-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R1cJWiRKyFg1GWqP3pWiJCin0DQS6yNDLtv1Z42Bze6SMcVv9fL+AEVFgjiAx1Tc mlY+rTlp3hlnOOVDYmt6qw== 0000912057-96-017632.txt : 19960816 0000912057-96-017632.hdr.sgml : 19960816 ACCESSION NUMBER: 0000912057-96-017632 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALPHAREL INC /CA/ CENTRAL INDEX KEY: 0000813747 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 953634089 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15935 FILM NUMBER: 96611790 BUSINESS ADDRESS: STREET 1: 9339 CARROLL PARK DR CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6196253000 MAIL ADDRESS: STREET 1: ALPHAREL INC /CA/ STREET 2: 9339 CARROLL PARK DR CITY: SAN DIEGO STATE: CA ZIP: 92121 10-Q 1 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-15935 ALPHAREL, INC. ---------------- (Exact name of registrant as specified in its charter) CALIFORNIA 95-3634089 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9339 CARROLL PARK DRIVE, SAN DIEGO, CA 92121 ----------------------------------------------------- (Address of principal executive offices and zip code) (619) 625-3000 --------------------------------------------------- (Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----------- ----------- Number of shares of Common Stock outstanding at July 31, 1996: 18,897,012 ---------- Number of Sequentially Numbered Pages: 13 ---- Exhibit Index at Page 12 ---- 1 ALPHAREL, INC. INDEX Page Number ----------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet 3 Consolidated Statement of Operations 4 Consolidated Statement of Cash Flows 5 Notes to the Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION 11 2 ALPHAREL, INC. PART 1. FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEET ASSETS
June 30, 1996 December 31, 1995 ------------- ----------------- (unaudited) Current assets: Cash and cash equivalents $ 901,000 $ 4,656,000 Short term investments 90,000 270,000 Receivables, net 8,157,000 4,207,000 Inventory, net 455,000 469,000 Other current assets 779,000 803,000 ------------- ----------------- Total current assets 10,382,000 10,405,000 Property and equipment, net 2,091,000 1,645,000 Computer software, net 1,767,000 1,549,000 Goodwill 4,607,000 4,945,000 Deposits and other assets 494,000 458,000 ------------- ----------------- Total assets $ 19,341,000 $ 19,002,000 ------------- ----------------- ------------- ----------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,501,000 $ 2,192,000 Accrued liabilities 2,305,000 3,211,000 Notes payable 200,000 1,834,000 Convertible note payable - 1,000,000 Deferred revenue 819,000 1,229,000 ------------- ----------------- Total current liabilities 4,825,000 9,466,000 Long term note payable 397,000 475,000 Other long term liabilities 774,000 945,000 ------------- ----------------- Total liabilities 5,996,000 10,886,000 Commitments Shareholders' equity: Preferred stock, $1 par value, 1,000,000 shares authorized; 650,761 designated; 62,500 shares issued and outstanding 1,229,000 3,306,000 Common stock, no par, 40,000,000 shares authorized; 18,544,464 and 16,950,902 issued and outstanding, respectively 59,769,000 54,085,000 Foreign currency translation adjustment 70,000 - Accumulated deficit (47,723,000) (49,275,000) ------------- ----------------- Total shareholders' equity 13,345,000 8,116,000 ------------- ----------------- Total liabilities and shareholders' equity $ 19,341,000 $ 19,002,000 ------------- ----------------- ------------- -----------------
See accompanying notes to the consolidated financial statements 3 ALPHAREL, INC. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (In thousands except per share data)
For the three months For the six months ended June 30, ended June 30, -------------------- ------------------- 1996 1995 1996 1995 ------- ------- ------- ------ Revenues $ 6,106 $ 3,351 $12,167 $ 6,502 Cost of revenues 2,133 1,422 4,646 3,114 ------- ------- ------- ------- Gross profit 3,973 1,929 7,521 3,388 ------- ------- ------- ------- Operating expenses: Research and development 849 335 1,756 560 Marketing and sales 1,394 778 2,647 1,471 General and administrative 854 399 1,565 721 ------- ------- ------- ------- Total operating expenses 3,097 1,512 5,968 2,752 ------- ------- ------- ------- Income from operations 876 417 1,553 636 Interest and other income 20 36 46 70 Interest and other expense (21) (26) (47) (54) ------- ------- ------- ------- Income before taxes 875 427 1,552 652 Provision for taxes - - - - ------- ------- ------- ------- Net income $ 875 $ 427 $ 1,552 $ 652 ------- ------- ------- ------- ------- ------- ------- ------- Net income per share $ .05 $ .03 $ .08 $ .05 ------- ------- ------- ------- ------- ------- ------- ------- Weighted average shares outstanding 19,187 14,068 18,468 14,066
See accompanying notes to the consolidated financial statements. 4 ALPHAREL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
For the six months ended June 30, ------------------------- 1996 1995 ----------- ---------- Cash flow from operating activities: Net income $ 1,552,000 $ 652,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 956,000 335,000 Changes in assets and liabilities: Receivables (3,950,000) (64,000) Inventory 14,000 251,000 Other assets (49,000) (292,000) Accounts payable (691,000) 2,000 Accrued liabilities (906,000) (49,000) Deferred revenue (410,000) (91,000) Other long term liabilities (171,000) - ----------- ---------- Net cash (used in) provided by operating activities (3,655,000) 744,000 ----------- ---------- Cash flows from investing activities: Short term investments maturing 180,000 1,129,000 Purchases of property and equipment (764,000) (186,000) Proceeds from sale of property and equipment - 4,000 Purchases of software (15,000) (11,000) Computer software capitalized (466,000) (404,000) Cash paid to former Optigraphics shareholders - (171,000) ----------- ---------- Net cash (used in) provided by investing activities (1,065,000) 361,000 ----------- ---------- Cash flows from financing activities: Principal payment under cash advanced by a bank related to former Optigraphics shareholder notes payable (1,634,000) - Principal payments under note payable (78,000) (28,000) Proceeds from exercise of stock options 699,000 39,000 Net proceeds from issuance of preferred stock 1,908,000 - ----------- ---------- Net cash provided by financing activities 895,000 11,000 ----------- ---------- Effects of exchange rate changes on cash 70,000 - ----------- ---------- Net (decrease) increase in cash and cash equivalents (3,755,000) 1,116,000 Cash and cash equivalents at beginning of period 4,656,000 1,036,000 ----------- ---------- Cash and cash equivalents at end of period $ 901,000 $2,152,000 ----------- ---------- ----------- ---------- Supplemental cash flow information: Interest paid $ 37,000 $ 73,000 ----------- ---------- ----------- ---------- Schedule of non-cash financing activity: Conversion of Preferred Stock and note payable to Common Stock $ 5,003,000 - ----------- ---------- ----------- ----------
