on Completion
in the proportions set out in Schedule 1; and
(b) the allotment to the Sellers of 1,614,189 common stock of the
Purchaser (the "Common Stock") in the proportions set out in
Schedule 1.
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<PAGE>
5
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(2) The consideration for the waiving by the Optionholders of all of their
rights under the Options and the cancellation of the Options shall be the
sum of US$28,867 payable to the Optionholders in cash on Completion in the
amounts set out in Schedule 1.
4. CONDITIONS PRECEDENT
(1) The sale and purchase of the Shares is conditional on receipt by the
parties (in a form to the reasonable satisfaction of the Sellers) of an
opinion in writing from the Purchaser's legal advisers that:
(i) no consent, approval or authorisation of and no registration,
declaration or filing with, any court or governmental authority or
agency of the United States of America is required by United States
federal law to be obtained or made by the Purchaser for the
consummation of the transactions contemplated by this agreement in
connection with the issuance of the Common Stock by the Purchaser to
the Sellers, except such as have been made or obtained prior to
Completion; and
(ii) subject to the accuracy of the statements made in clause 5(3) and
subject to the restrictions contained in clause 5(5), the offer and
sale of the Common Stock to the Sellers in the manner provided in this
agreement is exempt from the registration requirements of Section 5 of
the Act (as defined in clause 5(4)) by virtue of the provisions of
Regulation S promulgated thereunder; provided, however, that such
legal advisers shall express no opinion with respect to any resale of
such Common Stock by the Sellers; and provided, further, that such
legal advisers shall be entitled to assume the accuracy of the
respective factual representations of, and the compliance with the
respective agreements and undertakings by, the parties hereto
necessary to establish the applicability of the exemption from
registration provided by Regulation S.
(2) The Purchaser shall use reasonable endeavours to procure that the
conditions in subclause (1) above are fulfilled on or before 15th December,
1995.
(3) If the conditions in subclause (1) above are not fulfilled or waived on or
before the date specified in subclause (2) above all the preceding clauses
of this agreement shall cease to have effect and none of the parties
(provided he shall have used reasonable endeavours as aforesaid) will have
any rights or liabilities under those clauses.
5. PURCHASER'S COMMON STOCK
(1) Jay Tanna represents and warrants that no Seller which holds 50% or more of
the voting securities of Trimco or has a contractual power presently to
designate 50 per cent. or more of the members of the board of directors of
Trimco either has (or controls entities that have in the aggregate) annual
net sales or revenues of $100 million or more (as shown on their most
recent regularly prepared annual statement of income and expenses) or has
(or controls entities that have in the aggregate) total assets of $100
million or more (as shown on their most recently prepared balance sheet).
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<PAGE>
6
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(2) Jay Tanna shall procure that the Companies shall provide to the Purchaser
such information and documents as the Purchaser may reasonably request from
time to time prior to Completion for the purpose of complying with the
disclosure and other requirements of US federal and state securities (the
"Required Information") including financial information in compliance with
the requirements of the US Securities and Exchange Commission. None of
such Required Information provided to the Purchaser by the Companies will
include any untrue statement of a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(3) None of the Sellers is, or at the time of Completion will be, a "US
person", as such term is defined in Rule 902(o) of Regulation S of the US
Securities and Exchange Commission.
(4) The Sellers understand that the Common Stock has not been and will not be
registered under the US Securities Act of 1933 (the "Act") and may not be
offered or sold in the United States or to US persons unless it is
registered under the Act, or an exemption from the registration
requirements of the Act is available. None of the Sellers will engage in
any hedging transaction with respect to the Common Stock or take a short
position in the common stock of the Purchaser prior to the expiration of 40
days after the issuance of the Common Stock to the Sellers.
(5) Each of Document Management Systems Limited and Henley Documents Limited
undertakes to the Purchaser that it shall not dispose of its interest in
such Common Stock for a period of two years from the date of Completion,
save that it may dispose of its interest in up to 12 1/2 per cent. of the
total amount of Common Stock acquired by it under this agreement in each
three month period commencing on the day following Completion.
(6) If any of the Common Stock cannot be traded by reason of the Act after the
expiration of the 40 days period referred to in sub-clause (4) but within 2
years of Completion the Purchaser shall, as soon as reasonably practicable
after receiving notification from any of the Sellers, procure registration
under the Act of all Common Stock issued to the Sellers. The cost of such
registration shall be borne as to half by the Purchaser and as to the other
half by the Sellers (pro rata to their interests in the Common Stock)
provided that the obligation of all of the Sellers under this subclause
shall not exceed US$30,000.
6. COMPLETION
(1) Completion shall take place at the offices of the Purchaser's Solicitors
upon execution of this agreement.
(2) At Completion:
(a) each Seller shall procure the delivery to the Purchaser of:
(i) duly executed transfers in favour of the Purchaser or its
nominee(s) of all the Seller's Deferred Shares and, in the case
of 3i, of all the Preference Shares;
(ii) the warrants issued to the Seller by Trimco with respect to all
the Seller's Non-Deferred Shares;
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<PAGE>
7
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(iii) the share certificate(s) representing any of the Seller's
Shares (or an express indemnity in a form satisfactory to the
Purchaser in the case of any found to be missing);
(b) Jay Tanna shall procure the delivery to the Purchaser of:
(i) the certificate of incorporation, common seal, minute books,
statutory registers and share certificate books of each Company
as the Purchaser may direct;
(ii) a service agreement between Trimco and Jay Tanna in the Agreed
Form;
(iii) duly executed transfers of each share in a Subsidiary as is not
registered in the name of Trimco in favour of the Purchaser or
as it may direct together with the relevant share
certificate(s); and
(iv) the resignation of the auditors of each Company in the Agreed
Form in each case confirming, in accordance with section 394 of
the Companies Act 1985, that there are no circumstances
connected with their resignation which should be brought to the
attention of the members or creditors of that Company and that
no fees are due to them.
(c) each Seller shall (so far as it is able) procure that a board meeting
of each Company is held at which it is resolved that:
(i) such persons as the Purchaser nominates are appointed as
additional directors and the secretary of that Company;
(ii) the transfers referred to in paragraph (a) above (subject only
to their being duly stamped) are approved for registration;
(iii) Price Waterhouse are appointed as auditors; and
(iv) its bank mandates are revised in such manner as the Purchaser
requires;
(d) each of 3i plc and 3i Group plc shall deliver a written notice to the
Purchaser, addressed to Trimco and the Purchaser, confirming it waives
all rights:
(i) under article 9 of Trimco's articles of association; and
(ii) under Trimco's articles of association to have the Preference
Shares redeemed,
in a form satisfactory to the Purchaser;
(e) Document Management Systems Limited shall deliver a written notice to
the Purchaser, addressed to Trimco and the Purchaser, confirming that
it waives all of its rights under article 9 of the Trimco's articles
of association; and
(f) each of the Optionholders shall deliver a written notice waiving all
rights in respect of the Options and cancelling the Options.
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<PAGE>
8
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(3) Upon completion of all the matters referred to in subclause (2) above the
Purchaser shall:
(a) pay the cash consideration for the sale of the Shares to the Sellers'
Solicitors or otherwise as each Seller may direct the Purchaser in
writing except, in the case of 3i plc and 3i Group plc, in which case
the cash consideration for the sale of the Shares shall be paid to 3i
plc on behalf of itself and 3i Group plc;
(b) issue a share certificate to each Seller or its nominee for the number
of Common Stock set out next to the Seller's name in column H of Part
A of Schedule 1; and
(c) pay the cash consideration for the waiver by the Optionholders of
their rights under the Options and the cancellation of the Options to
the Sellers' Solicitors.
(4) If for any reason the provisions of subclause (2) above are not fully
complied with the Purchaser may elect (in addition and without prejudice to
all other rights or remedies available to it) to rescind this agreement or
to fix a new date for Completion.
7. INSIDER CONTRACTS
(1) Each Seller other than 3i plc and 3i Group plc covenants with the Purchaser
that neither that Seller nor any person or company or other entity
connected (subject to the proviso set out below) with that Seller:
(a) is a party to any outstanding agreement or arrangement for the
provision of finance, goods, services or other facilities to or by any
Company or in any way relating to any Company or its affairs except as
is set out in the Disclosure Letter; and
(b) has any claim against the Company and hereby waives any claim it may
have against the Company except as is set out in the Disclosure
Letter,
provided that no regard shall be had regarding any financial interest of
the nature described in the proviso to clause 10(2)(a) .
(2) Jay Tanna covenants with the Purchaser that neither Jay Tanna nor any
person or company or other entity connected with Jay Tanna:
(a) is a party to any outstanding agreement or arrangement for the
provision of finance, goods, services or other facilities to or by any
Company or in any way relating to any Company or its affairs except as
is set out in the Disclosure Letter; and
(b) has any claim against the Company and hereby waives any claim it may
have against the Company except as is set out in the Disclosure
Letter,
provided that no regard shall be had regarding any financial interest of
the nature described in the proviso to clause 10(2)(a) .
(3) Each of 3i plc and 3i Group plc covenants with the Purchaser that it:
(a) is not a party to any outstanding agreement or arrangement for the
provision of finance, goods, services or other facilities to or by any
Company or in any way relating to any Company or its affairs except as
is set out in the Disclosure Letter; and
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<PAGE>
9
- -------------------------------------------------------------------------------
(b) does not have any claim against the Company and hereby waives any
claim it may have against the Company except as is set out in the
Disclosure Letter.
8. LOAN ACCOUNTS
Each of the Sellers and Jay Tanna shall procure that on Completion all
indebtedness due from that Seller (or any person connected with that
Seller) to any Company is satisfied in full other than as is set out in the
Disclosure Letter.
9. GUARANTEES
(1) Each of the Sellers (other than 3i plc and 3i Group plc) and Jay Tanna
shall procure that on Completion each Company is released from all
guarantees and indemnities given by it other than a guarantee in respect
only of the liabilities of another Company.
(2) The Purchaser shall use reasonable endeavours to procure that as from
Completion each Seller and Jay Tanna is released from all guarantees and
indemnities given by him in respect of obligations of any Company and of
which full particulars are contained in the Disclosure Letter and pending
its release the Purchaser shall indemnify the relevant Seller or Jay Tanna
(as the case may be) against all liabilities under those guarantees and
indemnities.
10. PROTECTIVE COVENANTS
(1) Jay Tanna covenants with the Purchaser (for itself and as trustee for each
Company) that he shall not:
(a) for a period of 2 years from Completion be concerned in any business
(other than the business of a Company) carrying on business which is
competitive or likely to be competitive with any of the businesses
carried on by a Company at Completion; or
(b) for a period of 2 years from Completion and except on behalf of a
Company canvass or solicit orders for goods of similar type to those
being manufactured or dealt in or for services similar to those being
provided by any Company at Completion from any person who is at
Completion or has been at any time within the year prior to Completion
a supplier or customer of a Company; or
(c) for a period of 2 years from Completion induce or attempt to induce
any supplier of a Company to cease to supply, or to restrict or vary
the terms of supply, to that Company; or
(d) for a period of 2 years from Completion induce or attempt to induce
any employee of a Company to leave the employment of that Company; or
(e) make use of or (except as required by law or any competent regulatory
body) disclose or divulge to any third party any information of a
secret or confidential nature relating to the business or affairs of
any Company or its customers or suppliers; or
(f) use or (insofar as it can reasonably do so) allow to be used (except
by the Companies) any trade name used by a Company at Completion or
any other name intended or likely to be confused with such a trade
name.
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<PAGE>
10
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(2) For the purposes of subclause (1) above:
(a) Jay Tanna is concerned in a business if he carries it on as principal
or agent or if:
(i) he is a partner, director, consultant or agent in, of or to any
person who carries on the business; or
(ii) he has any direct or indirect financial interest (as
shareholder or otherwise) in any person who carries on the
business; or
(iii) he is a partner, director, consultant or agent in, of or to any
person who has a direct or indirect financial interest (as
shareholder or otherwise) in any person who carries on the
business
provided that no regard shall be had to any financial interest of a person
in securities which are listed on the London Stock Exchange or traded on
the Unlisted Securities Market and/or the Alternative Investment Market
and/or any internationally recognised stock exchange or similar securities
market if that person is interested in securities which amount to less than
five per cent. of the issued securities of that class and which, in all
circumstances, carry less than five per cent. of the voting rights (if any)
attaching to the issued securities of that class; and
(b) references to a Company include its successors in business.
(3) Each of the restrictions in each paragraph or subclause above shall be
enforceable by the Purchaser independently of each of the others and its
validity shall not be affected if any of the others is invalid; if any of
those restrictions is void but would be valid if some part of the
restrictions were deleted the restriction in question shall apply with such
modification as may be necessary to make it valid.
(4) Jay Tanna acknowledges that the above provisions of this clause are no more
extensive than is reasonable to protect the Purchaser as the purchaser of
the Shares.
(5) If by virtue of any provision of this agreement or of any other agreement
or arrangement of which this agreement forms part the agreement or
arrangement is subject to registration under the Restrictive Trade
Practices Act 1976, that provision shall not take effect until the day
after particulars of the agreement or arrangement have been given to the
Director General of Fair Trading under section 24 of that Act.
11. ANNOUNCEMENTS
No party shall make any announcement concerning this sale and purchase or
any ancillary matter before Completion except as required by law or any
competent regulatory body or with the written approval of Jay Tanna, 3i
plc and the Purchaser, such approval not to be unreasonably withheld or
delayed.
12. NOTICES
(1) Any notice or other document to be served under this agreement may be
delivered or sent by post or telex or facsimile process to the party to be
served at its address appearing in this agreement or at such other address
as it may have notified to the other party in accordance with this clause.
Any notice or document sent by post shall be sent by prepaid first class
recorded delivery post (if within the United Kingdom) or by prepaid airmail
(if elsewhere).
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<PAGE>
11
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(2) Any notice or document shall be deemed to have been served:
(a) if delivered, at the time of delivery; or
(b) if posted, at 10.00 a.m. on the second Business Day after it was put
into the post, if sent within the United Kingdom, or at 10.00 a.m.
(local time at place of destination) on the seventh Business Day after
it was put into the post, if sent by airmail; or
(c) if sent by telex or facsimile process, at the expiration of 2 hours
after the time of despatch, if despatched before 3.00 p.m. (local time
at the place of destination) on any Business Day, and in any other
case at 10.00 a.m. (local time at the place of destination) on the
Business Day following the date of despatch.
(3) In proving service of a notice or document it shall be sufficient to prove
that delivery was made or that the envelope containing the notice or
document was properly addressed and posted as a prepaid first class
recorded delivery letter or that the telex or facsimile message was
properly addressed and despatched as the case may be.
13. RESOLUTIONS AND WAIVERS
(1) In relation to each Company the Sellers shall procure (so far as they each
are able) the convening of all meetings, the giving of all waivers and
consents and the passing of all resolutions as are necessary under the
Companies Act 1985, its articles of association or any agreement or
obligations affecting it to give effect to this agreement.
(2) The Sellers waive (and shall procure the waiver by its nominee(s) of) all
rights of preemption which it (or such nominee(s)) may have (whether under
Trimco's articles of association or otherwise) in respect of the transfer
to the Purchaser or its nominee(s) of the Shares or any of them.
(3) For so long after Completion as it remains the registered holder of any of
the Shares the Sellers shall hold them and any distributions, property and
rights deriving from them in trust for the Purchaser and shall deal with
the Shares and any distributions, property and rights deriving from them as
the Purchaser directs; in particular, the Sellers shall exercise all voting
rights as the Purchaser directs or shall execute an instrument of proxy or
other document which enables the Purchaser or its representative to attend
and vote at any meeting of Trimco.
14. GENERAL
(1) Each of the obligations and undertakings set out in this agreement which is
not fully performed at Completion will continue in force after Completion.
(2) Unless otherwise expressly stated all payments to be made under this
agreement shall be made in US Dollars to the party to be paid as follows:
(a) to the Sellers' Solicitors at:
bank Midland Bank plc
196A Piccadilly
London W1
sort code: 40-05-27
account name: Nabarro Nathanson Re Trimco Group US$ Client Account
account number: 35942762
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<PAGE>
12
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or such other account as the Sellers may specify; and
(b) to the Purchaser at such account as the Purchaser may specify.
(c) to 3i plc on behalf of itself and 3i Group plc at:
bank: Chase Manhattan Bank, New York
Swift LLOYDGB2CITY
Lloyds Bank plc
City International Branch London
Favour 3i Group plc
account number: 11074873
(3) The receipt of the Sellers' Solicitors (except for 3i plc and 3i Group plc)
for any sum or document to be paid or delivered to the Sellers (except 3i
plc and 3i Group plc) or to the Optionholders will discharge the
Purchaser's obligation to pay or deliver it to the Sellers (except 3i plc
and 3i Group plc) or to the Optionholders (as the case may be). The
receipt of 3i plc for any sum or document to be paid or delivered to 3i plc
or 3i Group plc will discharge the Purchaser's obligation to pay or deliver
it to 3i plc or 3i Group plc.
(4) If the Shares are sold or transferred after Completion to any wholly-owned
company within the Purchaser's Group the benefit of each of the obligations
and undertakings undertaken or given by the Sellers and/or Jay Tanna may be
assigned to the purchaser or transferee of the Shares who may enforce them
as if it had been named in this agreement as the Purchaser.
(5) Subject to subclause (4) above none of the rights or obligations under this
agreement may be assigned or transferred without the prior written consent
of all the parties.
(6) Each party shall pay the costs and expenses incurred by it in connection
with the entering into and completion of this agreement.
(7) This agreement may be executed in any number of counterparts, all of which
taken together shall constitute one and the same agreement and any party
may enter into this agreement by executing a counterpart.
15. WHOLE AGREEMENT
(1) This agreement and the documents referred to in it contain the whole
agreement between the parties relating to the transactions contemplated by
this agreement and supersede all previous agreements between the parties
relating to these transactions except as otherwise agreed in writing.
