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
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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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
13
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
14
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
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.
16
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
17
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
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
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
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
3
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
4
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
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
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
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
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
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
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
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
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
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.