See accompanying notes to the consolidated financial statements. 5 ALPHAREL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying consolidated balance sheet of Alpharel, Inc. (the "Company") as of June 30, 1996 and the consolidated statement of operations and of cash flows for the three and six month periods ended June 30, 1996 and 1995 are unaudited. The consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles applicable to interim periods. In the opinion of management, the consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the consolidated financial position, operating results and cash flows for the periods presented. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. NOTE 2 - NET INCOME PER SHARE Net income per share is computed on the basis of weighted average shares and common stock equivalent shares outstanding for each period presented, if dilutive. NOTE 3 - INVENTORY Inventory consists of parts, supplies, and subassemblies stated at the lower of cost or market value. Cost is determined using the first-in, first-out (FIFO) method. As of June 30, 1996 and December 31, 1995, the Company's reserve against excess quantities totaled $2,119,000. NOTE 4 - NOTE PAYABLE In September 1995, the Company entered into a revolving loan and security agreement, which provides for borrowings of up to $1,000,000. At June 30, 1996, $597,000 was outstanding on the revolving loan agreement and $403,000 was unused. The maximum credit available under this facility declines by $200,000 in September of each year commencing in 1996. The loan balance is payable in monthly installments of $16,667 with interest equal to the 30-day Commercial Paper Rate plus 2.95% (8.39% at June 30, 1996). Total borrowings under the revolving loan agreement are collateralized by the Company's assets. The revolving loan and security agreement contains certain restrictive covenants including debt to tangible net worth ratio. At December 31, 1995, the Company had an outstanding payable for cash advanced by a bank which acted as paying agent for the notes due to former Optigraphics shareholders having a principal balance of $1,634,000 in which the balance was paid in January 1996. The notes with an original maturity of September 1995 provided for interest payable quarterly at 6% per annum and were issued as part of the total consideration paid in connection with the acquisition of Optigraphics Corporation. At December 31, 1995, the Company had an outstanding convertible note in connection with the acquisition of Trimco having a principal balance of $1,000,000 payable at 7% per annum, due on September 27, 1996. In February 1996, the note was converted into 250,000 shares of the Company's common stock. 6 NOTE 5 - PREFERRED STOCK In April 1996, the Company issued 100,000 shares of a new series of preferred stock, the Series C Convertible Preferred Stock (the "Series C Preferred Stock") in a private placement to a purchaser who is not a resident of the United States, in reliance on the exemption set forth in Regulation S of the Securities and Exchange Commission. In consideration for the issuance and sale of the Series C Preferred Stock, the Company received $2,000,000 in cash proceeds before expenses. The Series C Preferred Stock bears a dividend of 8% per annum, accruing quarterly, and is convertible into shares of the Company's common stock after June 9, 1996, at the option of the holder, and after August 23, 1996, at the Company's option. The conversion ratio will be a fraction, the numerator of which is $20.00 plus accrued but unpaid dividends, and the denominator of which is the lessor of $5.16 (the closing price on April 24, 1996, the date preceding the date of issuance), and 80% of the average closing trading price on the three trading days immediately preceding the date of conversion. In the event that, on any conversion date, the applicable conversion price then in effect is such that the aggregate number of shares of common stock that would then be issuable upon conversion of all shares of the Series C Preferred Stock would equal or exceed 500,000 shares, then the Company shall be obligated to convert only a portion of such shares subject to a notice of conversion, and will be obligated to redeem the remainder of the shares subject to such notice of conversion out of funds legally available for such redemption. The Certificate of Determination for the Series C Preferred Stock also contains customary anti-dilution provisions. In June 1996, 37,500 shares of Series C Preferred Stock were converted into 145,453 shares of common stock. In July 1996, the remaining 62,500 shares of Series C Preferred Stock were converted into 326,548 shares of common stock. In December 1995 the Company issued 172,500 shares of a new series of preferred stock, the Series B Convertible Preferred Stock (the "Series B Preferred Stock") for total proceeds of $3,450,000 before expenses. In February 1996, all of such shares of Series B Preferred Stock were converted into 813,234 shares of common stock. 7 RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE THREE AND SIX MONTHS ENDED JUNE 30, 1995. Revenues Revenue for the three and six months ended June 30, 1996 was $6,106,000 and $12,167,000, respectively, as compared to $3,351,000 and $6,502,000 for the three and six months ended June 30, 1995. The increase of 82% and 87%, respectively, in revenue for the three and six months ended June 30, 1996 is primarily due to revenues generated from significant new system sales by the Company's new wholly-owned subsidiary, Trimco Group plc ("Trimco"), which was acquired in December 1995. For the three and six months ended June 30, 1996 revenue consisted of new system revenue of $4,185,000 (69%) and $7,521,000 (62%), respectively, and revenue related to system enhancements, expansion and maintenance of $1,921,000 (31%) and $4,646,000 (38%), respectively. This compares to 1995 revenue of $1,841,000 (55%) and $3,566,000 (55%), respectively, in new system revenue and revenue related to system enhancements, expansion and maintenance of $1,510,000 (45%) and $2,936,000 (45%), respectively. The increase in new system revenue in second quarter 1996 is