(2) Each of the parties acknowledges that in agreeing to enter into this
agreement it has not relied on any representation, warranty or other
assurance except those set out in this agreement and in the absence of
fraud or recklessness he will not have any remedy or right arising out of
or in connection with this agreement or the information and responses
provided to the Purchaser on behalf of the Sellers (as defined in clause
2(4)) except as otherwise agreed in writing.
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<PAGE>
13
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16. GOVERNING LAW
This agreement is governed by and shall be construed in accordance with
English law and the Purchaser agrees to submit to the jurisdiction of the
courts of England. The address for the service of notices for the
Purchaser shall be 111 Uxbridge Road, Ealing, London, W5 2TZ or such other
address in England as it shall notify Jay Tanna from time to time.
AS WITNESS the hands of the Sellers or their authorised signatories, the hands
of the Optionholders or their authorised signatories and of a duly authorised
officer of the Purchaser on the date which appears first on page 1.
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<PAGE>
14
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SCHEDULE 1
PARTICULARS OF THE SELLERS AND THE OPTIONHOLDERS
PART A
THE SELLERS
<TABLE>
<CAPTION>
B. No. of C. No. of 'A' D. No. of E. No. of F. No. of G. Amount of H. No. of
A. Name and Address Preference Ordinary Shares Ordinary Deferred 'A' Deferred Cash Common
Shares Shares Ordinary Shares Ordinary Shares Consideration Stock
<S> <C> <C> <C> <C> <C> <C> <C>
Document Management
Systems Ltd.
Tropic Isle Buildings
Road Town, Tortola
British Virgin Islands 150,000 150,000 US$3,077,436 735,719
3i plc
91 Waterloo Road
London SE1 8XP 50,000 45,600 45,600 US$969,746
3i Group plc
91 Waterloo Road
London SE1 8XP 11,000 11,000 US$215,265 276,231
Henley Documents
Limited
PO Box 641
No. 1 Seaton Place
St Helier, Jersey 90,114 90,114 US$1,763,489 439,792
Channel Islands JE4
8YJ
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<PAGE>
15
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William Turner
14 Brands Hill Avenue
High Wycombe
Bucks 6,000 6,000 US$83,991 29,282
Hazel Elizabeth Turner
14 Brands Hill Avenue
High Wycombe
Bucks 2,000 2,000 US$39,139 9,761
Dr Michael Hadjitofi
Sint Hubertusureg 3
2597 JH Den Haag 7,195 7,195 US$140,803 35,114
Margaret Prosser
10 Apex Court
Sutherland Road
Ealing
London W13 ODU 4,401 4,401 US$82,227 21,478
Haickanoosh Liddell
3 Vernon Road
Bushey
Watford WDL 2JL 8,195 8,195 Nil 39,995
Jay Patel
6 Parkside
Hampton Hill
Middlesex TW12 1NU 895 895 US$15,287 4,368
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<PAGE>
16
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Sima Patel
6 Parkside
Hampton Hill
Middlesex TW12 1NU 1,700 1,700 US$33,268 8,297
J Dhanpaul
8 Meadowview Road
Kennington
Oxford OX1 5QX 950 950 US$13,299 4,636
B Clarke
6 Ascham Road
Bournemouth
Dorset BH8 8LY 500 500 US$6,999 2,440
P Reeves
79 Elder Road
Bisley, Nr Woking
Surrey GU25 9HB 400 400 US$5,600 1,952
S King
The Retreat
Flowers Bottom Lane
Speen
Nr Princes Risborough
Bucks NP27 3PZ 350 350 US$4,899 1,708
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<PAGE>
17
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P Dhaliwal
51 Minterne Avenue
Norwood Green,
Southall 250 250 US$3,499 1,220
Middlesex UB2 4HP
S Sullivan
32 Norton Road
Heatherside
Camberley
Surrey 250 250 US$3,499 1,220
J Smith
19 Gloucester Street
Farringdon
Oxon SN7 7JA 150 150 US$2,099 732
L Brannigan
5 Church Drive
Kingsbury
London NW9 50 50 US$699 244
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</TABLE>
<PAGE>
18
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PART B
THE OPTIONHOLDER
<TABLE>
<CAPTION>
A. Name and Address B. No. of Options C. Amount of Cash Consideration
<S> <C> <C>
Michael Boses 750 US$28,867
1378 76th Avenue N.
Seminole
F 1 34646
United States of America
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</TABLE>
<PAGE>
19
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SCHEDULE 2
PARTICULARS OF THE COMPANY
Registered number: 2253256
Registered office: 111, Uxbridge Road, Ealing, London W5 2TZ
Date and place of incorporation: 9th May, 1988 at Cardiff
Directors: Robert Edward Liddell
Jayantilal Velji Tanna
William Alan Turner
David Bantin
Sunil Jay Tanna
Jayendra Nagin Patel
Secretary: David Bantin
VAT number: GB 538819602
Accounting reference date: 30th June
Auditors: Gane Jackson Scott
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<PAGE>
20
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SCHEDULE 3
PARTICULARS OF THE SUBSIDIARIES
A. TRIMCO ENTERPRISES LIMITED
Registered number: 2625912
Registered office: 111 Uxbridge Road, Ealing, London, W5 2TZ
Date and place of 26th June, 1991, London
incorporation:
Directors: Jayantilal Velji Tanna
William Alan Turner
Robert Edward Liddell
Jayendra Nagin Patel
David Bantin
Sunil Jay Tanna
Secretary: David Bantin
Accounting reference date: 30th June
Auditors: Gane Jackson Scott
Authorised capital: L1000
Issued capital: L2
Shareholders: Trimco Group Plc No. of shares: 2
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<PAGE>
21
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B. IMAGEN ENTERPRISES LIMITED
Registered number: 2527310
Registered office: 111 Uxbridge Road, Ealing, London, W5 2TZ
Date and place of 2nd August, 1990, Cardiff
incorporation:
Directors: Jayantilal Velji Tanna
David Bantin
Secretary: David Bantin
Accounting reference date: 30th June
Authorised capital: L1000
Issued capital: L100
Shareholders: Trimco Group Plc No. of shares:100
Status: Registered as a dormant company
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<PAGE>
22
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C. MICRO SYNERGY ASSOCIATES, INC.
FEI Number: 59-2763224
Principal Place of Business: 15950 Bay Vista Drive
Suite 140
Clearwater
Florida 34620
Date of Incorporation: 29th January, 1987
Directors: Jay Tanna
Secretary: David Bantin
Authorised capital: $500
Issued capital: $67
Shareholders: Trimco Enterprises Limited
This Company ceased to trade on 30th November, 1995
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<PAGE>
23
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D. TRIMCO AMERICA INC.
FEI Number: 59-3109048
Principal Place of Business: 15950 Bay Vista Drive
Suite 140
Clearwater
Florida 34620
Date of Incorporation: 23rd December, 1991
Directors: Jay Tanna
David Bantin
Secretary: David Bantin
Authorised capital: $1000
Issued capital: $100
Shareholders: Trimco Group plc
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<PAGE>
24
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E. TRIMCO DOCUMENT MANAGEMENT INC.
Registration No.: 290490-0
Date of Incorporation: 20th April, 1993 (Canada Business Corporation
Acts)
Principal Place of Business: 1253 McGill College Street
Suite 695
Montreal
Province of Quebec H3B 2Y5
Nominee Director: Andre Sicard (Canadian resident)
Authorised capital: Unlimited
Shareholders: Trimco Group plc
Issued capital: C$100
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<PAGE>
25
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SCHEDULE 4
CITY CODE ON TAKEOVERS AND MERGERS
1. Under the terms of this agreement, all of the Sellers, as all the
shareholders in Trimco acknowledge that the Panel on Takeovers and Mergers
(the "Panel") has agreed to a waiver of the City Code on Takeovers and
Mergers (the "Code") in respect of the sale and purchase of the Shares
provided that all of the Sellers agree to waive their rights under the Code
as set out in this Schedule. Brief details of the Panel, the Code and the
protections they afford are described below. Each of the Sellers
acknowledges that in waiving their rights under the Code they have had the
opportunity to take independent professional advice.
2. The Code is issued and administered by the Panel. The Code applies to all
takeover and merger transactions, however effected, where the offeree
company is (inter alia) an unlisted public company resident in the United
Kingdom. Trimco is such a company and its shareholders are entitled to the
protection afforded by the Code.
3. The Code and the Panel operate principally to ensure fair and equal
treatment of shareholders in relation to takeovers. The Code also provides
an orderly framework within which takeovers are conducted.
4. The Code has not, and does not seek to have, the force of law. It has,
however, been acknowledged by both government and other regulatory
authorities that those who seek to take advantage of the facilities of the
securities market in the United Kingdom should conduct themselves in
matters relating to takeovers in accordance with best business standards
and so according to the Code.
5. The Code is based upon a number of General Principles which are essentially
statements of good standards of commercial behaviour. The General
Principles are set out in Appendix 1 to this Schedule 4. These General
Principles apply to all transactions with which the Code is concerned.
They are, however, expressed in broad general terms and the Code does not
define the precise extent of, or the limitations on, their application.
They are applied by the Panel in accordance with their spirit to achieve
their underlying purpose: the Panel may modify or relax the effect of their
precise wording accordingly.
In addition to the General Principles, the Code contains a series of Rules,
of which some are effectively expansions of the General Principles and
examples of their application and other provisions governing specific
aspects of takeover procedure. Although most of the Rules are expressed in
more detailed language than the General Principles, they are not framed in
technical language and, like the General Principles, are to be interpreted
to achieve their underlying purpose. Therefore, their spirit must be
observed as well as their letter and the Panel may modify or relax the
application of a Rule in certain circumstances.
6. The following points are of particular relevance:-
(i) General Principle 1 of the Code states that all shareholders of the
same class must be treated similarly by an offeror. Furthermore, the
effect of Rule 16 is that, except with the consent of the Panel,
special arrangements may not be made with shareholders in Trimco if
there are favourable conditions attached which are not being extended
to all shareholders.
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<PAGE>
26
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(ii) The Board of Directors of Trimco is required by Rule 3.1 of the
Code to obtain competent independent advice on the Offer and the
substance of such advice must be made known to its shareholders.
General Principle 4 requires that shareholders must be given
sufficient information and advice to enable them to reach a
properly informed decision and must have sufficient time to do so.
(iii) In support of the latter requirement, Rule 24 requires that the
document setting out the Offer must deal in detail with the
following matters:-
(a) the Offeror's intentions regarding Trimco and its employees;
(b) detailed financial information regarding the Offeror for the
past three years; the names of its Directors; the nature of its
business; financial and trading prospects; and a summary of the
principal contents of material contracts entered into during
the preceding two years;
(c) full details of the terms of the Offer;
(d) detailed financial information on Trimco for the past three
years and the names of its Directors;
(e) a description of how the Offer is to be financed and the source
of the finance;
(f) if appropriate, middle market quotes for the last six months of
the shares to be acquired and if not, details of the prices at
which shares have been transferred during the previous six
months;
(g) appropriate details of shareholdings and recent dealings in the
securities of the Offeror and Trimco by relevant parties;
(h) details of any special arrangements between the Offeror or any
person acting in concert with it and any of the Directors,
recent directors, shareholders or recent shareholders of Trimco
having any connection with or dependence upon the Offer;
(i) certain extracts from the Code relating to acceptances of the
Offer, timing obligations, restrictions on Offerors or
provisions conferring rights on shareholders in Trimco;
(j) confirmation by an appropriate third party that resources are
available to the Offeror sufficient to satisfy the cash
payments required under the Offer;
(k) a statement as to whether or not any shares acquired under the
Offer will be transferred to any other persons; and
(l) a statement to the effect that, except with the consent of the
Panel, settlement of the consideration to which any shareholder
is entitled under the Offer will be implemented in full in
accordance with the terms of the Offer without regard to any
lien, right of set-off, counterclaim or other analogous right
to which the Offeror may otherwise be entitled.
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<PAGE>
27
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(iv) Rule 25 requires that the Board of Trimco must circulate its
views on the Offer and make known to its shareholders the substance
of the advice given to it by independent advisers appointed pursuant
to Rule 3.1. The Board must also comment upon the Offeror's
statements regarding its intentions in respect of the Company and
its employees. The circular from the Board of Trimco must also deal
with the following matters:-
(a) appropriate details of shareholdings and recent dealings in the
securities of the Offeror and Trimco by relevant parties;
(b) whether the Directors of Trimco intend to accept or reject the
Offer in respect of their own beneficial shareholdings; and
(c) a summary of the principal contents of each material contract
entered into by Trimco and its subsidiaries during the period
beginning two years before the Offer was made.
(v) Rule 20.1 states that information about the companies involved in
the Offer must be made equally available to all shareholders as
nearly as possible at the same time and in the same manner.
7. Compliance with the Code inevitably imposes time constraints and additional
costs. Each of the Sellers believes that in respect of the sale and
purchase of Shares as set out in this agreement, these costs and
constraints may well outweigh the advantages to all parties and each of the
Sellers agrees to the waiver from the Code by the Panel for the purposes of
the sale and purchase of the Shares in accordance with the terms of this
agreement.
APPENDIX 1 - THE GENERAL PRINCIPLES OF THE CODE
1. All shareholders of the same class of an offeree company must be treated
similarly by an offeror.
2. During the course of an offer, or when an offer is in contemplation,
neither an offeror, nor the offeree company, nor any of their respective
advisers may furnish information to some shareholders which is not made
available to all shareholders. This principle does not apply to the
furnishing of information in confidence by the offeree company to a bona
fide potential offeror or vice versa.
3. An offeror should only announce an offer after the most careful and
responsible consideration. Such an announcement should be made only when
the offeror has every reason to believe that it can and will continue to be
able to implement the offer: responsibility in this connection also rests
on the financial adviser to the offeror.
4. Shareholders must be given sufficient information and advice to enable them
to reach a properly informed decision and must have sufficient time to do
so.
5. Any document or advertisement addressed to shareholders containing
information or advice from an offeror or the board of the offeree company
or their respective advisers must, as is the case with a prospectus, be
prepared with the highest standards of care of accuracy.
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<PAGE>
28
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6. All parties to an offer must use every endeavour to prevent the creation of
a false market in the securities of an offeror or the offeree company.
Parties involved in offers must take care that statements are not made
which may mislead shareholders or the market.
7. At no time after a bona fide offer has been communicated to the board of an
offeree company, or after the board of an offeree company has reason to
believe that a bona fide offer might be imminent, may any action be taken
by the board of the offeree company in relation to the affairs of the
company, without the prior approval of the shareholders in general meeting,
which could effectively result in any bona fide offer being frustrated or
in the shareholders being denied an opportunity to decide on its merits.
8. Rights of control must be exercised in good faith and the oppression of a
minority is wholly unacceptable.
9. Directors of an offeror and the offeree company must always, in advising
their shareholders, act only in their capacity as directors and not have
regard to their personal or family shareholdings or to their personal
relationships with the companies. It is the shareholders' interests taken
as a whole, together with those of employees and creditors, which should be
considered when the directors are giving advice to shareholders. Directors
of the offeree company should give careful consideration before they enter
into any commitment with an offeror (or anyone else) which would restrict
their freedom to advise their shareholders in the future. Such commitments
may give rise to conflicts of interest or result in a breach of the
directors' fiduciary duties.
10. Where control of a company is acquired by a person, or persons acting in
concert, a general offer to all other shareholders is normally required; a
similar obligation may arise if control is consolidated. Where an
acquisition is contemplated as a result of which a person may incur such an
obligation, he must, before making the acquisition, ensure that he can and
will continue to be able to implement such an offer.
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<PAGE>
29
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SIGNED by )
Brian John Pierce )
and )
by Richard John Stobart Prosser ) /s/ Brian John Pierce
as authorised signatories )
for and on behalf of ) /s/ Richard John Stobart Prosser
DOCUMENT MANAGEMENT )
SYSTEMS LIMITED )
SIGNED by )
Brian John Pierce )
and )
by Richard John Stobart Prosser ) /s/ Brian John Pierce
as authorised signatories )
for and on behalf of ) /s/ Richard John Stobart Prosser
HENLEY DOCUMENTS LIMITED )
SIGNED by )
Christine Wilson as )
authorised signatory ) /s/ Christine Wilson
for and on behalf of )
3i plc )
SIGNED by )
Christine Wilson as )
authorised signatory ) /s/ Christine Wilson
for and on behalf of )
3i GROUP plc )
SIGNED by
HAZEL ELIZABETH TURNER )
/s/ Hazel Turner
SIGNED by DR MICHAEL HADJITOFI )
/s/ Michael Hadjitofi
SIGNED by MARGARET PROSSER )
/s/ Margaret Prosser
- --------------------------------------------------------------------------------
<PAGE>
30
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SIGNED by HAICKANOOSH LIDDELL )
/s/ Haickanoosh Liddell
SIGNED by JAY PATEL )
/s/ Jay Patel
SIGNED by SIMA PATEL )
/s/ Sima Patel
SIGNED by J DHANPAUL )
/s/ J Dhanpaul
SIGNED by B CLARKE )
/s/ B Clarke
SIGNED by P REEVES )
/s/ P Reeves
SIGNED by S KING )
/s/ S King
SIGNED by P DHALIWAL )
/s/ P Dhaliwal
SIGNED by S SULLIVAN )
/s/ S Sullivan
SIGNED by J SMITH )
/s/ J Smith
SIGNED by L BRANNIGAN )
/s/ L Brannigan
SIGNED by JAY TANNA )
/s/ Jay Tanna
SIGNED by MICHAEL BOSES )
/s/ Michael Boses
- --------------------------------------------------------------------------------
<PAGE>
31
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SIGNED by WILLIAM ALAN )
TURNER )
/s/ William Alan Turner
SIGNED by )
)
for and on behalf of ) /s/ Robert T. Bruce
ALPHAREL, INC. )
<PAGE>
EXHIBIT 2.2
NEITHER THIS CONVERTIBLE LOAN NOTE NOR THE SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF THIS NOTE HAVE BEEN REGISTERED WITH
THE U.S. SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER REGULATIONS S PROMULGATED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NEITHER
THIS CONVERTIBLE LOAN NOTE NOR THE SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF THIS NOTE MAY BE OFFERED OR SOLD IN
THE UNITED STATES OR TO ANY U.S. PERSON (AS SUCH TERM IS DEFINED
IN REGULATION S) EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO APPLICABLE EXEMPTION FROM
THE PROVISIONS OF THE ACT.
