SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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) November 20, 1995
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Alpharel, Inc.
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(Exact name of registrant as specified in charter)
California 0-15935 95-3634089
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(State or other jurisdiction of (Commission file number) (IRS employer
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
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Not applicable
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(Former name or former address, if changed since last report)
ITEM 5. OTHER EVENTS.
A. DESCRIPTION OF PROPOSED TRANSACTION.
Alpharel, Inc., a California corporation (the "Company"), has
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. Document Management Systems Limited
and another entity affiliated with Mr. Tanna together control approximately
70% of the outstanding shares of Trimco.
Under the Letter of Intent, the Company would acquire the
Trimco shares for an aggregate purchase price of $14,650,000, comprised of
$6,550,000 in cash and shares of Company common stock having a value of
$8,100,000. For this purpose, the value per share of Company common stock
would be deemed to be the lesser of a) the average daily closing price per
share of Company common stock on the Nasdaq National Market for the period
commencing July 17, 1995 and ending on the trading day immediately prior to
the closing date of the acquisition and b) the average daily closing price
per share of Company common stock on the Nasdaq National Market for the 10
trading days immediately preceding the closing date of the acquisition. The
average closing price of Company common stock during the period July 17, 1995
through November 16, 1995 was $4.99. Such price would result in the issuance
of approximately 1,623,000 shares of Company common stock to the Trimco
shareholders. However, further fluctuations in the price of Company common
stock could result in material changes in the number of shares to be issued.
The shares of common stock would be issued to the Trimco shareholders, none
of whom are residents of the United States, in reliance on the exemption set
forth in Regulation S of the Securities and Exchange Commission from the
registration requirements of the Securities Act of 1933.
The principal terms of the Letter of Intent are not legally
binding on the parties. However, Mr. Tanna and Document Management Systems
Limited are subject to a binding covenant prohibiting, through December 31,
1995, discussions or negotiations by them with third parties interested in
acquiring Trimco. Although the parties are not bound by the terms of the
Letter of Intent, the Letter of Intent provides that the proposed purchase of
the Trimco shares would be consummated on terms and conditions substantially
similar to those set forth in a draft purchase and sale agreement attached to
the Letter of Intent (the "Draft Agreement"). Under the Draft Agreement, the
selling shareholders of Trimco would make no representations and warranties
with respect to Trimco. Accordingly, in the event that the acquisition of
Trimco by the Company is consummated and Trimco suffers any loss or claim,
such loss or claim generally would not be subject to any right of recovery or
indemnification from the Trimco shareholders in favor of the Company, unless
the Company prevails on a claim of fraudulent disclosure or willful
concealment of information, in which event a claim may be made against
certain shareholders (in each case limited in amount to the consideration
received by such shareholder).
The Letter of Intent and Draft Agreement contemplate that Mr.
Tanna would remain as managing director of Trimco and would refrain from
engaging in any business competitive with Trimco for a period of two years
after the closing of the acquisition. The Company anticipates that Mr. Tanna
would, 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 would receive approximately 70% of the shares of Company
common stock to be issued to Trimco shareholders. Mr. Tanna has agreed that
no more than 12.5% of the shares issued to such entities would be sold in
each three-month period after the consummation of the acquisition.
The Company expects the acquisition to be consummated in
December 1995. However, consummation is contingent upon the agreement of all
of the approximately 15 Trimco shareholders to the acquisition on the terms
contemplated by the Letter of Intent, the receipt of financing by the Company
to fund the cash portion of the purchase price and certain other customary
conditions. Although the Company has engaged in preliminary discussions with
potential financing sources, the Company has received no commitment from any
such source to provide such financing. The Company anticipates that such
financing would be obtained through the issuance of common
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stock or securities convertible into or exercisable for common stock. The
price per share at which any such common stock is issued may be less than the
current market price per share of Company common stock, thereby resulting in
dilution to Company shareholders. There can be no assurance that the Company
will be successful in obtaining financing for the transaction or that the
acquisition of Trimco will be consummated on the terms contemplated by the
Letter of Intent.
In conjunction with the Letter of Intent, the Company has
agreed to make cash expenditures of approximately $950,000 and to issue shares
of Company common stock having a value of approximately $640,000 (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.
B. DESCRIPTION OF BUSINESS OF TRIMCO GROUP, PLC.
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, 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, yet 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, 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 following
business and financial information regarding Trimco was provided to the
Company by Trimco.