primarily due to large orders from several new customers including Northeast Utilities, China Light & Power, Jacksonville Electric Authority and Phase Metrics. A small number of customers have typically accounted for a large percentage of the Company's annual revenue. In the first six months of 1996, one customer accounted for 15% of total revenue. During the first six months of 1995, one customer accounted for 13% of total revenue. One consequence of this dependence has been that revenue can fluctuate significantly on a quarterly basis. The Company's reliance on relatively few customers could have a material adverse effect on the results of its operations, particularly in light of the current prevailing adverse conditions, which have affected certain industries, including aerospace and defense-related manufacturing, in which many of the Company's principal customers operate. Additionally, a significant portion of the Company's revenues have historically been derived from the sale of systems to new customers. The Company believes that the sale of new systems as a percent of total revenues will decline with an increase in its customer base and as a result of expanded revenue base from system enhancements, expansion and maintenance. Cost of Revenues Gross profit was $3,973,000 or 65% and $7,521,000 or 62% for the three and six months ended June 30, 1996. For the comparable periods in 1995, gross profit was $1,929,000 or 58% and $3,388,000 or 52%, respectively. Software and services are sold at a significantly higher margin than third party products which are resold at a lower gross profit percentage in order for the Company to remain competitive in the marketplace. The increase in the gross profit percentage was due primarily to the significant increase in software license revenue to $4,187,000 (69%) and $7,799,000 (64%) for the three and six months ended June 30, 1996. This compares to $1,324,000 (40%) and $2,054,000 (32%) for the same period in 1995. Gross profit percentage can fluctuate quarterly based on the revenue mix of Company software, services, proprietary hardware and third party software or hardware. 8 Operating Expenses Research and development expense for the three and six months ended June 30, 1996 was $849,000 and $1,756,000 versus $335,000 and $560,000 for the same periods in the prior year. The significant increase is primarily due to the addition of Trimco's research and development activities to Alpharel's activities. Research and development expense can vary year to year based on the amount of engineering service contract work required for customers versus purely internal development projects. Technical expenses on customer-funded projects are included in cost of revenues, while expenses on internal projects are included in research and development expense. For the three and six months ended June 30, 1996, technical expense included in cost of revenues was $741,000 and $1,475,000, respectively, versus $510,000 and $1,123,000, respectively, for the same period last year. Marketing expense for the three and six months ended June 30, 1996 was $1,394,000 and $2,647,000 as compared to $778,000 and $1,471,000 for the three and six months ended June 30, 1995. This increase is primarily due to additional personnel and other costs resulting from the addition of Trimco's operations. General and administrative expense for the three and six months ended June 30, 1996 increased to $854,000 and $1,565,000 from $399,000 and $721,000 for the three and six months ended June 30, 1995. The increase in general and administrative expense was due primarily to additional personnel and other administrative costs resulting from the acquisition of Trimco. Interest and Other Income Interest and other income was $20,000 and $46,000 for the three and six months ended June 30, 1996 as compared to $36,000 and $70,000 in the prior year. The decrease is due primarily to reduced interest income resulting from lower short term investment balances during the first half of 1996 versus 1995. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1996, the Company's cash and cash equivalents totaled $901,000 as compared to $4,656,000 at December 31, 1995. Short term investments were $90,000 at June 30, 1996 versus $270,000 at December 31, 1995. Short term investments are comprised primarily of certificates of deposit and treasury bills. At June 30, 1996, the Company's current ratio was 2 to 1. For the first six months of 1996, the Company used cash of $3,655,000 in operating activities, $1,065,000 in investing activities, and generated cash of $895,000 in financing activities. A substantial portion of cash used in operating activities was due to delays in collection of certain accounts receivables, which resulted in a cash usage of $3,950,000. In July 1996, the Company collected $2,288,000 in cash. A substantial portion of the cash used in financing activities was in connection with a $1,634,000 payment of cash advanced by a bank which acted as paying agent for notes due to former shareholders of Optigraphics Corporation which was acquired in 1993. During the first six months of 1995, the Company generated cash of $744,000 in operating activities, $361,000 in investing activities, and $11,000 in financing activities. In December 1995, the Company acquired Trimco. The cash portion of the consideration paid to Trimco shareholders totaled $5,550,000. As part of the transaction, the Company also issued a convertible note payable which was due in September 1996, having a principal balance of $1,000,000 with interest payable at 7% per annum. In February 1996, the note was converted into 250,000 shares of the Company's common stock. The Company anticipates that its combination with Trimco and the integration of the workforce and products of the combined companies will require a significant use of working capital. The Company believes that current working capital and funds generated from operations will be adequate to meet expected needs for working capital and capital expenditures over at least the next twelve months; however, to accelerate the development and product positioning of a new integrated product line of Alpharel and Trimco, the Company may explore additional financing options. 