PRINCIPAL AMOUNT OF THIS LOAN NOTE: US$1,000,000
ALPHAREL, INC.
CONVERTIBLE LOAN NOTE
This Note is authorised by a resolution of the Board of Directors
passed on the 7th day of December, 1995.
1. Alpharel, Inc. whose principal place of business is at
9339 Carroll Park Drive, San Diego, California, United
States of America ("the Company") will pay to Document
Management Systems Limited of Tropic Isle Buildings,
Tortola, Road Town, British Virgin Islands being the
Registered Holder of this Note the principal sum of
US$1,000,000 in accordance with and subject to the
Conditions attached hereto ("the Conditions").
2. The Company will also pay to such Registered Holder interest
at the rate and in the manner specified in the Conditions.
3. This Note is issued subject to, and with the benefit of, the
Conditions.
Given under the hand of an authorised signatory of the Company
this 27th day of December, 1995.
ALPHAREL, INC.
By: /s/Robert T. Bruce
Robert T. Bruce, Chairman
This Note is not transferable.
<PAGE>
THE CONDITIONS
1. STATUS
(A) This Note is a convertible loan note (the "Note") for a
principal sum of US$1,000,000 secured by the assets of the
Company excluding the US$1,000,000 letter of credit issued
by Merrill Lynch.
(B) The Company hereby undertakes that within 30 days of the
date of this Note it will secure the amount due hereunder on
the assets of the Company by way of a valid and enforceable
continuing security interest in priority to the creditors of
the Company subject only to the prior interest of Merrill
Lynch in relation to a US$1,000,000 letter of credit issued
to the Company. Such security interest shall be in a form
to the reasonable satisfaction of the Registered Holder.
In the event that (a) the Company fails to provide such
security interest within the said period of 30 days (b) the
Registered Holder converts this Note pursuant to Condition 3
and immediately sells all of the Shares arising on
conversion at the current market price of the Shares and (c)
the proceeds (less reasonable brokerage) realised upon such
sale is less than the principal sum of this Note, then and
in such event the Company shall on demand pay to the
Registered Holder an amount equal to the difference between
such proceeds and the principal sum of this Note.
2. REPAYMENT
(A) Subject to clause 3 and sub-clause (B) below, the principal
amount of this Note shall be repaid at par on the expiry of
nine months from the date of issue of this Note together
with interest accrued thereon (less tax) to the date of
repayment.
(B) The Company may repay the principal amount of this Note,
together with accrued interest, at any time.
3. CONVERSION
(A) Subject to clause 3(E), the Registered Holder may elect, at
any time prior to repayment of the Note, to convert the
whole of this Note (but not less than the whole of this
Note) into common stock of the Company (the "Shares") by
giving written notice of such election to the Company in
accordance with clause 3(E).
(B) Upon receipt of the written notice from the Registered
Holder, the Company shall issue the Shares in accordance
with clause 3(C) to the Registered Holder within 14 days of
receipt of such written notice from the Registered Holder.
<PAGE>
(C) The number of the Shares to be issued to the Registered
Holder by the Company shall be equal to the aggregate of the
principal amount of this Note up until and including the
Trading Day before the date on which the Shares are issued
to the Registered Holder, divided by a price per Share equal
to the "Conversion Price" as defined in clause 3(D).
Accrued interest will be paid up to and including the date
on which the Shares are issued. If the number of Shares to
be issued under this clause is not a whole number, it shall
be rounded to the nearest whole number. For purposes of
this Note, the term "Trading Day" means:
(a) a day on which the Company's 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 sock 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
organisation or agency succeeding its functions of
reporting prices).
(D) For the purposes of clause 3(C), the Conversion Price shall
be a price per Share equal to 80% of the Per Share Market
Value on the Trading Day immediate preceding the date of
this Note. For purposes of this Note, the term "Per Share
Market value" means on any particular date:
(a) the last sale price per share of the Company's 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
th 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
shares of common stock in the over-the-counter market
as reported by the National Quotation Bureau
Incorporated (or similar organisation or agency
succeeding to its functions of reporting prices).
<PAGE>
(E) In the written notice given in accordance with clause 3(A),
the Registered Holder shall:
(a) acknowledge that this Note and the Shares have not and
will not be registered under the Act and may not be
offered or sold in the United States or to "US persons"
(as that term is defined in Rule 902(o) of Regulation S
of the US Securities and Exchange Commission) unless
they are registered under the Act, or an exemption from
the registration requirements of the Act is available;
and
(b) undertake that it will not take a short position in
common stock of the Company or engage in any hedging
transaction with respect to the Shares prior to the
expiration of 40 days after the issuance of the Shares
to the Registered Holder.
(F) The issue of the Shares by the Purchaser to the Registered
Holder in accordance with this clause shall satisfy all of
the Purchaser's obligations under this Note and the
Purchaser shall have no further liability to repay any
principal or pay any interest to the Registered Holder.
4. EVENTS OF DEFAULT
The principal amount of this Note together with interest
accrued thereon (less tax) shall become immediately due and
repayable upon written demand by the Registered Holder of
this Note following the happening of any of the following
events:
(a) if the Company fails to pay within 14 days of the due
date any monies payable on or in respect of the Note;
or
(b) if the Company fails to issue any of the Common Stock
within 14 days of the due date under these Conditions
after compliance by the Registered Holder of the terms
and conditions of clause 3; or
(c) if any order is made or an effective resolution passed
for winding-up the Company (other than a solvent
winding-up for the purposes of amalgamation or
reconstruction); or
(d) if an encumbrancer takes possession or any
administrator or administrative or other receiver is
appointed of the whole or a substantial part of the
assets or undertaking of the Company.
<PAGE>
5. INTEREST
(a) Subject to clause 3, this Note bears interest from and
including the date of issue of this note and such interest
will be payable monthly, in arrears, in respect of the
period from the date of this Note up to and including the
date or repayment of the principal amount of this Note.
(b) Interest will cease to accrue on this Note (or, in the case
of partial repayment, on the amount to be repaid) on the
date of repayment thereof.
(c) The rate of interest payable on this Note will be seven per
cent. per annum.
6. TITLE
The Registered Holder will be regarded as exclusively
entitled to the benefit of this Note and all persons may act
accordingly, and the Company shall not be bound to enter in
the Register notice of any Trust or to recognise any right
in any other person, save as herein provided or as ordered
by a Court of competent jurisdiction.
7. TRANSFERS
The Note may not be transferred or assigned either in whole
or in part.
8. PAYMENTS
(A) The receipt of the Registered Holder hereof for such
principal sum and interest shall be a good discharge to the
Company for the same.
(B) In respect of any payment on this Note, a bank draft drawn
on the Company's bankers, payable to the order of the
Registered Holder hereof, will be sent by post to the
registered address of such Holder and the Company shall not
be responsible for any loss in transmission and the payment
of the warrant or cheque shall be a good discharge to the
Company for payment of the amount for which it was drawn.
9. UNLISTED SECURITY
No application will be made for a listing for or permission
to deal in this Note upon any Stock Exchange (in the United
Kingdom, the United States of America or elsewhere) or any
alternative securities market and the Note shall not be
offered to the public for subscription or purchase.
<PAGE>
10. NOTICES
(A) A notice may be served by the Company upon the Registered
Holder by sending it through the post in a pre-paid envelope
addressed to him or them at the registered address of such
Registered Holder.
(B) A notice may be served by the Registered Holder of this Note
upon the Company by sending it through the post in a pre-
paid envelope addressed to the Company at its registered
office for the time being.
(C) Any notice served by post shall be deemed to have been
served at the expiration of four business days after it is
posted and in providing such service it shall be sufficient
to prove that the envelope or wrapper containing the notice
was properly addressed and stamped and put into the post.
11. NO VOTING RIGHTS
The Registered Holder shall not be entitled, by virtue of
this Note, to vote or receive dividends or distributions or
be considered a shareholder of the Company for any purpose,
nor shall anything in this Note be construed to confer on
the Registered Holder, as such, any rights of a shareholder
of the Company or any right to vote, to give or withhold
consent to any corporate action, to receive notice of
meetings of shareholders or to receive dividends,
distributions or subscription right or otherwise.
12. GOVERNING LAW
This Note will be construed in accordance with English Law.
<PAGE>
EXHIBIT 4.1
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
<PAGE>
prior to the Junior Stock (as defined below) as to
distribution of assets (upon liquidation or otherwise) and
payment of dividends.
Section 2. DIVIDENDS.
(a) Holders of the Preferred Stock shall be entitled
to receive, when and as declared by the Board of Directors of the
Company out of funds legally available therefor, cumulative cash
dividends at the rate per share (as a percentage of the Stated
Value per share) equal to 8% per annum, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 in
each year, with the first dividend payable on 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
2
<PAGE>
such amounts, then such assets shall be distributed among such holders
ratably in accordance with the respective amounts that would be payable
on such shares if all amounts payable thereon were paid in full.
Section 5. CONVERSION.
(a) (i) Each share of Preferred Stock shall be
convertible into shares of Common Stock at the Conversion Ratio
(subject to reduction under Section 5(a)(ii) and (iii)), at the
option of the holder in whole or in part at any time after the
expiration of 45 days after the Original Issue Date (as defined
in Section 7 below) (the "Conversion Term"). The holder shall
effect conversions by delivering to the Company a written notice
(the "Conversion Notice"), accompanied by the certificate
representing the shares of the Preferred Stock to be converted.
Each Conversion Notice shall specify the number of shares of
Preferred Stock to be converted and the date on which such
conversion is to be effected (the "Conversion Date"), which shall
in no event be earlier than the date such Conversion Notice is
given in accordance with Section 5(j) below. Each Conversion
Notice, once given, shall be irrevocable (subject to Section 5(b)
below). If the holder is converting less than all shares of
Preferred Stock, the Company shall promptly deliver to the holder
a certificate for such number of shares of Preferred Stock as
have not been converted.
(ii) If on the Conversion Date (as defined below)
applicable to any conversion, the Conversion Price (as defined
below) then in effect is such that the aggregate number of shares
of Common Stock that would then be issuable upon conversion of
all then-outstanding shares of Preferred Stock, when combined
with any shares of Common Stock previously issued upon conversion
of any shares of Preferred Stock, would equal or exceed 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
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Market Value, times (C) the number of shares which would otherwise be
issued upon such conversion, but for the reduction provided for
in this Section 5(a)(iii).
(b) Three Trading Days after the Conversion Date, the
Company will deliver to the holder (i) a certificate or
certificates which shall be free of restrictive legends and
trading restrictions (other than those then required by law),
representing the number of shares of Common Stock being acquired
upon the conversion of shares of Preferred Stock (subject to any
reduction required pursuant to Section 5(a)(ii) or (iii)), and
(ii) subject to Section 6 below, the certificate representing the
number of shares of Preferred Stock not converted; provided,
however that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon
conversion of any shares of Preferred Stock (or with respect to
shares subject to redemption pursuant to Sections 5(a)(ii) and 6,
to pay the redemption price payable under Section 6), until
certificates evidencing such shares of Preferred Stock are either
delivered to the Company or any transfer agent for the Preferred
Stock or Common Stock, or the holder notifies the Company that
such certificates have been lost, stolen or destroyed and
provides a bond (or other adequate security acceptable to the
Company) satisfactory to the Company to indemnify the Company
from any loss incurred by it in connection therewith. The
Company shall, upon request of the holder, use its best efforts
to deliver any certificate or certificates required to be
delivered by the Company under this Section 5(b) electronically
through the Depository Trust 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
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shares of capital stock of the Company, the Conversion Price
designated in Section 5(c)(i) shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common
Stock of the Company outstanding before such event and of which
the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to
this Section 5(c)(ii) shall become effective immediately after
the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
(iii) In case the Company, at any time while any
shares of the Preferred Stock are outstanding, shall issue rights
or warrants to all holders of Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per
share less than the Per Share Market Value of Common Stock at the
record date mentioned below, the Conversion Price designated in
Section 5(c)(i) shall be multiplied by a fraction, of which the
denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase, and
of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding on the date
of issuance of such rights or warrants plus the number of shares
which the aggregate offering price of the total number of shares
so offered would purchase at such Per Share Market Value. Such
adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record
date for the determination of stockholders entitled to receive
such rights or warrants. However, upon the expiration of any
right or warrant to purchase Common Stock the issuance of which
resulted in an adjustment in the Conversion Price designated in
Section 5(c)(i) pursuant to this Section 5(c)(iii), if any such
right or warrant shall expire and shall not have been exercised,
the Conversion Price designated in Section 5(c)(i) shall
immediately upon such expiration be recomputed and effective
immediately upon such expiration be increased to the price which
it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this
Section 5 after the issuance of such rights or warrants) had the
adjustment of the Conversion Price made upon the issuance of such
rights or warrants been made on the basis of offering for
subscription or purchase only that number of shares of Common
Stock actually purchased upon the exercise of such rights or
warrants actually exercised.
(iv) In case the Company, at any time while shares of
Preferred Stock are outstanding, shall distribute to all holders
of Common Stock (and not to holders of Preferred Stock) evidences
of its indebtedness or assets or rights or warrants, to subscribe
for 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
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<PAGE>
distributed applicable to one outstanding share of Common Stock as
determined by the Board of Directors of the Company in good faith;
provided, however that in the event of a distribution exceeding
ten percent (10%) of the net assets of the Company, then such fair
market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority
in interest of the shares of Preferred Stock; and provided,
further that the Company, after receipt of the determination by
such Appraiser shall have the right to select an additional
Appraiser, in which case the fair market value shall be equal to
the average of the determinations by each such Appraiser. In
either case the adjustments shall be described in a statement
provided to all holders of Preferred Stock of the portion of
assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date
mentioned above.
(v) All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as
the case may be.
(vi) Whenever the Conversion Price is adjusted
pursuant to Section 5(c)(ii),(iii), (iv) or (v), the Company
shall promptly mail to each holder of shares of Preferred Stock,
a notice setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such
adjustment.
(vii) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into
another person, sale or transfer of all or substantially all of
the assets of the Company or any compulsory share exchange
pursuant to which share exchange the Common Stock is converted
into other securities, cash or property, then the holders of the
shares of Preferred Stock then outstanding shall have the right
thereafter to convert such shares only into the kind and amount
of shares of stock and other securities and property receivable
upon or deemed to be held following such reclassification,
consolidation, merger, sale, transfer or share exchange by a
holder of a number of shares of the Common Stock of the Company
into which such shares Preferred Stock could have been converted
immediately prior to such reclassification, consolidation,
merger, sale, transfer or share exchange. The terms of any such
consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the holder of
shares of 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
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<PAGE>
(B) the Company shall declare a special
nonrecurring cash dividend on or a redemption
of its Common Stock; or
(C) the Company shall authorize the granting to
all holders of the Common Stock rights or
warrants to subscribe for or purchase any
shares of capital stock of any class or of
any rights; or
(D) the approval of any stockholders of the
Company shall be required in connection with
any reclassification of the Common Stock of
the Company (other than a subdivision or
combination of the outstanding shares of
Common Stock), any consolidation or merger to
which the Company is a party, any sale or
transfer of all or substantially all of the
assets of the Company, or any compulsory
share exchange whereby the Common Stock is
converted into other securities, cash or
property, or
(E) of the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of
the Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of the shares of
Preferred Stock, and shall cause to be mailed to the holders of
the shares of Preferred Stock at their last addresses as they
shall appear upon the stock books of the Company, at least 10
calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined, or (y) the
date on which such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation
or winding-up (but no failure to mail such notice or any defect
therein or in the mailing thereof shall affect the validity of
the corporate action required to be specified in such notice).
(d) In case at any time conditions shall arise by
reason of action taken by the Company which in the opinion of the
Board of Directors of the Company are not adequately covered by
the other provisions hereof and which might materially and
adversely affect the rights of the holders of shares of Preferred
Stock (different than or distinguished from the effect generally
on the rights of holders of any class of the Company's capital
stock) or in case at any time any such conditions are expected to
arise by reason of any action contemplated by the 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
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<PAGE>
convertible) and any distribution which is or would be required
to preserve without diluting the rights of the holders of the
shares of Preferred Stock; provided, however, that the Company,
after receipt of the determination by such Appraiser, shall have
the right to select an additional Appraiser, in which case the
adjustment shall be equal to the average of the adjustments
recommended by each such Appraiser. The Board of Directors of
the Company shall make the adjustment recommended forthwith upon
the receipt of such opinion or opinions or the taking of any such
action contemplated, as the case may be; provided, however, that
no such adjustment of the Conversion Price shall be made which in
the opinion of the Appraiser(s) giving the aforesaid opinion or
opinions would result in an increase of the Conversion Price to
more than the Conversion Price then in effect.
(e) The Company covenants that it will at all times
reserve and keep available, out of its authorized and unissued
Common Stock solely for the purpose of issuance upon conversion
of Preferred Stock as herein provided, free from preemptive
rights or any other actual contingent purchase rights of Persons
other than the holders of shares of Preferred Stock, such number
of shares of Common Stock as shall be issuable (taking into
account the adjustments and restrictions of Section 5(c) hereof)
upon the conversion of all outstanding shares of Preferred Stock.