MARKETS/PRODUCTS AND SERVICES
Trimco's operations commenced in 1987 and deliveries to Trimco's first customers
were initiated shortly thereafter. Initial sales involved the resale of other
companies' products and the provision of services to convert documents to
electronic format. As Trimco matured, research and development efforts yielded
client software products running on the Microsoft Windows operating system that
allowed Trimco to reduce its dependency upon third party software suppliers.
Trimco sought to differentiate its products from competitors through the speed
of document retrieval, "postage-stamp" overview/preview of documents and
"hot-spot" linkage between the areas of an image being viewed and other
associated documents, among others.
By 1992, Trimco had developed a wide range of client software
products for the technical document management market based on the Trimco
Targeted Image Extraction (TIE) technology working in conjunction with
"commodity" operating systems such as Windows, Macintosh (Apple Computer) OS,
and UNIX. In addition, considerable work had been completed to create
document management and retrieval solutions working in conjunction with
standard industry relational database software from providers such as Oracle,
Sybase and Informix. Expanding upon this new base of software products, the
company initiated sales in the United States, South Africa, continental
Europe, the Middle East, India and Asia through both direct and indirect
sales efforts.
Development efforts have continued to the present and Trimco
offers a range of products resulting from its own research and development
efforts and including solutions for workflow management (routing of documents
and activity according to software-defined rules and paths), product data
management (for the control of documents throughout the lifecycle of product
development, manufacturing and support) and further enhancement of both
client document access tools and server-based document management tools.
Trimco has also entered into resale and integration agreements with certain
other software providers to allow full solutions to be provided to Trimco's
customers.
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Trimco's principal product offerings include:
(1) Target/PE (Personal Edition): a software solution for
adding document management capabilities to personal workstations for use by
a single user.
(2) Target/WG (Work Group): a software solution aimed at
the departmental or work group market allowing networking of multiple
target/PE users together, while adding the ability to access relational
database storage for larger numbers of documents.
(3) Trimco/PRO: a suite of software solutions encompassing
the needs of extended enterprises for document management including:
(a) Win-Track: software for document tracking,
indexing, storage, and retrieval to and from large relational
databases.
(b) TIE (Targeted Image Extraction) Document Image
Processing: a set of software modules encompassing the requirements
for viewing, scanning, quality control, annotation, redlining, editing
and file conversion. TIE also provides very rapid retrieval and
viewing of documents over a network.
(c) Workflow: software for establishing routing and
security of documents as they pass through a business process.
(d) Core: software for UNIX servers to provide core
functionality to large document management solutions such as printing,
batch process management and file recovery and enhancement.
(4) Professional services: services for tailoring and
customization of Trimco products to specific customer needs as well as
incorporation of third party software and hardware components to create
complete solutions.
(5) Maintenance Services: provision of help-desk, problem
tracking and resolution, and fixes and patches to customers under either
warranty or maintenance contracts. Trimco provides maintenance both
directly and through Value-Added Resellers and distributors.
Document management solutions for smaller users and departments
range in price from $10,000 to $50,000. Solutions for enterprise customers
range in price from $250,000 to over $2 million. Value-Added Resellers and
distributors provide most of the smaller sales for Trimco, while the larger
sales are generally pursued in partnership with a systems integrator or
through direct sales efforts by Trimco, usually involving senior management.
In the past two years, customer requirements for document
management systems have shifted toward high-speed retrieval, viewing,
manipulation, routing, and aggregating of documents over distributed networks
of powerful server computers and large numbers of desktop workstations and
personal computers. All these tasks are being demanded by customers to
complement and enhance business process management applications such as
manufacturing management, financial management, customer service and product
development and maintenance. Several standards bodies have emerged to
attempt to establish common interface standards between major components of
documents management systems and business applications. Two such standards
bodies are the Workflow Management Coalition and the Document Management
Alliance.
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Trimco's research and development efforts have focused on
compliance with proposed standards and customer demand for high-speed
retrieval, viewing and routing over distributed networks of large numbers
of workstations and personal computers. Although the Company and Trimco
historically have both participated in the integrated document management
market, they have generally targeted different industry and geographic
segments. The Company intends to continue to support through its development
efforts and to actively market both the Alpharel and Trimco product sets.
Nevertheless, the Company's and Trimco's research and development efforts in
the past have overlapped to a significant degree. As a result, the Company
anticipates that redirection of the combined research and development
resources of the two companies after the closing would enable them to expand
the development projects that they can pursue jointly in an effort to develop
new products and greater product functionality.
CUSTOMERS
Trimco's customers are primarily large corporations and
governmental agencies. Typical users of Trimco software products and
services are in the petrochemical industry, energy-generating utilities,
railways, construction, financial services, and aerospace. Governmental
users include the European Space Agency and Nirex [U.K.] Ltd.