9 Net Operating Loss Tax Carryforwards As of December 31, 1995, the Company had a net operating loss carryforward ("NOL") for Federal income tax purposes of $34,000,000. In addition, the Company generated but has not used research and investment tax credits for Federal income tax purposes of approximately $600,000. Under the Internal Revenue Code of 1986, as amended (the "Code"), the Company generally would be entitled to reduce its future Federal income tax liabilities by carrying unused NOL forward for a period of 15 years to offset future taxable income earned, and by carrying unused tax credits forward for a period of 15 years to offset future income taxes. The Company's ability to utilize any NOL and credit carryforwards in future years may be restricted, however, in the event the Company undergoes an "ownership change," generally defined as a change of ownership of more than 50 percentage points by one or more statutorily defined "5-percent stockholders" of a corporation, as a result of future issuances or transfers of equity securities of the Company within a three-year testing period. In the event of an ownership change, the amount of NOL attributable to the period prior to the ownership change that may be used to offset taxable income in any year thereafter generally may not exceed the fair market value of the Company immediately before the ownership change (subject to certain adjustments) multiplied by the applicable long-term, tax-exempt rate announced by the Internal Revenue Service in effect for the date of the ownership change. A further limitation would apply to restrict the amount of credit carryforwards that might be used in any year after the ownership change. As a result of these limitations, in the event of an ownership change, the Company's ability to use its NOL and credit carryforwards in future years may be delayed and, to the extent the carryforward amounts cannot be fully utilized under these limitations within the carryforward periods, these carryforwards will be lost. Accordingly, the Company may be required to pay more Federal income taxes or to pay such taxes sooner than if the use of its NOL and credit carryforwards were not restricted. Over the past three years the Company has issued equity securities in connection with the Trimco acquisition in December 1995, the Optigraphics acquisition in September 1993, and through traditional stock option grants to employees. Although there was no "ownership change" in 1995, this activity, combined with the liquidity available to stockholders as a result of the Company's common stock trading on The Nasdaq National Market, increases the potential for an "ownership change" for income tax purposes. In connection with the acquisition of Trimco, the Company acquired deferred tax assets of approximately $926,000. The Company has recorded a $626,000 valuation allowance, offsetting the deferred tax assets. Any future recognition of acquired tax benefits will be used first to reduce any remaining goodwill and other intangible assets related to the acquisition; once those assets are reduced to zero, the benefit will be included as a reduction of the Company's income tax provision. In connection with the acquisition of Optigraphics, the Company acquired Optigraphics' NOL of $9,500,000 for federal income tax purposes. As a result of the change in ownership of Optigraphics, $8,000,000 of the NOL is limited whereby the Company may only utilize approximately $500,000 annually to offset future taxable income of Optigraphics. The remaining portion of Optigraphics' NOL does not have any annual limitation. 10 PART II. OTHER INFORMATION ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: The Annual Meeting of Shareholders was held May 20, 1996. At the meeting, the shareholders approved a proposal to amend the Company's Articles of Incorporation to increase the total number of authorized shares of the Company's Common Stock from 20,000,000 to 40,000,000. The proposal was approved with 15,456,016 proxies voting for, 545,681 voting against, and 98,057 abstaining. A proposal to amend the Company's Articles of Incorporation to increase the total number of authorized shares of the Company's Preferred Stock from 1,000,000 to 5,000,000 did not receive 50% of the outstanding Common Stock and thus was not adopted by the shareholders. The vote on this proposal was 6,679,435 proxies voting for, 1,338,861 voting against, and 92,057 abstaining. The shareholders approved a proposal for the Company's 1996 Stock Incentive Plan. The proposal was approved with 8,697,982 proxies voting for, 648,125 voting against, and 95 abstaining. In addition, at the meeting, the shareholders approved the election of the following individuals as directors who will hold office until the next annual meeting Robert T. Bruce, Dominic Chan, Stephen P. Gardner, D. Ross Hamilton, Michael J. McGovern, Jay Tanna, and Larry D. Unruh. In May 1996, Mr. Gardner resigned from the Board of Directors to pursue other interests. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits - See Exhibit Index on Page 12. (b) There were no reports on Form 8-K filed for the three months ended June 30, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALPHAREL, INC. By: /s/ Jay Tanna -------------------------------------------- Jay Tanna President and Chief Executive Officer By: /s/ John W. Low -------------------------------------------- John W. Low Chief Financial Officer Dated: August 13, 1996 ------------------------------------------- 11 EXHIBIT INDEX Exhibit - ------- 3.1 Restated Articles of Incorporation of Alpharel, Inc. 3.4 Amendment to Registrant's Articles of Incorporation adopted May 24, 1988 3.5 Amendment to Registrant's Articles of Incorporation adopted March 11, 1987 3.6 Amendment to Registrant's Articles of Incorporation adopted May 28, 1996 10.14 Certificate of Determination of Series B Convertible Preferred Stock adopted December 15, 1995 10.19 Certificate of Determination of Series C Convertible Preferred Stock adopted April 5, 1996 11 Statement Re Computation of Net Income Per Share 12 EX-3.1 2 EXHIBIT 3.1 RESTATED ARTICLES OF INCORPORATION OF ALPHAREL, INC. I The name of the corporation is Alpharel, Inc. II The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III (a) This corporation is authorized to issue two classes of capital stock designated "Common Stock" and "Preferred Stock," respectively. The number of shares of Common Stock authorized to be issued is 7,000,000 and the number of shares of Preferred Stock authorized to be issued is 1,000,000. The Preferred Stock shall have a par value of $1.00 per share and an aggregate par value of $1,000,000.00. (b) The Preferred Stock may be divided into such number of series as the Board of Directors may determine. The Board of Directors may determine and alter the rights, preferences, privileges and restrictions granted to or imposed upon and wholly unissued series of Preferred Stock, and may fix the number of shares and the designation of shares of any such series. The Board of Directors, within the limits and restrictions stated in any resolution of the Board of Directors originally fixing the number of shares constituting any series of Preferred Stock, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of such series subsequent to the issuance of shares of such series. 