The Company covenants that all shares of Common Stock that shall
be so issuable shall, upon issue, be duly and validly issued and
fully paid and nonassessable.
(f) Except as otherwise required by Section 6 hereof,
the Company shall not be required to issue stock certificates
representing fractions of shares of Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such
time. If the Company elects not, or is unable, to make such a
cash payment, the holder of a share of Preferred Stock shall be
entitled to receive, in lieu of the final fraction of a shares,
one whole share of Common Stock; provided, however, that in no
event shall any such issuance of a whole share result in the
issuance of a number of shares of Common Stock in excess of the
Issuable Maximum and if such issuance would so result in the
issuance of a number of shares in excess of the Issuable Maximum,
the holder shall be entitled to receive the cash payment
described above as soon as such cash payment may be lawfully
made.
(g) The issuance of certificates for shares of Common
Stock on conversion of Preferred Stock shall be made without
charge to the holders thereof for any documentary stamp or
similar taxes that may be payable in respect of the issue or
delivery of such certificate, provided that the Company shall not
be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such
certificate in a name other than that of the holder of the shares
of Preferred Stock converted and the Company shall not be
required to issue or deliver such certificates unless or until
the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has
been paid.
(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.
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(i) If the Company intends to initiate a public
offering of its securities in an amount exceeding $5 million in
the aggregate and the Company reasonably believes that the
conversion of any shares of Preferred Stock may have an adverse
effect on the ability of the Company to complete such offering or
the price at which such securities could be sold therein, the
Company, upon at least 30 days prior written notice to the
holders of Preferred Stock, may suspend the right of the holders
of the shares of Preferred Stock to convert such shares pursuant
to Section 5 for the period commencing on the date the Company
files a registration statement with the Securities and Exchange
Commission and terminating 90 days after the closing of the
public offering, provided that the last day that the Preferred
Stock is convertible (as set forth in Section 5(a)) shall be
extended for such number of days as the conversion right was
suspended under this Section 5(i).
(j) Each Conversion Notice shall be given by facsimile
and by mail, postage prepaid, addressed to the attention of the
Chief Financial Officer of the Company at the facsimile telephone
number and address of the principal place of business of the
Company. Any such notice shall be deemed given and effective
upon the earliest to occur of (i) receipt of such facsimile at
the facsimile telephone number specified in this Section 5(j),
(ii) three days after deposit in the United States mails or
(iii) upon actual receipt by the party to whom such notice is
required to be given.
Section 6. MANDATORY REDEMPTION OF THE PREFERRED STOCK.
(a) If on the Conversion Date specified in any
Conversion Notice the provisions of Section 5(a)(ii) do not
permit the issuance of the full number of shares into which the
shares of Preferred Stock to be converted would otherwise be
convertible, then the Company shall, with respect to each share
of Preferred Stock that is subject to such Conversion Notice,
redeem, from funds legally available therefor at the time of such
redemption, a portion of such share that is represented by the
fraction that is the difference between one and the Conversion
Percentage (such fraction to be known as the "Redemption Ratio").
The redemption price for such portion of each share of Preferred
Stock to be redeemed shall be an amount equal to the product of
(i) the Per Share Market Value on the Conversion Date, (ii) the
number of shares of Common Stock into which such share of
Preferred Stock would then be convertible, but for
Section 5(a)(ii), times (iii) the Redemption Ratio. If any
portion of such redemption price shall not be paid by the Company
within 20 days after the Conversion Date, such redemption price
shall be increased by an amount accruing from the twenty-first
day to the fortieth day after the Conversion Date at the rate of
10% per annum, from the forty-first day to the sixtieth day at
12.5% per annum and from the sixty-first day until paid at the
rate of 15% per annum. If, on any such Conversion Date, the
Company is prohibited under the relevant provisions of the
California General Corporation Law (the "CGCL") from paying, in
whole or in part, the redemption price for any shares of
Preferred Stock, any portion of the redemption price which may be
lawfully paid in accordance with the CGCL shall be paid pro rata
to the holders of the shares of Preferred Stock being redeemed on
such Conversion Date and the remainder of such redemption price
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<PAGE>
shall be paid on a pro rata basis to such holders as soon as such
payment is permissible under the CGCL.
Section 7. DEFINITIONS. For the purposes hereof, the
following terms shall have the following meanings:
"Common Stock" means shares now or hereafter authorized
of the class of Common Stock, no par value, of the Company
presently authorized and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of
which the numerator is Stated Value plus accrued but unpaid
dividends, and of which the denominator is the Conversion Price
at such time.
"Junior Stock" means the Common Stock of the Company
and any other stock of the Company over which shares of the
Preferred Stock has preference as to distribution of assets.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock.
"Per Share Market Value" means on any particular date
(a) the last sale price per share of the Common Stock on such
date on The Nasdaq National Market or other stock exchange on
which the Common Stock has been listed or if there is no such
price on such date, then the last price on such exchange on the
date nearest preceding such date, or (b) if the Common Stock is
not listed on The Nasdaq National Market or any stock exchange,
the average of the bid and asked price for a share of Common
Stock in the over-the-counter market, as reported by the NASDAQ
Stock Market at the close of business on such date, or (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
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<PAGE>
listed, or (b) if the Common Stock is not listed on The Nasdaq National
Market or any stock exchange, a day on which the Common Stock is traded
in the over-the-counter market, as reported by the NASDAQ Stock Market,
or (c) if the Common Stock is not quoted on the NASDAQ Stock
Market, a day on which the Common Stock is quoted in the over-the-
counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding
its functions of reporting prices).
RESOLVED FURTHER, that the President and Secretary of
the Company be, and they hereby are, authorized and directed to
prepare, execute, verify, and file in the Office of the
California Secretary of State, a Certificate of Determination in
accordance with this resolution and as required by law.
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Each of the undersigned further declares under penalty
of perjury under the laws of the State of California that the
matters set forth in this certificate are true and correct of his
own knowledge.
Executed at San Diego, California on the 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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EXHIBIT 4.2
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") dated December 20, 1995 between THC, Inc., an
Ontario corporation, having its principal office at Ontario,
Canada, and Alpharel, Inc., a corporation organized and
existing under the laws of the State of California (the
"Company").
WHEREAS, the Company desires to issue and sell to
the Purchaser and the Purchaser desires to acquire shares of
the Company's Series B Convertible Preferred Stock, par value
$1.00 per share (the "Series B Preferred").
IN CONSIDERATION of the mutual covenants contained
in this Agreement, the Company and the Purchaser agree as
follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED
1.1 PURCHASE AND SALE OF PREFERRED. Upon the terms
and conditions set forth herein, the Company shall issue and
sell to the Purchaser, and the Purchaser shall purchase,
86,250 shares of Series B Preferred (collectively, the
"Shares"), which shall have the respective rights, preferences
and privileges set forth in Exhibit A hereto.
1.2 PURCHASE PRICE. The aggregate purchase price
for the Shares (the "Aggregate Purchase Price") shall equal
the product of the 86,250 Shares and $20.00 (the "Purchase
Price Per Share").
1.3 THE CLOSING.
(a) The closing of the purchase and sale of
the Shares (the "Closing") shall take place at the offices of
the Purchaser or its investment manager or at the offices of
Allen & Overy, One New Change, London, England immediately
following the execution hereof, or at such other time and
place and/or on such other date as the Purchaser and the
Company may agree or as provided in Section 1.3(b). The date
of the Closing is hereinafter referred to as the Closing Date.
(b) At the Closing, (i) the Company shall
deliver to the Purchaser or its representative one or more
stock certificates representing the Shares, registered in the
name of the Purchaser and (ii) the Purchaser shall deliver to
the Company the Aggregate Purchase Price as determined
pursuant to this Article I in United States Dollars in
immediately available funds by wire transfer to such account
<PAGE>
as shall be designated in writing by the Company. In
addition, each of the Company and the Purchaser shall deliver
all documents, instruments and writings required to be
delivered by either of them pursuant to this Agreement at or
prior to Closing.
(c) The certificates representing the Shares
shall bear the legend set forth in Exhibit B hereto. Assuming
that there are no changes in the material facts set forth in
Section 2.2 or in applicable law that would require such a
legend (i) the Common Stock into which any Shares are
converted in accordance with the terms of conversion set forth
in Exhibit A shall not bear a legend and (ii) after the
expiration of the period commencing on the last sale of Shares
hereunder and ending 40 days thereafter (the "Restricted
Period"), no legend on the Shares shall be required.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF
THE COMPANY. The Company hereby makes the following
representations, warranties and agreements with and to the
Purchaser.
(a) ORGANIZATION AND QUALIFICATION. The
Company is a corporation, duly incorporated and validly
existing and in good standing under the laws of the State of
California and has the requisite corporate power to own its
properties and to carry on its business as now being
conducted. Except as disclosed in the SEC Documents (as
hereinafter defined), as of the date hereof, the Company does
not have any subsidiaries. The Company is duly qualified as a
foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification
necessary and where the failure so to qualify would have a
Material Adverse Effect. "Material Adverse Effect" means any
material adverse effect on the operations, properties,
prospects, or financial condition of the Company.
(b) AUTHORIZATION; ENFORCEMENT. (i) The
Company has the requisite corporate power and authority to
enter into and perform this Agreement and to issue the Shares
in accordance with the terms hereof, (ii) the execution and
delivery of this Agreement by the Company and the consummation
by it of the transactions contemplated hereby has been duly
authorized by the Company's Board of Directors and no further
consent or authorization of the Company or its Board of
Directors or stockholders is required, (iii) this Agreement
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has been duly executed and delivered by the Company and
(iv) this Agreement constitutes a valid and binding obligation
of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general
application.
(c) CAPITALIZATION. The authorized, issued
and outstanding capital stock of the Company is as set forth
in Schedule 2.1(c). No shares of Common Stock are entitled to
preemptive rights. Except as disclosed in Schedule 2.1(c), as
of the date of this Agreement there are no outstanding
options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or
securities or rights convertible into any shares of capital
stock of the Company, or contracts, commitments,
understandings, or arrangements by which the Company or any of
its subsidiaries is or may become bound to issue additional
shares, or securities or rights convertible into shares, of
capital stock of the Company or any of its subsidiaries. The
Company has furnished to the Purchaser true and correct copies
of the Company's Restated Articles of Incorporation as in
effect on the date hereof (the "Articles of Incorporation")
and, the Company's Bylaws, as in effect on the date hereof
(the "Bylaws").
(d) ISSUANCE OF SHARES. The Shares are duly
authorized, and when paid for in accordance with the terms
hereof shall be validly issued, fully paid and nonassessable.
The Company has and will maintain an adequate reserve of
shares of Common Stock to enable it to perform its obligations
under this Agreement. When issued in accordance with the
terms hereof and the Certificate of Determination (as
hereinafter defined), the Underlying Shares (as hereinafter
defined) will be duly authorized, validly issued, fully paid
and nonassessable.
(e) NO CONFLICTS. The execution, delivery and
performance of this Agreement by the Company and the
consummation by the Company of the transaction contemplated
hereby or relating hereto do not and will not (i) result in
the violation of the Company's Articles of Incorporation or By-
laws or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become
a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company is a party, or to
the actual knowledge of the Company, result in a violation of
any law, rule, regulation, order, judgment or decree
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(including Federal and state securities laws and regulations)
applicable to the Company, or by which any property or asset
of the Company is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in
the aggregate, have a Material Adverse Effect). The business
of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for
possible violations which either singly or in the aggregate do
not have a Material Adverse Effect. The Company is not
required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or
perform any of its obligations under this Agreement or issue
and sell the Shares in accordance with the terms hereof,
except for the filing of a Certificate of Determination with
respect to the Series B Preferred with the Secretary of State
of California (the "Certificate of Determination"), which
filing shall be effected prior to the Closing Date.
(f) SEC DOCUMENTS FINANCIAL STATEMENTS. The
Common Stock of the Company is registered pursuant to section
12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and through and including the date hereof, the
Company has filed all reports, schedules, forms, statements
and other documents required to be filed by it with the
Securities and Exchange Commission (the "SEC") pursuant to the
reporting requirements of the Exchange Act, including material
filed pursuant to section 13(a) or 15(d) (all of the foregoing
filed after January 1, 1995 and prior to the date hereof being
referred to herein as the "SEC Documents"). The Company has
delivered to the Purchaser true and complete copies of the SEC
Documents (other than documents incorporated by reference
therein but not filed therewith). The Company has not
provided any non-public information to the Purchaser. As of
their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act
and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents, and none of the
SEC Documents, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company
included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of
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unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial
position of the Company as of the dates thereof and the
results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Since September 30, 1995, there
has been no event, occurrence or development that has had a
Material Adverse Effect which is not disclosed in any of the
SEC Documents.
2.2 REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER. The Purchaser hereby makes the following
representations and warranties to the Company:
(a) ORGANIZATION; AUTHORIZATION; ENFORCEMENT.
(i) the Purchaser is a corporation duly and validly existing
and in good standing under the laws of the British Virgin
Islands and has the requisite corporate power to own its
properties and to carry on its business as now being
conducted, (ii) the Purchaser has the requisite power and
authority, to enter into and perform this Agreement, (iii) the
execution and delivery of this Agreement by the Purchaser and
the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary action, and no
further consent or authorization of the Purchaser (or its
Board of Directors or stockholders) is required, (iv) this
Agreement has been duly executed and delivered by the
Purchaser and (v) this Agreement constitutes a valid and
binding obligation of the Purchaser enforceable against the
Purchaser in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable
principles of general application.
(b) NO CONFLICTS. The execution, delivery and
performance of this Agreement by the Purchaser and the
consummation by the Purchaser of the transactions contemplated
hereby or relating hereto do not and will not (i) result in
the violation of the Purchaser's charter documents or by-laws
or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a
default) under, any agreement, indenture or instrument to
which the Purchaser is a party, or, to the actual knowledge of
the Purchaser, result in a violation of any law, rule,
regulation, order, judgment or decree of any court of
governmental agency applicable to the Purchaser or its
properties (except for such conflicts, defaults and violations
as would not, individually or in the aggregate, have a
material adverse effect on the Purchaser). The Purchaser is
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not required to obtain any consent, authorization or order of,
or make any filing or registration with, any court of
governmental agency in order for it to execute, deliver or
perform any of its obligations under this Agreement or
purchase the Shares in accordance with terms hereof.
(c) NON-U.S. OWNERSHIP. The Purchaser is not
a U.S. Person as defined within Regulation S ("Regulation S")
promulgated under the Securities Act of 1933 (the "Securities
Act") and is not purchasing the Shares and the Underlying
Shares for the account or benefit of a U.S. Person, and the
sale of the Shares or the Underlying Shares has not been
prearranged with any U.S. Person or person present in the
United States. At the time of execution of this Purchase
Agreement and any offer to purchase hereunder, the Purchaser
was physically outside the United States.
(d) ACCESS TO INFORMATION. The Purchaser
understands that its investment in the Shares involves a high
degree of risk. The Purchaser has such knowledge and
experience in financial and business matters that it is
capable of evaluating the merits and risks of the investments
contemplated by this Agreement. The Purchaser has been
afforded, to the satisfaction of the Purchaser, the
opportunity to review the SEC Documents and obtain such
additional publicly available information concerning the
Company and its business, and to ask such questions and
receive such answers (based upon publicly available
information), as the Purchaser deems necessary to make an
informed investment decision.
(e) RELIANCE ON REPRESENTATIONS OF PURCHASER.
The Purchaser understands that the Shares are being offered
and sold, and the Underlying Shares are being offered, to it
in reliance on specific exemptions from the registration
requirements of the U.S. securities laws and that the Company
is relying of the truth and accuracy of, and the Purchaser's
compliance with, the representations, warranties, agreements,
acknowledgments and understandings set forth herein in order
to determine the availability of such exemptions and the
eligibility of the Purchaser to acquire the Shares and the
Underlying Shares.
(f) NO PUT OPTION OR SHORT POSITION. The
Purchaser covenants that neither it nor its affiliates nor any
person acting on its or their behalf has the intention of
entering, or will enter, during the Restricted Period, into
any put option, short position, or other similar instrument or
position with respect to the Underlying Shares or securities
of the same class as the Shares and neither Purchaser nor any
of its affiliates nor any person acting on its or their behalf
will use at any time Underlying Shares acquired pursuant to
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this Purchase Agreement or upon conversion of the Shares to
settle any put option, short position or other similar
instrument or position that may have been entered into prior
to the execution of this Purchase Agreement.
ARTICLE III
COVENANTS
3.1 REGULATION S.
(a) The Company shall take all necessary corporate
action and proceedings as may be required by applicable law,
rule or regulation for the issuance of the Shares to the
Purchaser at the Closing in accordance with this Agreement.
Neither the Company nor any of its affiliates have engaged or
will engage in any "directed selling efforts" (as such term is
defined under Regulation S) with respect to the Shares or the
Common Stock issuable upon conversion of the Shares (the
"Underlying Shares") and have complied and will comply with
the "offering restrictions" requirements of Regulation S.
(b) The Purchaser acknowledges that the Shares
and the Underlying Shares have not been and will not be
registered under the Securities Act. The Purchaser covenants
(i) that it is not, and does not intend to be a "distributor"
(as such term is defined by Regulation S) of the Shares or the
Underlying Shares, but if it so acts then the Purchaser will
comply with all applicable requirements under Regulation S in
connection therewith, (ii) that it will not offer or sell the
Shares or the Underlying Shares within the United States or
to, or for the account or benefit of, any "U.S. Person" (as
each such term is defined in Regulation S) except in
accordance with the provisions of Rule 903 or Rule 904 of
Regulation S or pursuant to an exemption from the registration
requirements of the Securities Act and otherwise in accordance
with all applicable laws and (iii) that neither the Purchaser
or its affiliates nor any person acting on their behalf, have
engaged or will engage in "directed selling efforts" (as such
term is defined by Regulation S) with respect to the Shares
and the Underlying Shares and that each of them has complied
and will comply with the "offering restrictions" requirements
of Regulation S. The Company shall instruct its transfer
agent that the Shares and the Underlying Shares may be
transferred (A) if such transfer occurs during the Restricted
Period, to any person or entity who is not a U.S. Person (or
defined in Regulation S) and is not an affiliate of the
Company and who agrees to be bound by the terms of this
Agreement to the same extent as Purchaser without the entry of
a "stop transfer" order against the Shares or the Underlying
Shares, provided that such transfer is made in accordance with
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<PAGE>
the Rules of the Securities and Exchange Commission and
Regulation S and (B) if such transfer occurs after the
Restricted Period, to any person or entity who is not an
affiliate of the Company without the entry of a "stop
transfer" order against, or legend on, the Shares or
Underlying Shares.