During the fiscal year ended June 30, 1995, three customers
accounted for 15%, 12% and 10% of Trimco's revenue, respectively. In fiscal
year 1994 sales to one of Trimco's U.S. distributors and one other customer
accounted for 20% and 10%, respectively, of Trimco's revenue. That U.S.
distributor and Trimco have been unable to reach agreement on the terms of a
continuing distribution relationship. Accordingly, the distribution
agreement between them has been terminated, although Trimco expects to
continue to offer its products in the United States in part through this
distributor. Upon consummation of the acquisition, the Company intends to
expand direct sales of Trimco products in the United States through the
Company's existing sales and marketing force working together with Trimco
personnel.
BACKLOG
At June 30, 1995, Trimco's backlog of software and professional services
revenue was L826,000 ($1,312,000) and its maintenance backlog was L311,000
($495,000). Trimco's contract backlog consists of the aggregate anticipated
revenue remaining to be earned at a given time from the uncompleted portions
of its existing contracts. It does not include revenues that may be earned
if customers exercise options to make additional purchases. The amount of
contract backlog is not necessarily indicative of future contract revenues
because short-term contracts, modifications to or terminations of present
contracts and production delays can provide additional revenues or reduce
anticipated revenues. Like the Company's backlog, Trimco's backlog is
typically subject to large variations from time to time when new contracts
are awarded. Consequently, it is difficult to make meaningful comparisons
of backlog.
FACILITIES AND EMPLOYEES
Trimco's main operations are located at a leased facility at 111 Uxbridge
Road, Ealing, London, W5 2TZ, United Kingdom. In addition, Trimco has one
leased office in Florida from which a small number of field sales,
maintenance and research and development personnel operate. As of November
11, 1995, Trimco had 94 employees, of whom 45 were engaged in engineering and
research and development activities, 33 in marketing and program/maintenance
support and 16 in operations and administration.
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C. FINANCIAL INFORMATION
For the year ended June 30, 1995, Trimco had revenue of
L5,601,000 ($8,842,000) and net income of L230,000 ($363,000) as compared to
1994 revenue of L4,434,000 ($6,639,000) and net income of L193,000
($288,000). As of June 1995, Trimco's total assets amounted to L2,938,000
($4,674,000), including cash of L316,000 ($503,000) and working capital of
L318,000 ($506,000). For the three months ended September 30, 1995, Trimco
reported revenue of L1,034,000 ($1,611,000) and a net loss of L261,000
($408,000) as compared to the comparable period in 1994, when Trimco reported
revenue of L795,000 ($1,233,000) and a net loss of L337,000 ($523,000).
Traditionally, Trimco's first quarter ending September 30 is characterized by
lower revenues and weaker operating results than other quarters, primarily
due to the effects of the European holiday schedule on July and August
operations.
Financial statements for the three months ended September 30, 1995
have not yet been completed by Trimco and provided to the Company. The audited
consolidated financial statement of Trimco for the years ended June 30, 1993,
1994, and 1995 are attached hereto as Exhibit 99.1.
It is anticipated that the acquisition of Trimco by the Company
would be accounted for using the purchase method. A substantial portion of
the purchase price relates to research and development projects undertaken by
Trimco, thereby resulting in a charge against the Company's operations upon
consummation of the acquisition equal to the amount thereof. In addition,
the Company may incur additional charges associated with the integration of
Trimco's and the Company's existing operations subsequent to the consummation
of the acquisition. The amount of the charges which would result from the
transaction, while substantial, have not been determined at this time.
Because a substantial portion of the purchase price would be charged against
the Company's operations, consummation of the acquisition would likely result
in a material reduction in net tangible book value per share of the Company's
common stock.
Upon consummation of the acquisition a substantial portion of
the Company's consolidated revenues and backlog would be denominated in the
currencies of foreign nations, including principally the United Kingdom.
Accordingly, the Company would become subject to the effects on its results
of operations of fluctuations of the value of such currencies as compared to
the dollar.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits:
99.1 Consolidated Financial Statements of Trimco Group, plc
for the years ended June 30, 1993, 1994 and 1995.
99.2 Consent of Independent Accountants.
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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: November 20, 1995
ALPHAREL, INC.
By: /s/ JOHN W. LOW
John W. Low, Chief Financial Officer
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EXHIBIT INDEX
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SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
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99.1 Financial Statements of Trimco Group, plc for
the years ended June 30, 1993, 1994 and 1995.
99.2 Consent of Independent Accountants
CA953140.005/4+
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