1. DESIGNATION AND AMOUNT. The initial series of Preferred Stock shall be designated "Series A Preferred Stock." The number of shares constituting the Series A Preferred Stock shall be 478,261 shares. 2. DEFINITIONS. For purposes hereof, the following definitions shall apply: 2.1 "Board" shall mean the Board of Directors of the Company. 2.2 "Common Stock" shall refer to the Common Stock of the Company. 2.3 "Company" shall mean Alpharel, Inc., a California corporation. 2.4 "Preferred Stock" shall refer to the Class A Preferred Stock of the Company designated herein. 2.5 "Subsidiary" shall mean any corporation at least 50% of whose outstanding voting stock is at the time owned directly or indirectly by the Company or by one or more Subsidiaries. 3. DIVIDENDS. 3.1 RIGHT TO DIVIDENDS. The holders of then outstanding Preferred Stock shall be entitled to receive, when and as declared by the Board, and out of any funds legally available therefor, cash dividends at a rate of $0.69 per share per annum, such dividends to accrue on each share of Preferred Stock beginning three years from the date of original issuance of such share, whether or not earned or declared. Such dividends may be payable quarterly or otherwise as the Board may from time to time determine. 3.2 PRIORITY; PARTICIPATION. Such dividends shall be cumulative so that unless dividends on the Preferred Stock at the foregoing annual rate for the then current fiscal quarter shall have been paid or declared and a sum sufficient for the payment thereof set apart, (i) no dividend whatsoever (other than a dividend payable solely in Common Stock) shall be paid or declared, and no distribution shall be made, on any Common Stock, and (ii) no shares of Common Stock shall be purchased, redeemed or acquired by the Company and no money shall be paid into or set aside or made available for a sinking fund for the purchase, redemption or acquisition thereof; PROVIDED, however, that this restriction shall not apply to the repurchase of shares of Common Stock from directors, officers, employees or consultants of the Company or any Subsidiary pursuant to agreements under which the Company has the option or obligation to repurchase such shares upon the occurrence of certain events, including the termination of employment or consultation. After all cumulative dividends on the Preferred Stock as provided above have been paid or declared and a sum sufficient for payment thereof set apart, if the Board shall elect to make further distributions of dividends, the holders of the Preferred Stock shall be entitled to participate pro rata in all such dividends, as and when declared by the Board, based on the number of full shares of Common Stock into which such Preferred Stock is then convertible pursuant to the provisions of Section 7 hereof. 4. LIQUIDATION RIGHTS. 4.1 PREFERENCE ON PREFERRED STOCK. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of each share of Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its shareholders, whether such assets are capital, surplus or earnings, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the Common Stock, an amount equal to $11.50 per share plus an amount equal to all declared and unpaid dividends thereon to and including the date full payment shall be tendered to the holders of the Preferred Stock with respect to such liquidation, dissolution or winding up. If upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the assets to be distributed to the holders of the Preferred Stock shall be insufficient 2 to permit the payment to such shareholders of the full preferential amounts as aforesaid, then all of the assets of the Company to be distributed shall be distributed ratably to the holders of the Preferred Stock. 4.2 REMAINING ASSETS. After the payment or distribution of the full preferential amounts aforesaid, the holders of the Preferred Stock shall be entitled to no further participation in the distribution of the assets of the Company and shall have no further rights of conversion, and the holders of Common Stock outstanding shall be entitled to receive ratably all remaining assets of the Company to be distributed. 4.3 REORGANIZATION. A consolidation or merger of the Company with or into any other corporation or corporations or sale of all or substantially all of the assets of the Company in which the shareholders of the Company receive solely capital stock of the acquiring corporation (or of the direct or indirect parent party of the acquiring corporation), except for cash in lieu of fractional shares, shall not be deemed a liquidation, dissolution or winding up of the Company for the purpose of Section 4. 4.4 VALUATION. Whenever the distribution provided for herein shall be paid in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors of the Company. 5. RESTRICTION ON REDEMPTION. The Company shall not have the right to call or redeem any or all of the Preferred Stock. The Company shall not purchase or otherwise acquire for value any outstanding shares of Preferred Stock unless the Company makes a tender offer to all holders of Preferred Stock to purchase such stock from them pro rata, based on the number of shares of Preferred Stock held by each such holder, as the same cash purchase price for each share. 6. VOTING RIGHTS. 6.1 PREFERRED STOCK. Each holder of shares of Preferred Stock shall be entitled to vote on all matters submitted to a vote of the holders of Common Stock and, except as otherwise expressly provided herein, shall be entitled to the number of votes equal to the largest number of full shares of Common Stock into which such shares of Preferred Stock could be converted, pursuant to the provisions of Section 7 hereof, at the record date for the determination of the shareholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited. 6.2 COMMON STOCK. Each holder of shares of Common Stock shall be entitled to one vote for each share thereof held. Except as otherwise expressly provided herein or as required by law, the holders of Preferred Stock and the holders of Common Stock shall vote together and not as separate classes. 7. CONVERSION. The holders of Preferred Stock shall have the following conversion rights: 3 7.1 RIGHT TO CONVERT. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Company or any transfer agent for the Preferred Stock or Common Stock, into fully paid and nonassessable shares of Common Stock, at the Conversion Price (as hereinafter defined) in effect at the time of conversion. 7.2 CONVERSION PRICE. Each share of Preferred Stock shall be convertible into the number of shares of Common Stock which results from dividing the Conversion Price per share in effect at the time of conversion into $11.50. The initial Conversion Price per share shall be $11.50. Such Initial Conversion Price shall be subject to adjustment from time to time as provided below. 7.3 MECHANICS OF CONVERSION. Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or of any transfer agent for the Preferred Stock or Common Stock, and shall give written notice to the Company at such office that such holder elects to convert the same and shall state therein the number of shares of Preferred Stock being converted. Thereupon, the Company shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled and shall promptly pay in cash all declared and unpaid dividends on the shares of Preferred Stock being converted to and including the time of conversion. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. 7.4 ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Company at any time or from time to time after the original issuance of the Preferred Stock effects a subdivision of the outstanding Common Stock, the Conversion Price then in effect immediately before that subdivision shall be proportionately decreased, and conversely, if the Company at any time or from time to time after the original issuance of the Preferred Stock combines the outstanding shares of Common Stock, the Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this paragraph (d) shall become effective at the close of business on the date the subdivision or combination becomes effective. 7.5 ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event the Company at any time or from time to time after the original issuance of the Preferred Stock makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of common Stock, then and in each such event the Conversion Price then in effect shall be decreased as of the time of such issuance or, in the event such a record date is fixed, as of the close of business on such record date, by multiplying the Conversion Price then in effect by a fraction (i) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of 4 Common Stock issuable in payment of such dividend or distribution; PROVIDED, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price shall be adjusted pursuant to this paragraph (e) as of the time of actual payment of such dividend or distribution. 7.6 ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event the Company at any time or from time to time after the original issuance of the Preferred Stock makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the company other than shares of Common Stock, then in each such event provision shall be made so that the holders of Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Company which they would have received had their Preferred Stock been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments before or during such period under this Section 7 with respect to the rights of the holders of the Preferred Stock. 7.7 ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the Common Stock issuable upon the conversion of the Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares of stock dividend or other reorganization, merger, consolidation or sale of assets, provided for elsewhere in this Section 7), then, and in any such event, each holder of Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change, by holders of the number of shares of Common Stock into which such shares of Preferred Stock might have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein. 7.8 REORGANIZATION, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If at any time or from time to time there is a capital reorganization of the Common Stock (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 7) or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties and assets to any other person, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of the Preferred Stock the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such merger or consolidation or sale, to which a holder of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 7 with respect to the rights of the holders of the Preferred Stock after the reorganization, merger, consolidation or sale to the end that the provisions of this Section 7 (including adjustment of the Conversion Price then in effect and number of shares purchasable upon conversion of the Preferred Stock) shall be 5 applicable after that event and be as nearly equivalent to the provisions hereof as may be practicable. 7.9 CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or readjustment of the Conversion Price or the number of shares of Common Stock or other securities issuable upon conversion of the Preferred Stock, the Chief Financial Officer of the Company shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of the Preferred Stock at the holder's address as shown in the Company's books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based. 7.10 NOTICES OF RECORD DATE. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or to vote on or consent to any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any consolidation or merger involving the Company, or any transfer of all or substantially all of the assets of the Company to any other person or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall mail to each holder of Preferred Stock at least 20 days prior to the record date specified therein, a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend or distribution and description of such dividend or distribution, (ii) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (iii) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up. 7.11 AUTOMATIC CONVERSION. (1) Each share of Preferred Stock shall automatically be converted into shares of Common Stock based on the then effective Conversion Price immediately upon (i) the closing of an underwritten public offering pursuant to any effective Regulation A notification or a registration statement under the Securities Act of 1933, as amended, covering the offering and sale of Common Stock for the account of the Company in which the aggregate gross proceeds received by the Company at the public offering price equals or exceeds $6,000,000, the public offering price per share of which equals or