3.2 COMMON STOCK.
(a) From the date hereof through the Closing Date,
the Company shall not, without the consent of the holders of a
majority of the Shares then outstanding, (i) amend its
Articles of Incorporation or By-laws so as to adversely affect
any rights of the Purchaser; (ii) split, combine or reclassify
its outstanding capital stock; (iii) declare or set aside or
pay any dividend or other distribution with respect to the
Common Stock; (iv) repurchase or offer to repurchase shares of
its Common Stock; or (v) enter into any agreement with respect
to the foregoing.
(b) For a period commencing on the date hereof and
expiring 90 days after the Closing, the Company will not,
without the consent of the holders of a majority of the Shares
then outstanding, (i) sell equity or equity-equivalent
securities (except (A) the granting of options to employees,
officers and directors under, and the issuance of shares upon
exercise of options granted under, any stock option plan
heretofore or hereinafter adopted by the Company, (B) shares
issued upon exercise of currently outstanding warrants and
(C) shares issued in connection with the acquisition of Trimco
Group plc, including any shares which may be issued upon
conversion of the $1,000,000 in aggregate principal amount of
promissory notes issued to certain shareholders of Trimco
Group, plc on the Closing Date) or enter into any agreement
with respect to the foregoing or (ii) exercise its right under
Section 5(j) of the Certificate of Determination to suspend
the right of holders of the Shares to convert the Shares.
3.3 PURCHASER'S RIGHTS IF REGULATION S IS AMENDED.
In the event that at any time on or after Closing Date, the
Purchaser shall notify the Company that Regulation S has been
amended or interpreted in a manner so as to adversely affect
the marketability of the Shares or Underlying Shares or the
Company notifies the Purchasers that the Company has
determined that such amendment or interpretation prohibits the
Company from issuing certificates representing the Underlying
Shares upon conversion of the Shares which do not bear a
restrictive legend, then, at the Company's option exercisable
within 10 days after such notice is given by written notice
from the Purchaser to the Company or from the Company to the
Purchaser, the Company shall (i) as promptly as practicable
but in any event within 90 days thereafter, cause the
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Underlying Shares to be registered for sale under the
Securities Act of 1933 as amended, in form or substance
satisfactory to Purchaser, or (ii) within 30 days thereafter,
purchase the Shares (or if any such Shares were theretofore
converted, the Underlying Shares), at an aggregate purchase
price equal to the product of (a) the Per Share Market Value
(as defined in the Certificate of Determination) as of the
Trading Day (as defined therein) immediately preceding the day
of such purchase, times (b) the number of shares of Common
Stock into which such Shares are then convertible (or, in the
case of a purchase of Underlying Shares, the number of
Underlying Shares to be purchased).
3.4 PURCHASER'S RIGHTS IF TRADING IN COMMON STOCK
IS SUSPENDED. In the event that at any time on or after the
Closing Date trading in the shares of the Company's Common
stock is suspended on the principal market or exchange for
such shares (other than as a result of the suspension of
trading in securities on such market or exchange generally),
for a period of five (5) consecutive trading days, at
Purchaser's option exercisable by written notice to the
Company, the Company shall repurchase the Shares and the
Underlying Shares then held by such Purchaser, at an aggregate
purchase price equal to the product of the Per Share Market
Value as of the Trading Day immediately preceding the day of
such notice times the number of shares of Common Stock into
which the Shares to be purchased are then convertible (or in
the case of Underlying shares, the number of Underlying Shares
to be purchased).
3.5 PUT RIGHTS UPON CERTAIN DEFAULTS. If, within
the one-year period after the Closing, (a) the Company shall
default under or violate any of Sections 3.2(b) or 3.3,
(b) the Underlying Shares, when issuable under the Certificate
of Determination, shall fail to be listed on the NASDAQ
National Market or other national securities exchange or
traded on the NASDAQ Stock Market, or (c) the Company shall
fail to file any reports required to be filed under Section 13
of the Securities Exchange Act of 1934, then in any such case,
if such default, violation or failure shall continue for a
period of 10 days after written notice by any holder of the
Shares to the Company, the Company shall, at the demand of any
such holder, repurchase the Shares and Underlying Shares then
held by such holder at an aggregate price equal to (i) the
product of the Per Share Market Value as of the Trading Day
immediately preceding the day of such demand times the number
of shares of Common Stock into which the Shares to be
purchased are then convertible (or in the case of Underlying
Shares, the number of Underlying Shares to be purchased), plus
(ii) interest on such amount accruing from the twenty-first
day to the fortieth day after such demand at the rate of 10%
per annum, from the forty-first to the sixtieth day at 12.5%
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per annum and from the sixty-first day until paid at the rate
of 15% per annum.
3.6 NO VIOLATION OF CGCL. Notwithstanding any
provision of this Agreement to the contrary, if any repurchase
or redemption of shares otherwise required under this
Agreement would be prohibited by the relevant provisions of
the California General Corporation Law (the "CGCL"), such
repurchase or redemption shall be effected as soon as it is
permitted under the CGCL.
3.7 TRANSFER OF SHARES. Purchaser shall not
transfer any of the Shares other than a transfer of all of the
Shares to a single transferee (who has sole dispositive power
with respect to the Shares) who agrees to be bound by this
Agreement.
3.8 AGREEMENT TO SEEK ADDITIONAL FINANCING. If any
Shares are required to be redeemed, in whole or in part, under
Section 6 of the Certificate of Determination, and if the
Company is unable to pay the redemption price, the Company
shall use its best efforts to seek and obtain additional
financing in order to permit it to pay the redemption price in
full.
3.9 PIGGYBACK REGISTRATION RIGHTS. If the Company
files a registration statement on Form S-3 during the one-year
period after the Closing providing for the registration of
shares of Common Stock to be sold by other shareholders of the
Company, the Company shall provide to the Purchasers an option
to include any of the Underlying Shares in such registration
statement.
3.10 REDEMPTION OF PREFERRED STOCK; PAYMENT OF FEE.
If any Shares are required to be redeemed, in whole or in
part, under Section 6 of the Certificate of Determination and
the Company fails to redeem such Shares and pay all amounts
required under the Certificate of Determination within 30 days
after the date required, the Company shall be obligated to pay
the Purchaser a fee in cash equal to 5% of the redemption
price of such Shares as provided in the Certificate of
Determination, unless the Company shall have provided the
Purchaser the opportunity to provide or arrange for financing
necessary to fund such redemption on terms substantially
similar to those contained in this Agreement and the Purchaser
shall not have arranged or provided for such financing within
such 30-day period.
3.11 LISTING OF UNDERLYING SHARES. The Company
shall take all steps necessary to cause the Underlying Shares
to be approved for listing in The Nasdaq National Market on or
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prior to the first day that the Shares become convertible for
the Underlying Shares.
ARTICLE IV
CONDITIONS
4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
COMPANY TO SELL THE SHARES. The obligation hereunder of the
Company to sell the Shares to the Purchaser is further subject
to the satisfaction, at or before the Closing, of each of the
following conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion.
(a) ACCURACY OF THE PURCHASER'S
REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of the
Closing Date as though made at that time.
(b) PERFORMANCE BY THE PURCHASER. The
Purchaser shall have performed, satisfied and complied in all
material respects with all covenants, agreements and
conditions required by this Agreement to be performed,
satisfied or complied with by the Purchaser at or prior to the
Closing.
(c) NO INJUNCTION. No statute, rule,
regulation, executive order, decree, ruling or injunction
applicable to Purchaser shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority
of competent jurisdiction which prohibits the consummation of
any of the transactions contemplated by this Agreement.
(d) NO CHANGE IN REGULATION S. No amendment
to Regulation S has occurred or interpretative release
promulgated or issued thereunder which, in the reasonable
judgment of the Company, would materially adversely affect the
sale by the Company of the Shares.
(e) TRIMCO CLOSING. Prior to or concurrently
with the Closing, the Company shall have consummated the
acquisition of all of the outstanding shares of Trimco Group
plc.
4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
PURCHASER TO PURCHASE THE SHARES. The obligation of the
Purchaser hereunder to acquire and pay for the Shares is
subject to the satisfaction, at or before the Closing, of each
of the following conditions set forth below. These conditions
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are for the Purchaser's sole benefit and may be waived by such
Purchaser at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS
AND WARRANTIES. The representations and warranties of the
Company shall be true and correct in all material respects as
of the date when made and as of the Closing Date as though
made at that time.
(b) PERFORMANCE BY THE COMPANY. The Company
shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or
complied with by the Company at or prior to the Closing.
(c) NO INJUNCTION. No statute, rule,
regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by
any court of governmental authority of competent jurisdiction
which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) ADVERSE CHANGES. Since September 30,
1995, no event which had a Material Adverse Effect on the
Company has occurred which is not disclosed in the SEC
Documents.
(e) NO CHANGE IN REGULATION S. No amendment
to Regulation S has occurred or interpretative release
promulgated or issued thereunder, which, in the reasonable
judgment of the Purchaser, would materially adversely affect
the purchase by the Purchaser of the Shares.
(f) NO SUSPENSIONS OF TRADING IN COMMON STOCK.
The trading in the Common Stock shall not have been suspended
by the SEC or the National Association of Securities Dealers,
Inc. (the "NASD") (except for any suspension of trading of
limited duration solely to permit dissemination of material
information regarding the Company).
(g) LEGAL OPINION. The Company shall have
delivered to the Purchaser the opinion of Gibson, Dunn &
Crutcher, counsel to the Company, in form and substance
reasonably satisfactory to the Purchaser.
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ARTICLE V
TERMINATION
5.1 TERMINATION BY MUTUAL CONSENT. This Agreement
may be terminated at any time by the mutual consent of the
Company and the Purchaser.
5.2 OTHER TERMINATION. This Agreement may be
terminated by either party hereto if the Closing shall not
have occurred by December 31, 1995.
ARTICLE VI
MISCELLANEOUS
6.1 FEES AND EXPENSES. Each party shall pay the
fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. At the Closing,
the Company shall pay to Global Emerging Markets North
America, Inc./Northeast Securities a placement fee equal to
2.5% of the Aggregate Purchase Price. The Company shall pay
all stamp and other taxes and duties levied in connection with
the issuance of the Shares pursuant hereto. The Purchaser
shall be responsible for the Purchaser's own tax liability
that may arise as a result of the investment hereunder or the
transactions contemplated by this Purchase Agreement.
6.2 ENTIRE AGREEMENT AMENDMENTS. This Agreement,
together with the Exhibits and Schedules attached hereto, and
the letter agreements of even date herewith between the
parties (the "Letter Agreements"), contain the entire
understanding of the parties with respect to the matters
covered hereby and, except as specifically set forth herein,
neither the Company nor the Purchaser makes any
representation, warranty, covenant or undertaking with respect
to such matters. No provision of this Agreement may be waived
or amended other than by a written instrument signed by the
party against whom enforcement of any such amendment or waiver
is sought.
6.3 NOTICES. Any notice or other communication
required or permitted to be given hereunder shall be in
writing and shall be deemed to have been received (a) upon
hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile
(with transmission confirmation report ) at the address or
number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or
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the first business day following such delivery (if delivered
other than on a business day during normal business hours
where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
to the Company: Alpharel, Inc.
9339 Carroll Park Drive
San Diego, CA 92121
With copies to: Gibson, Dunn & Crutcher
2029 Century Park East
Suite 4000
Los Angeles, CA 90067
Attn: Russell C. Hansen, Esq.
If to the Purchaser: 1183 Finch Avenue W.
Suite 604
N. York, Ontario
M332G2
With copies to: Robinson Silverman Pearce
Arohnson & Berman
1290 Avenue of the Americas
New York, NY 10104-0053
Attn: Kenneth Henderson, Esq.
Either party hereto may from time to time change its address
for notices under this Section 6.3 by giving at least 10 days
written notice of such changed address to the other party
hereto.
6.4 WAIVERS. No waiver by either party of any
default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right
hereunder in any manner impair the exercise of any such right
accruing to it thereafter. Any waiver must be in writing.
6.5 HEADINGS. The headings herein are for
convenience only, do not constitute a part of this Agreement
and shall not be deemed to limit of affect any of the
provisions hereof.
6.6 SUCCESSORS AND ASSIGNS. This Agreement shall
be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The parties hereto
may amend this Agreement without notice to or the consent of
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any third party. Neither the Company nor the Purchaser shall
assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other (which consent
may be withheld for any reason in the sole discretion of the
party from whom consent is sought). The assignment by a party
of this Agreement or any rights hereunder shall not affect the
obligations of such party under this Agreement.
6.7 NO THIRD PARTY BENEFICIARIES. This agreement
is intended for the benefit of the parties hereto and their
respective permitted successors and assigns and is not for the
benefit of, nor may any provision hereof be enforced by, any
other person.
6.8 GOVERNING LAW. This Agreement shall be
governed by and construed and enforced in accordance with the
internal laws of the State of New York without regard to the
principles of conflicts of law.
6.9 SURVIVAL. The agreements and covenants of the
Company contained in Section 3.1 and this Article VI shall
survive the termination of this Agreement. The
representations and warranties of the Company and the
Purchaser contained in Article II and the agreements and
covenants set forth in Section 3.1 and this Article VI shall
survive until a date that is one year after the Closing.
6.10 EXECUTION. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original for all purposes and any one of which may be
introduced into evidence or used for any other purpose without
the production of its duplicate counterpart, and all of which
shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each
party and delivered to the other party, it being understood
that both parties need not sign the same counterpart. In the
event any signature is delivered by facsimile transmission,
the party using such means of delivery shall cause four
additional executed signature pages to be physically delivered
to the other party within five days of the execution and
delivery hereof.
6.11 PUBLICITY. The Company and the Purchaser shall
consult with each other in issuing any press releases or
otherwise making public statements with respect to the
transactions contemplated hereby. Neither party shall issue
any press release or otherwise make any public statement
without the prior written consent of the other, which consent
shall not be unreasonably withheld or delayed.
6.12 SEVERABILITY. In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable
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in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in
any way be affecting or impaired thereby and the parties will
attempt to agree upon a valid and enforceable provision which
shall be a reasonable substitute therefor, in light of the
tenor of this Agreement, and upon so agreeing, shall
incorporate such substitute provision in this Agreement.
6.13 DELIVERY OF W-8. The Purchaser has delivered
and will cause each transferee of Shares to deliver to the
Company a completed and executed Form W-8 and any other
documentation reasonably required for the Company to comply
with United States and foreign law.
6.14 CONVERSION PROCEDURES. Within 20 days after
the Closing the Company shall provide to the Purchaser a
schedule, in form reasonably satisfactory to the Purchaser,
setting forth the procedures with respect to the conversion of
the Shares, including the forms of conversion notice to be
provided upon conversion, instructions as to the procedures
for conversion, the form of legal opinion, if necessary, to be
rendered to the Company's transfer agent and such other
information and instructions as may be reasonably necessary to
enable the Purchaser to exercise its right of conversion
smoothly and expeditiously.
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IN WITNESS WHEREOF, the parties hereto have cause
this Agreement to be duly executed by their respective
authorized officers as of the date hereof.
Company
ALPHAREL, INC.
By: /s/ JOHN W. LOW
---------------------
Name: John W. Low
Title: Chief Financial Officer
Purchaser
THC, Inc.
By: /s/ JOSAIF YARMUSH
-----------------------
Name: Josaif Yarmush
Title: President
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Schedule 2.1(c)
CAPITALIZATION
Total authorized capital stock:
Common Stock: 20,000,000
Preferred Stock: 1,000,000
Total issued and outstanding capital stock:
Common Stock: 15,226,814
Preferred Stock: 0
(excluding Series B Preferred Stock to be issued pursuant
to this Agreement)
Total outstanding stock options: 1,289,300
Total outstanding Redeemable Common Stock Purchase Warrants: 27,908
<PAGE>
EXHIBIT A
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
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value of $20.00 per share (the "Stated Value"). The shares of the
Preferred Stock shall rank prior to the Junior Stock (as defined
below) as to distribution of assets (upon liquidation or otherwise)
and payment of dividends.
Section 2. DIVIDENDS.
(a) Holders of the Preferred Stock shall be entitled
to receive, when and as declared by the Board of Directors of the
Company out of funds legally available therefor, cumulative cash
dividends at the rate per share (as a percentage of the Stated
Value per share) equal to 8% per annum, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 in
each year, with the first dividend payable on 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
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Stock of the Company, and if the assets of the Company shall
be insufficient to pay in full such amounts, then such assets
shall be distributed among such holders ratably in accordance with the
respective amounts that would be payable on such shares if all
amounts payable thereon were paid in full.
Section 5. CONVERSION.
(a) (i) Each share of Preferred Stock shall be
convertible into shares of Common Stock at the Conversion Ratio
(subject to reduction under Section 5(a)(ii) and (iii), at the
option of the holder in whole or in part at any time after the
expiration of 45 days after the Original Issue Date (as defined
in Section 7 below) (the "Conversion Term"). Any conversion
under this Section 5(a)(i) shall be of a minimum amount of at
least 12,500 shares of Preferred Stock. The holder shall effect
conversions by delivering to the Company a written notice (the
"Holder Conversion Notice"), accompanied by the certificate
representing the shares of the Preferred Stock to be converted.
Each Holder 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 "Holder Conversion Date"),
which shall in no event be earlier than the date such Holder
Conversion Notice is given in accordance with Section 5(k) below.
Each Holder Conversion Notice, once given, shall be irrevocable
(subject to Section 5(c) 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 under Section 5(a) or 5(b), 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 under Section 5(a)
or 5(b), the Per Share Market Value of the
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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) Each share of the Preferred Stock shall be
convertible into shares of Common Stock at the Conversion Ratio
(subject to reduction under Section 5(a)(ii) and (iii) above), at
the option of the Company in whole or in part at any time on or
after the expiration of 120 days after the Original Issue Date.
The Company shall effect such conversion by delivering to the
holders of such shares of Preferred Stock to be converted a
written notice (the "Company Conversion Notice"), which Company
Conversion Notice, once given, shall be irrevocable; provided,
however, that during the period of two years after the Original
Issue Date, the Company shall have no right to deliver a Company
Conversion Notice and effect the conversion of shares of
Preferred Stock under this Section 5(b) unless either (i) all of
such shares may be converted into shares of Common Stock in
accordance with Section 5(a)(ii); or (ii) all of such shares may
be either converted into shares of Common Stock in accordance
with Section 5(a)(ii) or may be redeemed and the entire
redemption price paid in full in accordance with Section 6
without violating the CGCL (as defined below in Section 6). Each
Company 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 "Company Conversion Date").
The Company shall give such Company Conversion Notice in
accordance with Section 5(k) below at least two Trading Days
before the Company Conversion Date. Any such conversion shall be
effected on a pro rata basis among the holders of Preferred
Stock. Upon the conversion of shares of Preferred Stock pursuant
to a Company Conversion Notice, the holders of the Preferred
Stock shall surrender the certificates representing such shares
at the office of the Company or of any transfer agent for the
Preferred Stock or Common Stock. If the Company is converting
less than all shares of the Preferred Stock, the Company shall,
upon conversion of such shares subject to such Company Conversion
Notice and receipt of the certificate or certificates
representing such shares of Preferred Stock, deliver to the
holder or holders a certificate for such number of shares of
Preferred Stock as have not been converted. Each of a Holder
Conversion Notice and a Company Conversion Notice is sometimes
referred to herein as a "Conversion Notice," and each of a
"Holder Conversion Date" and a "Company Conversion Date" is
sometimes referred to herein as a "Conversion Date."
(c) Three Trading Days after the Conversion Date, the
Company will deliver to the holder (i) a certificate or
certificates which shall be free of restrictive legends and
trading restrictions (other than those then required by law),
representing the number of shares of Common Stock being acquired
upon the conversion of shares of Preferred Stock (subject to any
reduction required pursuant to Section 5(a)(ii) or (iii)), and
(ii) subject to Section 6 below, the certificate representing the
number of shares of Preferred Stock not converted; provided,
however that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon
conversion of any shares of Preferred
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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(c) electronically
through the Depository Trust Corporation or another established
clearing corporation performing similar functions. In the case
of a conversion pursuant to a Holder Conversion Notice, if such
certificate or certificates are not delivered by the date
required under this Section 5(c), 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.
(d) (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(d)(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(d)(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
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Per Share Market Value of Common Stock at the record date mentioned below,
the Conversion Price designated in Section 5(d)(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(d)(i) pursuant to this Section 5(d)(iii), if any such
right or warrant shall expire and shall not have been exercised,
the Conversion Price designated in Section 5(d)(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(d)(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
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<PAGE>
Preferred Stock of the portion of assets or evidences of indebtedness
so distributed or such subscription rights applicable to one share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date
mentioned above.
(v) All calculations under this Section 6 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(d)(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(d)(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
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of the outstanding shares of Common Stock), any
consolidation or merger to which the Company is a party,
any sale or transfer of all or substantially all of the
assets of the Company, or any compulsory share exchange
whereby the Common Stock is converted into other
securities, cash or property, or
(E) of the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of
the Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of the shares of
Preferred Stock, and shall cause to be mailed to the holders of
the shares of Preferred Stock at their last addresses as they
shall appear upon the stock books of the Company, at least 10
calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined, or (y) the
date on which such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation
or winding-up (but no failure to mail such notice or any defect
therein or in the mailing thereof shall affect the validity of
the corporate action required to be specified in such notice).
(e) 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)
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giving the aforesaid opinion or opinions would result in an
increase of the Conversion Price to more than the Conversion Price
then in effect.
(f) The Company covenants that it will at all times
reserve and keep available, out of its authorized and unissued
Common Stock solely for the purpose of issuance upon conversion
of Preferred Stock as herein provided, free from preemptive
rights or any other actual contingent purchase rights of Persons
other than the holders of shares of Preferred Stock, such number
of shares of Common Stock as shall be issuable (taking into
account the adjustments and restrictions of Section 5(b) and
Section 5(d) 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.
(g) 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.
(h) 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.
(i) Shares of Preferred Stock converted into Common
Stock shall be canceled and shall have the status of authorized
but unissued shares of preferred stock.
(j) 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
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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(j).
(k) Each Holder 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. Each Company Conversion Notice shall be
given by facsimile and by mail, postage prepaid, addressed to
each holder of the Preferred Stock at the facsimile telephone
number and address of such holder appearing on the books of the
Company or provided to the Company by such holder for the purpose
of such Company Conversion Notice, or if no such facsimile
telephone number or address appears or is so provided, at the
principal place of business of the Company. Any such notice
shall be deemed given and effective upon the earliest to occur of
(i) receipt of such facsimile at the facsimile telephone number
specified in this Section 5(k), (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.
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Section 7. DEFINITIONS. For the purposes hereof, the
following terms shall have the following meanings:
"Common Stock" means shares now or hereafter authorized
of the class of Common Stock, no par value, of the Company
presently authorized and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of
which the numerator is Stated Value plus accrued but unpaid
dividends, and of which the denominator is the Conversion Price
at such time.
"Junior Stock" means the Common Stock of the Company
and any other stock of the Company over which shares of the
Preferred Stock has preference as to distribution of assets.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock.
"Per Share Market Value" means on any particular date
(a) the last sale price per share of the Common Stock on such
date on The Nasdaq National Market or other stock exchange on
which the Common Stock has been listed or if there is no such
price on such date, then the last price on such exchange on the
date nearest preceding such date, or (b) if the Common Stock is
not listed on The Nasdaq National Market or any stock exchange,
the average of the bid and asked price for a share of Common
Stock in the over-the-counter market, as reported by the NASDAQ
Stock Market at the close of business on such date, or (c) if the
Common Stock is not quoted on the NASDAQ Stock Market, the
average of the bid and asked price for a share of Common Stock in
the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or similar organization or agency succeeding
to its functions of reporting prices), or (d) if the Common Stock
is no longer publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser (as defined in
Section 5(d)(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
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NASDAQ Stock Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding
its functions of reporting prices).
RESOLVED FURTHER, that the President and Secretary of
the Company be, and they hereby are, authorized and directed to
prepare, execute, verify, and file in the Office of the
California Secretary of State, a Certificate of Determination in
accordance with this resolution and as required by law.
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Each of the undersigned further declares under
penalty of perjury under the laws of the State of California
that the matters set forth in this certificate are true and
correct of his own knowledge.
Executed at San Diego, California on the ____ day of
December, 1995.
--------------------------------
Stephen P. Gardner, President
--------------------------------
John W. Low, Secretary
<PAGE>
EXHIBIT B
NEITHER THESE PREFERRED SHARES NOR THE SHARES OF
COMMON STOCK ISSUABLE UPON CONVERSION OF THESE PREFERRED
SHARES HAVE BEEN REGISTERED WITH THE U.S. SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). NEITHER THESE PREFERRED SHARES NOR THE
SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THESE
PREFERRED SHARES MAY BE OFFERED OR SOLD IN THE UNITED STATES
OR TO ANY U.S. PERSON (AS SUCH TERM IS DEFINED IN
REGULATION S) EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN APPLICABLE EXEMPTION
FROM THE PROVISIONS OF THE ACT.
<PAGE>
EXHIBIT 4.3
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement")
dated December 20, 1995 between Newsun Limited, a British Virgin Islands
corporation, having its principal office at Geneva, Switzerland, and
Alpharel, Inc., a corporation organized and existing under the laws of the
State of California (the "Company").
WHEREAS, the Company desires to issue and sell to the Purchaser and
the Purchaser desires to acquire shares of the Company's Series B Convertible
Preferred Stock, par value $1.00 per share (the "Series B Preferred").
IN CONSIDERATION of the mutual covenants contained in this
Agreement, the Company and the Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED
1.1 PURCHASE AND SALE OF PREFERRED. Upon the terms and conditions
set forth herein, the Company shall issue and sell to the Purchaser, and the
Purchaser shall purchase, 86,250 shares of Series B Preferred (collectively,
the "Shares"), which shall have the respective rights, preferences and
privileges set forth in Exhibit A hereto.
1.2 PURCHASE PRICE. The aggregate purchase price for the Shares
(the "Aggregate Purchase Price") shall equal the product of the 86,250 Shares
and $20.00 (the "Purchase Price Per Share").
1.3 THE CLOSING.
(a) The closing of the purchase and sale of the Shares (the
"Closing") shall take place at the offices of the Purchaser or its investment
manager or at the offices of Allen & Overy, One New Change, London, England
immediately following the execution hereof, or at such other time and place
and/or on such other date as the Purchaser and the Company may agree or as
provided in Section 1.3(b). The date of the Closing is hereinafter referred
to as the Closing Date.
(b) At the Closing, (i) the Company shall deliver to the
Purchaser or its representative one or more stock certificates representing
the Shares, registered in the name of the Purchaser and (ii) the Purchaser
shall deliver to the Company the Aggregate Purchase Price as determined
pursuant to this Article I in United States Dollars in immediately available
funds by wire transfer to such account
<PAGE>
as shall be designated in writing by the Company. In addition, each of the
Company and the Purchaser shall deliver all documents, instruments and
writings required to be delivered by either of them pursuant to this
Agreement at or prior to Closing.
(c) The certificates representing the Shares shall bear the
legend set forth in Exhibit B hereto. Assuming that there are no changes in
the material facts set forth in Section 2.2 or in applicable law that would
require such a legend (i) the Common Stock into which any Shares are
converted in accordance with the terms of conversion set forth in Exhibit A
shall not bear a legend and (ii) after the expiration of the period
commencing on the last sale of Shares hereunder and ending 40 days thereafter
(the "Restricted Period"), no legend on the Shares shall be required.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
The Company hereby makes the following representations, warranties and
agreements with and to the Purchaser.
(a) ORGANIZATION AND QUALIFICATION. The Company is a
corporation, duly incorporated and validly existing and in good standing
under the laws of the State of California and has the requisite corporate
power to own its properties and to carry on its business as now being
conducted. Except as disclosed in the SEC Documents (as hereinafter
defined), as of the date hereof, the Company does not have any subsidiaries.
The Company is duly qualified as a foreign corporation to do business and is
in good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary and
where the failure so to qualify would have a Material Adverse Effect.
"Material Adverse Effect" means any material adverse effect on the
operations, properties, prospects, or financial condition of the Company.
(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has the
requisite corporate power and authority to enter into and perform this
Agreement and to issue the Shares in accordance with the terms hereof, (ii)
the execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby has been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, (iii) this Agreement
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has been duly executed and delivered by the Company and (iv) this Agreement
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable
principles of general application.
(c) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is as set forth in Schedule 2.1(c). No shares
of Common Stock are entitled to preemptive rights. Except as disclosed in
Schedule 2.1(c), as of the date of this Agreement there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into
any shares of capital stock of the Company, or contracts, commitments,
understandings, or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares, or securities
or rights convertible into shares, of capital stock of the Company or any of
its subsidiaries. The Company has furnished to the Purchaser true and
correct copies of the Company's Restated Articles of Incorporation as in
effect on the date hereof (the "Articles of Incorporation") and, the
Company's Bylaws, as in effect on the date hereof (the "Bylaws").
(d) ISSUANCE OF SHARES. The Shares are duly authorized, and
when paid for in accordance with the terms hereof shall be validly issued,
fully paid and nonassessable. The Company has and will maintain an adequate
reserve of shares of Common Stock to enable it to perform its obligations
under this Agreement. When issued in accordance with the terms hereof and
the Certificate of Determination (as hereinafter defined), the Underlying
Shares (as hereinafter defined) will be duly authorized, validly issued,
fully paid and nonassessable.
(e) NO CONFLICTS. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transaction contemplated hereby or relating hereto do not and will not (i)
result in the violation of the Company's Articles of Incorporation or By-laws
or (ii) conflict with, or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party, or to the
actual knowledge of the Company, result in a violation of any law, rule,
regulation, order, judgment or decree
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(including Federal and state securities laws and regulations) applicable to
the Company, or by which any property or asset of the Company is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in
the aggregate, have a Material Adverse Effect). The business of the Company
is not being conducted in violation of any law, ordinance or regulation of
any governmental entity, except for possible violations which either singly
or in the aggregate do not have a Material Adverse Effect. The Company is
not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it
to execute, deliver or perform any of its obligations under this Agreement or
issue and sell the Shares in accordance with the terms hereof, except for the
filing of a Certificate of Determination with respect to the Series B
Preferred with the Secretary of State of California (the "Certificate of
Determination"), which filing shall be effected prior to the Closing Date.
(f) SEC DOCUMENTS FINANCIAL STATEMENTS. The Common Stock of
the Company is registered pursuant to section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and through and
including the date hereof, the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the
Securities and Exchange Commission (the "SEC") pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to
section 13(a) or 15(d) (all of the foregoing filed after January 1, 1995 and
prior to the date hereof being referred to herein as the "SEC Documents").
The Company has delivered to the Purchaser true and complete copies of the
SEC Documents (other than documents incorporated by reference therein but not
filed therewith). The Company has not provided any non-public information to
the Purchaser. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to such SEC
Documents, and none of the SEC Documents, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents comply as
to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of
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unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates thereof and
the results of operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
Since September 30, 1995, there has been no event, occurrence or development
that has had a Material Adverse Effect which is not disclosed in any of the
SEC Documents.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser hereby makes the following representations and warranties to the
Company:
(a) ORGANIZATION; AUTHORIZATION; ENFORCEMENT. (i) the
Purchaser is a corporation duly and validly existing and in good standing
under the laws of the British Virgin Islands and has the requisite corporate
power to own its properties and to carry on its business as now being
conducted, (ii) the Purchaser has the requisite power and authority, to enter
into and perform this Agreement, (iii) the execution and delivery of this
Agreement by the Purchaser and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary action, and no
further consent or authorization of the Purchaser (or its Board of Directors
or stockholders) is required, (iv) this Agreement has been duly executed and
delivered by the Purchaser and (v) this Agreement constitutes a valid and
binding obligation of the Purchaser enforceable against the Purchaser in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of general
application.
(b) NO CONFLICTS. The execution, delivery and performance of
this Agreement by the Purchaser and the consummation by the Purchaser of the
transactions contemplated hereby or relating hereto do not and will not (i)
result in the violation of the Purchaser's charter documents or by-laws or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, any agreement, indenture
or instrument to which the Purchaser is a party, or, to the actual knowledge
of the Purchaser, result in a violation of any law, rule, regulation, order,
judgment or decree of any court of governmental agency applicable to the
Purchaser or its properties (except for such conflicts, defaults and
violations as would not, individually or in the aggregate, have a material
adverse effect on the Purchaser). The Purchaser is
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<PAGE>
not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court of governmental agency in order for it
to execute, deliver or perform any of its obligations under this Agreement or
purchase the Shares in accordance with terms hereof.
(c) NON-U.S. OWNERSHIP. The Purchaser is not a U.S. Person
as defined within Regulation S ("Regulation S") promulgated under the
Securities Act of 1933 (the "Securities Act") and is not purchasing the
Shares and the Underlying Shares for the account or benefit of a U.S. Person,
and the sale of the Shares or the Underlying Shares has not been prearranged
with any U.S. Person or person present in the United States. At the time of
execution of this Purchase Agreement and any offer to purchase hereunder, the
Purchaser was physically outside the United States.
(d) ACCESS TO INFORMATION. The Purchaser understands that
its investment in the Shares involves a high degree of risk. The Purchaser
has such knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of the investments contemplated
by this Agreement. The Purchaser has been afforded, to the satisfaction of
the Purchaser, the opportunity to review the SEC Documents and obtain such
additional publicly available information concerning the Company and its
business, and to ask such questions and receive such answers (based upon
publicly available information), as the Purchaser deems necessary to make an
informed investment decision.
(e) RELIANCE ON REPRESENTATIONS OF PURCHASER. The Purchaser
understands that the Shares are being offered and sold, and the Underlying
Shares are being offered, to it in reliance on specific exemptions from the
registration requirements of the U.S. securities laws and that the Company is
relying of the truth and accuracy of, and the Purchaser's compliance with,
the representations, warranties, agreements, acknowledgments and
understandings set forth herein in order to determine the availability of
such exemptions and the eligibility of the Purchaser to acquire the Shares
and the Underlying Shares.
(f) NO PUT OPTION OR SHORT POSITION. The Purchaser covenants
that neither it nor its affiliates nor any person acting on its or their
behalf has the intention of entering, or will enter, during the Restricted
Period, into any put option, short position, or other similar instrument or
position with respect to the Underlying Shares or securities of the same
class as the Shares and neither Purchaser nor any of its affiliates nor any
person acting on its or their behalf will use at any time Underlying Shares
acquired pursuant to
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this Purchase Agreement or upon conversion of the Shares to settle any put
option, short position or other similar instrument or position that may have
been entered into prior to the execution of this Purchase Agreement.