exceeds $11.50 per share of Common Stock (appropriately adjusted for subdivisions and combinations of shares of Common Stock and dividends payable in shares of Common Stock) and the obligation of the underwriters is that if any of the securities being offered are purchased, all such securities must be purchased; or (ii) the effective date of (A) a consolidation or merger of the Company with or into another corporation or corporations; (B) a consolidation or merger in which the Company is a constituent corporation, it survives the consolidation or merger and its shareholders receive capital stock of another corporation; or (C) a sale of all or substantially all of the assets of the Company, PROVIDED, however, that one of the other constituent corporations, the acquiring corporation or the parent of 6 any such corporation has at that time a class of securities publicly traded on a national securities exchange or quoted on a national quotation system or otherwise has a class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended. (2) Upon the occurrence of the events specified in paragraph (1) above, the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; PROVIDED, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Preferred Stock are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Preferred Stock, the holders of Preferred Stock shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Preferred Stock or Common Stock. Thereupon, there shall be issued and delivered to such holder promptly at such office and in his name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred and the Company shall promptly pay, or cause to be paid, in cash all declared and unpaid dividends on the shares of Preferred Stock being converted to and including the time of conversion. 7.12 FRACTIONAL SHARES. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of the Company's Common Stock on the date of conversion, as determined in good faith by the Board. 7.13 RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock, the Company will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. 8. RESTRICTIONS AND LIMITATIONS. 8.1 So long as any shares of Preferred Stock remain outstanding, the Company shall not, and shall not permit any Subsidiary to, without the vote or written consent by the holders of more than 50% of the then outstanding shares of Preferred Stock; 7 (1) Redeem, purchase or otherwise acquire for value, any share or shares of Preferred Stock, except as otherwise permitted under Section 5; (2) Purchase, redeem or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any of the Common Stock; PROVIDED, however, that this restriction shall not apply to the repurchase of shares of Common Stock from directors, officers, employees or consultants of the Company or any Subsidiary pursuant to agreements under which the Company has the option or obligation to repurchase such shares upon the occurrence of certain events, including the termination of their employment or consultation; (3) Authorize or issue, or obligate itself to issue, any other equity security senior to the Preferred Stock as to redemption rights, liquidation preferences, conversion rights, voting rights or otherwise; (4) Increase or decrease (other than by redemption or conversion) the total number of authorized shares of Preferred Stock. 8.2 The Company shall not amend its Articles of Incorporation without the approval, by vote or written consent, of the holders of more than 50% of the Preferred Stock if such amendment would change any of the rights, preferences, privileges of or limitations provided for herein for the benefit of any shares of Preferred Stock. Without limiting the generality of the next preceding sentence, the Company will not amend its Articles of Incorporation without the approval by the holders of more than 50% of the Preferred Stock if such amendment would: (1) Reduce the dividend rate on Preferred Stock provided for herein, or cancel declared and unpaid dividends, or change the relative seniority rights of the holders of Preferred Stock as to the payment of dividends in relation to the holders or Common Stock of the Company; (2) Reduce the amount payable to the holders of Preferred Stock upon the voluntary or involuntary liquidation, dissolution or winding up of the Company, or change the relative seniority of the liquidation preferences of the holders of Preferred Stock to the rights upon liquidation of the holders of Common Stock of the Company; (3) Cancel or modify the conversion rights provided for in Section 7 hereof; (4) Authorize any other equity security senior to the Preferred Stock; or (5) Make the Preferred Stock redeemable at the option of the Company except as specified in Section 5 hereof. 9. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Preferred Stock acquired by the Company by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Company shall be authorized to issue. 8 EX-3.4 3 EXHIBIT 3.4 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF ALPHAREL, INC. Benjamin M. Brink and John P. Belton, Jr. certify that: 1. They are the president and secretary, respectively, of ALPHAREL, INC., a California corporation. 2. The articles of incorporation of this corporation are amended to add the following articles: IV. The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. V. This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the General Corporation Law of California) for breach of duty to the corporation and its shareholders through bylaw provisions or through agreements with the agents, or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the General Corporation Law of California, subject to any limitations on indemnification under the General Corporation Law of California which cannot be waived. 3. The foregoing amendment of articles of incorporation has been duly approved by the board of directors. 4. The foregoing amendment of articles of incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the Corporations Code. The total number of outstanding shares of the corporation is 9,187,407. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50%. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Dated: May 24, 1988 /S/ Benjamin M. Brink ------------------------------------ Benjamin M. Brink, President /S/ John P. Belton, Jr. ------------------------------------ John P. Belton, Jr., Secretary EX-3.5 4 EXHIBIT 3.5 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF ALPHAREL, INC. MICHAEL J. McGOVERN and VIVIAN TEASLEY certify that: 1. They are the President and the Secretary, respectively, of Alpharel, Inc., a California corporation. 