ARTICLE III
COVENANTS
3.1 REGULATION S.
(a) The Company shall take all necessary corporate action and
proceedings as may be required by applicable law, rule or regulation for the
issuance of the Shares to the Purchaser at the Closing in accordance with
this Agreement. Neither the Company nor any of its affiliates have engaged or
will engage in any "directed selling efforts" (as such term is defined under
Regulation S) with respect to the Shares or the Common Stock issuable upon
conversion of the Shares (the "Underlying Shares") and have complied and will
comply with the "offering restrictions" requirements of Regulation S.
(b) The Purchaser acknowledges that the Shares and the Underlying
Shares have not been and will not be registered under the Securities Act.
The Purchaser covenants (i) that it is not, and does not intend to be a
"distributor" (as such term is defined by Regulation S) of the Shares or the
Underlying Shares, but if it so acts then the Purchaser will comply with all
applicable requirements under Regulation S in connection therewith, (ii) that
it will not offer or sell the Shares or the Underlying Shares within the
United States or to, or for the account or benefit of, any "U.S. Person" (as
each such term is defined in Regulation S) except in accordance with the
provisions of Rule 903 or Rule 904 of Regulation S or pursuant to an
exemption from the registration requirements of the Securities Act and
otherwise in accordance with all applicable laws and (iii) that neither the
Purchaser or its affiliates nor any person acting on their behalf, have
engaged or will engage in "directed selling efforts" (as such term is defined
by Regulation S) with respect to the Shares and the Underlying Shares and
that each of them has complied and will comply with the "offering
restrictions" requirements of Regulation S. The Company shall instruct its
transfer agent that the Shares and the Underlying Shares may be transferred
(A) if such transfer occurs during the Restricted Period, to any person or
entity who is not a U.S. Person (or defined in Regulation S) and is not an
affiliate of the Company and who agrees to be bound by the terms of this
Agreement to the same extent as Purchaser without the entry of a "stop
transfer" order against the Shares or the Underlying Shares, provided that
such transfer is made in accordance with
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the Rules of the Securities and Exchange Commission and Regulation S and (B)
if such transfer occurs after the Restricted Period, to any person or entity
who is not an affiliate of the Company without the entry of a "stop transfer"
order against, or legend on, the Shares or Underlying Shares.
3.2 COMMON STOCK.
(a) From the date hereof through the Closing Date, the Company
shall not, without the consent of the holders of a majority of the Shares
then outstanding, (i) amend its Articles of Incorporation or By-laws so as to
adversely affect any rights of the Purchaser; (ii) split, combine or
reclassify its outstanding capital stock; (iii) declare or set aside or pay
any dividend or other distribution with respect to the Common Stock; (iv)
repurchase or offer to repurchase shares of its Common Stock; or (v) enter
into any agreement with respect to the foregoing.
(b) For a period commencing on the date hereof and expiring 90
days after the Closing, the Company will not, without the consent of the
holders of a majority of the Shares then outstanding, (i) sell equity or
equity-equivalent securities (except (A) the granting of options to
employees, officers and directors under, and the issuance of shares upon
exercise of options granted under, any stock option plan heretofore or
hereinafter adopted by the Company, (B) shares issued upon exercise of
currently outstanding warrants and (C) shares issued in connection with the
acquisition of Trimco Group plc, including any shares which may be issued
upon conversion of the $1,000,000 in aggregate principal amount of promissory
notes issued to certain shareholders of Trimco Group, plc on the Closing
Date) or enter into any agreement with respect to the foregoing or (ii)
exercise its right under Section 5(j) of the Certificate of Determination to
suspend the right of holders of the Shares to convert the Shares.
3.3 PURCHASER'S RIGHTS IF REGULATION S IS AMENDED.
In the event that at any time on or after Closing Date, the
Purchaser shall notify the Company that Regulation S has been
amended or interpreted in a manner so as to adversely affect
the marketability of the Shares or Underlying Shares or the
Company notifies the Purchasers that the Company has
determined that such amendment or interpretation prohibits the
Company from issuing certificates representing the Underlying
Shares upon conversion of the Shares which do not bear a
restrictive legend, then, at the Company's option exercisable
within 10 days after such notice is given by written notice
from the Purchaser to the Company or from the Company to the
Purchaser, the Company shall (i) as promptly as practicable
but in any event within 90 days thereafter, cause the
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Underlying Shares to be registered for sale under the Securities Act of 1933
as amended, in form or substance satisfactory to Purchaser, or (ii) within 30
days thereafter, purchase the Shares (or if any such Shares were theretofore
converted, the Underlying Shares), at an aggregate purchase price equal to
the product of (a) the Per Share Market Value (as defined in the Certificate
of Determination) as of the Trading Day (as defined therein) immediately
preceding the day of such purchase, times (b) the number of shares of Common
Stock into which such Shares are then convertible (or, in the case of a
purchase of Underlying Shares, the number of Underlying Shares to be
purchased).
3.4 PURCHASER'S RIGHTS IF TRADING IN COMMON STOCK IS SUSPENDED.
In the event that at any time on or after the Closing Date trading in the
shares of the Company's Common stock is suspended on the principal market or
exchange for such shares (other than as a result of the suspension of trading
in securities on such market or exchange generally), for a period of five (5)
consecutive trading days, at Purchaser's option exercisable by written notice
to the Company, the Company shall repurchase the Shares and the Underlying
Shares then held by such Purchaser, at an aggregate purchase price equal to
the product of the Per Share Market Value as of the Trading Day immediately
preceding the day of such notice times the number of shares of Common Stock
into which the Shares to be purchased are then convertible (or in the case of
Underlying shares, the number of Underlying Shares to be purchased).
3.5 PUT RIGHTS UPON CERTAIN DEFAULTS. If, within the one-year
period after the Closing, (a) the Company shall default under or violate any
of Sections 3.2(b) or 3.3, (b) the Underlying Shares, when issuable under the
Certificate of Determination, shall fail to be listed on the NASDAQ National
Market or other national securities exchange or traded on the NASDAQ Stock
Market, or (c) the Company shall fail to file any reports required to be
filed under Section 13 of the Securities Exchange Act of 1934, then in any
such case, if such default, violation or failure shall continue for a period
of 10 days after written notice by any holder of the Shares to the Company,
the Company shall, at the demand of any such holder, repurchase the Shares
and Underlying Shares then held by such holder at an aggregate price equal to
(i) the product of the Per Share Market Value as of the Trading Day
immediately preceding the day of such demand times the number of shares of
Common Stock into which the Shares to be purchased are then convertible (or
in the case of Underlying Shares, the number of Underlying Shares to be
purchased), plus (ii) interest on such amount accruing from the twenty-first
day to the fortieth day after such demand at the rate of 10% per annum, from
the forty-first to the sixtieth day at 12.5%
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per annum and from the sixty-first day until paid at the rate of 15% per
annum.
3.6 NO VIOLATION OF CGCL. Notwithstanding any provision of this
Agreement to the contrary, if any repurchase or redemption of shares
otherwise required under this Agreement would be prohibited by the relevant
provisions of the California General Corporation Law (the "CGCL"), such
repurchase or redemption shall be effected as soon as it is permitted under
the CGCL.
3.7 TRANSFER OF SHARES. Purchaser shall not transfer any of the
Shares other than a transfer of all of the Shares to a single transferee (who
has sole dispositive power with respect to the Shares) who agrees to be bound
by this Agreement.
3.8 AGREEMENT TO SEEK ADDITIONAL FINANCING. If any Shares are
required to be redeemed, in whole or in part, under Section 6 of the
Certificate of Determination, and if the Company is unable to pay the
redemption price, the Company shall use its best efforts to seek and obtain
additional financing in order to permit it to pay the redemption price in
full.
3.9 PIGGYBACK REGISTRATION RIGHTS. If the Company files a
registration statement on Form S-3 during the one-year period after the
Closing providing for the registration of shares of Common Stock to be sold
by other shareholders of the Company, the Company shall provide to the
Purchasers an option to include any of the Underlying Shares in such
registration statement.
3.10 REDEMPTION OF PREFERRED STOCK; PAYMENT OF FEE. If any Shares
are required to be redeemed, in whole or in part, under Section 6 of the
Certificate of Determination and the Company fails to redeem such Shares and
pay all amounts required under the Certificate of Determination within 30
days after the date required, the Company shall be obligated to pay the
Purchaser a fee in cash equal to 5% of the redemption price of such Shares as
provided in the Certificate of Determination, unless the Company shall have
provided the Purchaser the opportunity to provide or arrange for financing
necessary to fund such redemption on terms substantially similar to those
contained in this Agreement and the Purchaser shall not have arranged or
provided for such financing within such 30-day period.
3.11 LISTING OF UNDERLYING SHARES. The Company shall take all
steps necessary to cause the Underlying Shares to be approved for listing in
The Nasdaq National Market on or
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prior to the first day that the Shares become convertible for the Underlying
Shares.
ARTICLE IV
CONDITIONS
4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO SELL
THE SHARES. The obligation hereunder of the Company to sell the Shares to
the Purchaser is further subject to the satisfaction, at or before the
Closing, of each of the following conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion.
(a) ACCURACY OF THE PURCHASER'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Purchaser shall be
true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time.
(b) PERFORMANCE BY THE PURCHASER. The Purchaser shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Purchaser at or prior to the
Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction applicable to Purchaser shall have been
enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any
of the transactions contemplated by this Agreement.
(d) NO CHANGE IN REGULATION S. No amendment to Regulation S
has occurred or interpretative release promulgated or issued thereunder
which, in the reasonable judgment of the Company, would materially adversely
affect the sale by the Company of the Shares.
(e) TRIMCO CLOSING. Prior to or concurrently with the
Closing, the Company shall have consummated the acquisition of all of the
outstanding shares of Trimco Group plc.
4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASER TO
PURCHASE THE SHARES. The obligation of the Purchaser hereunder to acquire
and pay for the Shares is subject to the satisfaction, at or before the
Closing, of each of the following conditions set forth below. These
conditions
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are for the Purchaser's sole benefit and may be waived by such Purchaser at
any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Closing Date
as though made at that time.
(b) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) ADVERSE CHANGES. Since September 30, 1995, no event
which had a Material Adverse Effect on the Company has occurred which is not
disclosed in the SEC Documents.
(e) NO CHANGE IN REGULATION S. No amendment to Regulation S
has occurred or interpretative release promulgated or issued thereunder,
which, in the reasonable judgment of the Purchaser, would materially
adversely affect the purchase by the Purchaser of the Shares.
(f) NO SUSPENSIONS OF TRADING IN COMMON STOCK. The trading in
the Common Stock shall not have been suspended by the SEC or the National
Association of Securities Dealers, Inc. (the "NASD") (except for any
suspension of trading of limited duration solely to permit dissemination of
material information regarding the Company).
(g) LEGAL OPINION. The Company shall have delivered to the
Purchaser the opinion of Gibson, Dunn & Crutcher, counsel to the Company, in
form and substance reasonably satisfactory to the Purchaser.
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ARTICLE V
TERMINATION
5.1 TERMINATION BY MUTUAL CONSENT. This Agreement
may be terminated at any time by the mutual consent of the
Company and the Purchaser.
5.2 OTHER TERMINATION. This Agreement may be
terminated by either party hereto if the Closing shall not
have occurred by December 31, 1995.
ARTICLE VI
MISCELLANEOUS
6.1 FEES AND EXPENSES. Each party shall pay the
fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. At the Closing,
the Company shall pay to Global Emerging Markets North
America, Inc./Northeast Securities a placement fee equal to
2.5% of the Aggregate Purchase Price. The Company shall pay
all stamp and other taxes and duties levied in connection with
the issuance of the Shares pursuant hereto. The Purchaser
shall be responsible for the Purchaser's own tax liability
that may arise as a result of the investment hereunder or the
transactions contemplated by this Purchase Agreement.
6.2 ENTIRE AGREEMENT AMENDMENTS. This Agreement,
together with the Exhibits and Schedules attached hereto, and
the letter agreements of even date herewith between the
parties (the "Letter Agreements"), contain the entire
understanding of the parties with respect to the matters
covered hereby and, except as specifically set forth herein,
neither the Company nor the Purchaser makes any
representation, warranty, covenant or undertaking with respect
to such matters. No provision of this Agreement may be waived
or amended other than by a written instrument signed by the
party against whom enforcement of any such amendment or waiver
is sought.
6.3 NOTICES. Any notice or other communication
required or permitted to be given hereunder shall be in
writing and shall be deemed to have been received (a) upon
hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile
(with transmission confirmation report ) at the address or
number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or
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<PAGE>
the first business day following such delivery (if delivered
other than on a business day during normal business hours
where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
to the Company: Alpharel, Inc.
9339 Carroll Park Drive
San Diego, CA 92121
With copies to: Gibson, Dunn & Crutcher
2029 Century Park East
Suite 4000
Los Angeles, CA 90067
Attn: Russell C. Hansen, Esq.
If to the Purchaser: c/o ABN Amro Trust
80 Rue du Rhone
CH 1704
Geneva, Switzerland
With copies to: Robinson Silverman Pearce
Arohnson & Berman
1290 Avenue of the Americas
New York, NY 10104-0053
Attn: Kenneth Henderson, Esq.
Either party hereto may from time to time change its address
for notices under this Section 6.3 by giving at least 10 days
written notice of such changed address to the other party
hereto.
6.4 WAIVERS. No waiver by either party of any
default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right
hereunder in any manner impair the exercise of any such right
accruing to it thereafter. Any waiver must be in writing.
6.5 HEADINGS. The headings herein are for
convenience only, do not constitute a part of this Agreement
and shall not be deemed to limit of affect any of the
provisions hereof.
6.6 SUCCESSORS AND ASSIGNS. This Agreement shall
be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The parties hereto
may amend this Agreement without notice to or the consent of
14
<PAGE>
any third party. Neither the Company nor the Purchaser shall
assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other (which consent
may be withheld for any reason in the sole discretion of the
party from whom consent is sought). The assignment by a party
of this Agreement or any rights hereunder shall not affect the
obligations of such party under this Agreement.
6.7 NO THIRD PARTY BENEFICIARIES. This agreement
is intended for the benefit of the parties hereto and their
respective permitted successors and assigns and is not for the
benefit of, nor may any provision hereof be enforced by, any
other person.
6.8 GOVERNING LAW. This Agreement shall be
governed by and construed and enforced in accordance with the
internal laws of the State of New York without regard to the
principles of conflicts of law.
6.9 SURVIVAL. The agreements and covenants of the
Company contained in Section 3.1 and this Article VI shall
survive the termination of this Agreement. The
representations and warranties of the Company and the
Purchaser contained in Article II and the agreements and
covenants set forth in Section 3.1 and this Article VI shall
survive until a date that is one year after the Closing.
6.10 EXECUTION. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original for all purposes and any one of which may be
introduced into evidence or used for any other purpose without
the production of its duplicate counterpart, and all of which
shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each
party and delivered to the other party, it being understood
that both parties need not sign the same counterpart. In the
event any signature is delivered by facsimile transmission,
the party using such means of delivery shall cause four
additional executed signature pages to be physically delivered
to the other party within five days of the execution and
delivery hereof.
6.11 PUBLICITY. The Company and the Purchaser shall
consult with each other in issuing any press releases or
otherwise making public statements with respect to the
transactions contemplated hereby. Neither party shall issue
any press release or otherwise make any public statement
without the prior written consent of the other, which consent
shall not be unreasonably withheld or delayed.
6.12 SEVERABILITY. In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable
15
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in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in
any way be affecting or impaired thereby and the parties will
attempt to agree upon a valid and enforceable provision which
shall be a reasonable substitute therefor, in light of the
tenor of this Agreement, and upon so agreeing, shall
incorporate such substitute provision in this Agreement.
6.13 DELIVERY OF W-8. The Purchaser has delivered
and will cause each transferee of Shares to deliver to the
Company a completed and executed Form W-8 and any other
documentation reasonably required for the Company to comply
with United States and foreign law.
6.14 CONVERSION PROCEDURES. Within 20 days after
the Closing the Company shall provide to the Purchaser a
schedule, in form reasonably satisfactory to the Purchaser,
setting forth the procedures with respect to the conversion of
the Shares, including the forms of conversion notice to be
provided upon conversion, instructions as to the procedures
for conversion, the form of legal opinion, if necessary, to be
rendered to the Company's transfer agent and such other
information and instructions as may be reasonably necessary to
enable the Purchaser to exercise its right of conversion
smoothly and expeditiously.
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IN WITNESS WHEREOF, the parties hereto have cause
this Agreement to be duly executed by their respective
authorized officers as of the date hereof.
Company
ALPHAREL, INC.
By: /s/ JOHN W. LOW
--------------------
Name: John W. Low
Title: Chief Financial Officer
Purchaser
NEWSUN LIMITED
By: /s/ RAZ STEINMETZ
----------------------
Name: Raz Steinmetz
Title: Proxy
17
<PAGE>
Schedule 2.1(c)
CAPITALIZATION
Total authorized capital stock:
Common Stock: 20,000,000
Preferred Stock: 1,000,000
Total issued and outstanding capital stock:
Common Stock: 15,226,814
Preferred Stock: 0
(excluding Series B Preferred Stock to be issued
pursuant to this Agreement)
Total outstanding stock options: 1,289,300
Total outstanding Redeemable Common Stock Purchase Warrants: 27,908
<PAGE>
EXHIBIT A
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
<PAGE>
value of $20.00 per share (the "Stated Value"). The shares of the Preferred
Stock shall rank prior to the Junior Stock (as defined below) as to
distribution of assets (upon liquidation or otherwise) and payment of
dividends.
Section 2. DIVIDENDS.
(a) Holders of the Preferred Stock shall be entitled
to receive, when and as declared by the Board of Directors of the
Company out of funds legally available therefor, cumulative cash
dividends at the rate per share (as a percentage of the Stated
Value per share) equal to 8% per annum, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 in
each year, with the first dividend payable on 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
2
<PAGE>
Stock of the Company, and if the assets of the Company shall be
insufficient to pay in full such amounts, then such assets shall be
distributed among such holders ratably in accordance with the respective
amounts that would be payable on such shares if all amounts payable thereon
were paid in full.
Section 5. CONVERSION.
(a) (i) Each share of Preferred Stock shall be
convertible into shares of Common Stock at the Conversion Ratio
(subject to reduction under Section 5(a)(ii) and (iii), at the
option of the holder in whole or in part at any time after the
expiration of 45 days after the Original Issue Date (as defined
in Section 7 below) (the "Conversion Term"). Any conversion
under this Section 5(a)(i) shall be of a minimum amount of at
least 12,500 shares of Preferred Stock. The holder shall effect
conversions by delivering to the Company a written notice (the
"Holder Conversion Notice"), accompanied by the certificate
representing the shares of the Preferred Stock to be converted.
Each Holder 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 "Holder Conversion Date"),
which shall in no event be earlier than the date such Holder
Conversion Notice is given in accordance with Section 5(k) below.
Each Holder Conversion Notice, once given, shall be irrevocable
(subject to Section 5(c) 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 under Section 5(a) or 5(b), 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 under Section 5(a)
or 5(b), the Per Share Market Value of the
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<PAGE>
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) Each share of the Preferred Stock shall be
convertible into shares of Common Stock at the Conversion Ratio
(subject to reduction under Section 5(a)(ii) and (iii) above), at
the option of the Company in whole or in part at any time on or
after the expiration of 120 days after the Original Issue Date.
The Company shall effect such conversion by delivering to the
holders of such shares of Preferred Stock to be converted a
written notice (the "Company Conversion Notice"), which Company
Conversion Notice, once given, shall be irrevocable; provided,
however, that during the period of two years after the Original
Issue Date, the Company shall have no right to deliver a Company
Conversion Notice and effect the conversion of shares of
Preferred Stock under this Section 5(b) unless either (i) all of
such shares may be converted into shares of Common Stock in
accordance with Section 5(a)(ii); or (ii) all of such shares may
be either converted into shares of Common Stock in accordance
with Section 5(a)(ii) or may be redeemed and the entire
redemption price paid in full in accordance with Section 6
without violating the CGCL (as defined below in Section 6). Each
Company 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 "Company Conversion Date").
The Company shall give such Company Conversion Notice in
accordance with Section 5(k) below at least two Trading Days
before the Company Conversion Date. Any such conversion shall be
effected on a pro rata basis among the holders of Preferred
Stock. Upon the conversion of shares of Preferred Stock pursuant
to a Company Conversion Notice, the holders of the Preferred
Stock shall surrender the certificates representing such shares
at the office of the Company or of any transfer agent for the
Preferred Stock or Common Stock. If the Company is converting
less than all shares of the Preferred Stock, the Company shall,
upon conversion of such shares subject to such Company Conversion
Notice and receipt of the certificate or certificates
representing such shares of Preferred Stock, deliver to the
holder or holders a certificate for such number of shares of
Preferred Stock as have not been converted. Each of a Holder
Conversion Notice and a Company Conversion Notice is sometimes
referred to herein as a "Conversion Notice," and each of a
"Holder Conversion Date" and a "Company Conversion Date" is
sometimes referred to herein as a "Conversion Date."
(c) Three Trading Days after the Conversion Date, the
Company will deliver to the holder (i) a certificate or
certificates which shall be free of restrictive legends and
trading restrictions (other than those then required by law),
representing the number of shares of Common Stock being acquired
upon the conversion of shares of Preferred Stock (subject to any
reduction required pursuant to Section 5(a)(ii) or (iii)), and
(ii) subject to Section 6 below, the certificate representing the
number of shares of Preferred Stock not converted; provided,
however that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon
conversion of any shares of Preferred
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<PAGE>
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(c) electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions. In
the case of a conversion pursuant to a Holder Conversion Notice, if such
certificate or certificates are not delivered by the date required under this
Section 5(c), 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.
(d) (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(d)(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(d)(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
5
<PAGE>
Per Share Market Value of Common Stock at the record date mentioned below,
the Conversion Price designated in Section 5(d)(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(d)(i) pursuant to this Section 5(d)(iii), if any such
right or warrant shall expire and shall not have been exercised, the
Conversion Price designated in Section 5(d)(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(d)(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
6
<PAGE>
Preferred Stock of the portion of assets or evidences of indebtedness
so distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date mentioned above.
(v) All calculations under this Section 6 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(d)(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(d)(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
7
<PAGE>
of the outstanding shares of
Common Stock), any consolidation or merger to
which the Company is a party, any sale or
transfer of all or substantially all of the
assets of the Company, or any compulsory
share exchange whereby the Common Stock is
converted into other securities, cash or
property, or
(E) of the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of
the Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of the shares of
Preferred Stock, and shall cause to be mailed to the holders of
the shares of Preferred Stock at their last addresses as they
shall appear upon the stock books of the Company, at least 10
calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined, or (y) the
date on which such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation
or winding-up (but no failure to mail such notice or any defect
therein or in the mailing thereof shall affect the validity of
the corporate action required to be specified in such notice).
(e) 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)
8
<PAGE>
giving the aforesaid opinion or opinions would result in an
increase of the Conversion Price to more than the Conversion
Price then in effect.
(f) The Company covenants that it will at all times
reserve and keep available, out of its authorized and unissued
Common Stock solely for the purpose of issuance upon conversion
of Preferred Stock as herein provided, free from preemptive
rights or any other actual contingent purchase rights of Persons
other than the holders of shares of Preferred Stock, such number
of shares of Common Stock as shall be issuable (taking into
account the adjustments and restrictions of Section 5(b) and
Section 5(d) 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.
(g) 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.
(h) 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.
(i) Shares of Preferred Stock converted into Common
Stock shall be canceled and shall have the status of authorized
but unissued shares of preferred stock.
(j) 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
9
<PAGE>
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(j).
(k) Each Holder 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. Each Company Conversion Notice shall be
given by facsimile and by mail, postage prepaid, addressed to
each holder of the Preferred Stock at the facsimile telephone
number and address of such holder appearing on the books of the
Company or provided to the Company by such holder for the purpose
of such Company Conversion Notice, or if no such facsimile
telephone number or address appears or is so provided, at the
principal place of business of the Company. Any such notice
shall be deemed given and effective upon the earliest to occur of
(i) receipt of such facsimile at the facsimile telephone number
specified in this Section 5(k), (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.
10
<PAGE>
Section 7. DEFINITIONS. For the purposes hereof, the
following terms shall have the following meanings:
"Common Stock" means shares now or hereafter authorized
of the class of Common Stock, no par value, of the Company
presently authorized and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of
which the numerator is Stated Value plus accrued but unpaid
dividends, and of which the denominator is the Conversion Price
at such time.
"Junior Stock" means the Common Stock of the Company
and any other stock of the Company over which shares of the
Preferred Stock has preference as to distribution of assets.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock.
"Per Share Market Value" means on any particular date
(a) the last sale price per share of the Common Stock on such
date on The Nasdaq National Market or other stock exchange on
which the Common Stock has been listed or if there is no such
price on such date, then the last price on such exchange on the
date nearest preceding such date, or (b) if the Common Stock is
not listed on The Nasdaq National Market or any stock exchange,
the average of the bid and asked price for a share of Common
Stock in the over-the-counter market, as reported by the NASDAQ
Stock Market at the close of business on such date, or (c) if the
Common Stock is not quoted on the NASDAQ Stock Market, the
average of the bid and asked price for a share of Common Stock in
the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or similar organization or agency succeeding
to its functions of reporting prices), or (d) if the Common Stock
is no longer publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser (as defined in
Section 5(d)(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
11
<PAGE>
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.
12
<PAGE>
Each of the undersigned further declares under
penalty of perjury under the laws of the State of California
that the matters set forth in this certificate are true and
correct of his own knowledge.
Executed at San Diego, California on the ____ day of
December, 1995.
________________________________
Stephen P. Gardner, President
________________________________
John W. Low, Secretary
<PAGE>
EXHIBIT B
NEITHER THESE PREFERRED SHARES NOR THE SHARES OF
COMMON STOCK ISSUABLE UPON CONVERSION OF THESE PREFERRED
SHARES HAVE BEEN REGISTERED WITH THE U.S. SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). NEITHER THESE PREFERRED SHARES NOR THE
SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THESE
PREFERRED SHARES MAY BE OFFERED OR SOLD IN THE UNITED STATES
OR TO ANY U.S. PERSON (AS SUCH TERM IS DEFINED IN
REGULATION S) EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN APPLICABLE EXEMPTION
FROM THE PROVISIONS OF THE ACT.
<PAGE>
EXHIBIT 4.4
[FRONT SIDE OF CERTIFICATE]
INCORPORATED UNDER THE LAWS OF
[GRAPHIC OF EAGLE]
CALIFORNIA
NUMBER SHARES
B
----- ------
ALPHAREL, INC.
SERIES B CONVERTIBLE PREFERRED STOCK
PAR VALUE $1.00
This certifies that ___________ is the owner of
_________ shares of the capital stock of Alpharel, Inc.
transferable only on the books of the Corporation by the
holder hereof in person or by Attorney upon surrender of this
Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused
this Certificate to be signed by its duly authorized officers
and its corporate seal to be hereonto affixed this ______ day
of ____________ A.D. 19__.
- ------------------------- -------------------------
Secretary President
[Corporate Seal]
SEE THE REVERSE SIDE HEREOF FOR CERTAIN RESTRICTIONS AND RIGHTS.
<PAGE>
[REVERSE SIDE OF CERTIFICATE]
THE PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE ARE
REDEEMABLE UPON THE OCCURRENCE OF CERTAIN EVENTS. THE
PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE ARE
CONVERTIBLE BY THE HOLDER HEREOF AT ANY TIME AFTER 45 DAYS
FROM THE ORIGINAL DATE OF ISSUANCE AND BY ALPHAREL, INC. AT
ANY TIME AFTER 120 DAYS FROM THE ORIGINAL DATE OF ISSUANCE.
ALPHAREL, INC. WILL FURNISH AT ITS PRINCIPAL OFFICE, WITHOUT
CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS, A COMPLETE
STATEMENT OF THE RIGHTS, PREFERENCES, PRIVILEGES AND
RESTRICTIONS GRANTED TO OR IMPOSED ON THE PREFERRED SHARES
REPRESENTED BY THIS CERTIFICATE.
NEITHER THESE PREFERRED SHARES NOR THE SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF THESE PREFERRED SHARES HAVE BEEN
REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER REGULATION S PROMULGATED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
NEITHER THESE PREFERRED SHARES NOR THE SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF THESE PREFERRED SHARES MAY BE
OFFERED OR SOLD IN THE UNITED STATES OR TO ANY U.S. PERSON (AS
SUCH TERM IS DEFINED IN REGULATION S) EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO
AN APPLICABLE EXEMPTION FROM THE PROVISIONS OF THE ACT.
Alpharel, Inc.
Series B Convertible Preferred Stock
Par Value $1.00 Per Share
Certificate
for
_______ shares of
Capital Stock
Issued to
______________________________________
Dated
_____________________
For value received, ___________________ hereby sell,
assign and transfer unto _________________, ___________ shares
of the Capital Stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint ________ to
transfer the said stock on the books of the within-named
corporation with full power of substitution in the premises.
Dated ___________________, 19___.
In presence of ______________________________________
[Notice: The signature of this assignment must
correspond with the name as written upon the face of the
certificate in every particular, without alteration,
enlargement or any change whatever.]
<PAGE>
EXHIBIT 4.5
ALPHAREL, INC.
9339 CARROLL PARK DRIVE
SAN DIEGO, CALIFORNIA 92121
January 2, 1996
Newsun Limited
c/o ABN Amro Trust
80 Rue du Rhone
CH 1704
Geneva Switzerland
and
THC, Inc.
1183 Finch Avenue W.
Suite 604
N. York, Ontario M332G2
Re: SERIES B CONVERTIBLE PREFERRED STOCK
Gentlemen:
This will confirm our agreement with respect to matters
set forth herein in connection with the transactions contemplated
by the Convertible Preferred Stock Purchase Agreement dated
December 20, 1995 between Alpharel, Inc., a California corporation
(the "Company"), and Newsun Limited, a British Virgin Islands
corporation ("Newsun"), and the Convertible Preferred Stock
Purchase Agreement dated December 20, 1995 between the Company and
THC, Inc., an Ontario corporation ("THC" and collectively with
Newsun, the "Purchasers"). Such Convertible Preferred Stock
Purchase Agreements are hereinafter referred to collectively as
the "Purchase Agreements." The Purchase Agreements provide for
the issuance and sale of an aggregate of 172,500 shares of the
Company's newly issued Series B Convertible Preferred Stock (the
"Series B Preferred Stock") to the Purchasers.
The parties understand that a revised Certificate of
Determination (a copy of which is attached hereto as Exhibit A)
setting forth the rights, preferences and privileges of the Shares
has been presented to the Secretary of State of the State of
California for filing. The parties acknowledge that such
Certificate of Determination will not be deemed filed until
reviewed and approved by the staff of the Secretary of State.
Unless otherwise defined herein, capitalized terms used herein
shall have their respective meanings set forth in the Certificate
of Determination.
The parties hereto agree, subject to the condition that
the Certificate of Determination be reviewed and approved by the
Secretary of State in the form attached as Exhibit A, that:
1. Neither of the Purchasers shall deliver any
Conversion Notice to the Company or exercise any right of
conversion provided in Section 5 of the Certificate of
Determination with respect to fewer than 12,500 shares.
<PAGE>
2. At any time on or after the expiration of 120 days
after the Original Issue Date, the Company shall have the right to
cause the holders of the Series B Preferred Stock in whole or in
part to exercise their conversion rights pursuant to Section 5 of
the Certificate of Determination. The Company shall exercise the
right under this paragraph by delivering to the holders of such
shares of the Series B Preferred Stock as to which the Company
desires to exercise such right a written notice (a "Company
Exercise Notice"), which Company Exercise Notice, once given,
shall be irrevocable; provided, however, that during the period of
two years after the Original Issue Date, the Company shall have no
right to deliver a Company Exercise Notice and cause the holders
of shares of Series B Preferred Stock to effect any conversion
unless either (i) all of such shares may be converted into shares
of Common Stock in accordance with Section 5(a)(ii) of the
Certificate of Determination; or (ii) all of such shares may be
either converted into shares of Common Stock in accordance with
such Section 5(a)(ii) or may be redeemed and the entire redemption
price paid in full in accordance with Section 6 of the Certificate
of Determination without violating the CGCL. Each Company
Exercise Notice delivered pursuant to this paragraph shall specify
the number of shares of Series B Preferred Stock that the Company
desires to cause to be converted and the date on which conversion
is to be effected (the "Company Exercise Date"). The Conversion
Date for any conversion effected pursuant to the Company's
election under this paragraph shall be deemed to be the Company
Exercise Date. The Company shall give such Company Exercise
Notice at least two Trading Days before the Company Exercise Date
and shall send such Company Exercise Notice by facsimile and by
mail, postage prepaid, to the facsimile telephone number and
address of each holder appearing on the stock transfer books of
the Company. Any exercise of the rights granted pursuant to this
paragraph shall be effected on a pro rata basis among the holders
of the Series B Preferred Stock. Upon the conversion of shares of
Series B Preferred Stock, the holders of the Series B Preferred
Stock shall surrender the certificates representing such shares at
the office of the Company or of any transfer agent for the Series
B Preferred Stock or Common Stock. If the Company is exercising
its rights hereunder with respect to less than all shares of the
Series B Preferred Stock, the Company shall, upon conversion of
such shares subject to such Company Exercise Notice and receipt of
the certificate or certificates representing such shares of Series
B Preferred Stock, deliver to the holder or holders a certificate
for such number of shares of Series B Preferred Stock as have not
been converted by such holder or holders. Each of the Purchasers
hereby appoints the Company as attorney-in-fact for such Purchaser
for the purpose of delivering any notices or executing any
documents that may be necessary in order to effect the conversion
of the Series B Preferred Stock in accordance with the provisions
of Section 5(a) of the Certificate of Determination upon the
election of the Company to exercise its rights under this
paragraph.
3. In addition to the restrictions and limitations
contained in Section 3.7 of each of the Purchase Agreements, each
of the Purchasers hereby agrees that no transfer of any shares of
Series B Preferred Stock held by such Purchaser shall be made
unless the transferee thereof agrees to be bound by the terms of
this letter agreement.
2
<PAGE>
Please confirm your agreement to the foregoing by
signing and returning a copy of this letter.
Very truly yours,
ALPHAREL, INC.
By: /s/ JOHN W. LOW
-----------------------------
Its: Chief Financial Officer
-----------------------
ACKNOWLEDGED AND AGREED TO
this day of January, 1996
---
NEWSUN LIMITED
By: /s/ RAZ STEINMETZ
---------------------------
Name: Raz Steinmetz
--------------------
Title: Proxy
-------------------
THC, INC.
By: /s/ JOSAIF YARMUCH
---------------------------
Name: Josaif Yarmuch
--------------------
Title: President
-------------------
3
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our reports dated 17 January 1994,
3 January 1995, 17 November 1995 and 22 December 1995 related to the
consolidated financial statements of Trimco Group PLC in the Current Report
on Form 8-K of Alpharel Inc. and the incorporation by reference of such
reports into Alpharel Inc.'s Registration Statement on Form S-3 (Registration
No. 33-43223) and into Alpharel Inc.'s Registration Statements on Form S-8
(Registration Nos. 33-43451, 33-77224 and 33-83330).
/s/ GANE JACKSON SCOTT
-------------------------
Gane Jackson Scott
Chartered Accountants
LONDON
8 JANUARY 1996