2. Article III(a) of the Articles of Incorporation of this corporation is amended to read as follows: (a) This corporation is authorized to issue two classes of capital stock designated as "Common Stock" and "Preferred Stock," respectively. The number of shares of Common Stock authorized to be issued is 1,000,000. The Preferred Stock shall have a par value of $1.00 per share and an aggregate par value of $1,000,000.00. Upon the amendment of this Article to read as herein set forth, each outstanding share of Common Stock is split up and converted into two shares. 3. The foregoing amendment of articles of incorporation has been duly approved by the board of directors. 4. The foregoing Amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 and 903 of the Corporations Code. The total number of outstanding shares of the corporation is 2,596,549 shares of Common Stock and 478,261 shares of Series A Preferred Stock. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50% of the Common Stock and more than 50% of the Series A Preferred Stock. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. Dated: March 11, 1987 /S/ Michael J. McGovern ---------------------------------- MICHAEL J. McGOVERN, President /S/ Vivian Teasley ---------------------------------- VIVIAN TEASLEY, Secretary EX-3.6 5 EXHIBIT 3.6 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF ALPHAREL, INC. The undersigned, Richard J. Kennedy and John W. Low, certify that: 1. They are the Vice President, Operations and Chief Financial Officer and Secretary, respectively, of Alpharel, Inc., a California corporation (the "Corporation"). 2. Article III of the Articles of Incorporation of this Corporation is amended and restated to read in its entirety as follows: (a) This corporation is authorized to issue two classes of shares of stock, designated, respectively as "Common Stock" and "Preferred Stock." The total number of shares of all classes of stock that this corporation is authorized to issue is Forty-One Million (41,000,000), consisting of Forty Million (40,000,000) shares of Common Stock and One Million (1,000,000) shares of Preferred Stock. (b) Shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized to determine the designation of any such series. The Board of Directors is also authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, including, without limitation, the dividend rights (and whether dividends are cumulative), conversion rights, if any, voting rights (including the number of votes, if any, per share, as well as the number of members, if any, the Board of Directors or the percentage of members, if any, of the Board of Directors that each series of Preferred Stock may be entitled to elect), rights and terms of redemption (including sinking fund provisions, if any), redemption price and liquidation preferences, and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issuance of shares of that series. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. 3. The foregoing amendment of the Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing amendment of the Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the California Corporations Code. The total number of outstanding shares of the Corporation entitled to vote thereon is 18,175,809, all of which are shares of Common Stock. There are presently no shares of Preferred Stock outstanding. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was greater than 50%. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. DATED: May 28, 1996 /S/ Richard J. Kennedy ----------------------------------------- Richard J. Kennedy Vice President, Operations /S/ John W. Low ----------------------------------------- John W. Low Chief Financial Officer and Secretary 2 EX-10.14 6 EXHIBIT 10.14 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 Stock of the Company, and if the assets of the Company shall be insufficient to pay in full such amounts, then such assets shall be distributed among such holders ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. 2 Section 5. CONVERSION. (a) (i) Each share of Preferred Stock shall be convertible into shares of Common Stock at the Conversion Ratio (subject to reduction under Section 5(a)(ii) and (iii), at the option of the holder in whole or in part at any time after the expiration of 45 days after the Original Issue Date (as defined in Section 7 below) (the "Conversion Term"). The holder shall effect conversions by delivering to the Company a written notice (the "Conversion Notice"), accompanied by the certificate representing the shares of the Preferred Stock to be converted. Each Conversion Notice shall specify the number of shares of Preferred Stock to be converted and the date on which such conversion is to be effected (the "Conversion Date"), which shall in no event be earlier than the date such Conversion Notice is given in accordance with Section 5(j) below. Each Conversion Notice, once given, shall be irrevocable (subject to Section 5(b) below). If the holder is converting less than all shares of Preferred Stock, the Company shall promptly deliver to the holder a certificate for such number of shares of Preferred Stock as have not been converted. (ii) If on the Conversion Date (as defined below) applicable to any conversion, the Conversion Price (as defined below) then in effect is such that the aggregate number of shares of Common Stock that would then be issuable upon conversion of all then-outstanding shares of Preferred Stock, when combined with any shares of Common Stock previously issued upon conversion of any shares of Preferred Stock, would equal or exceed 1,070,000 shares (the "Issuable Maximum"), then the Company shall be obligated to effect the conversion of only such portion of each share of Preferred Stock subject to such conversion as is represented by the Conversion Percentage (as defined in the next sentence), and the remaining portion of such share shall be subject to the mandatory redemption provisions of Section 6. The "Conversion Percentage" shall be a fraction, the numerator of which is the "Allowable Conversion Maximum" (as defined in the next sentence) and the denominator of which is the total number of shares of Preferred Stock outstanding prior to such conversion. The Allowable Conversion Maximum at any time shall be the difference between the Issuable Maximum and the total number of shares of Common Stock previously issued upon conversion of shares of Preferred Stock. In the event of any stock split, stock dividend, recapitalization, reorganization or other similar action or event, appropriate adjustment shall be made to the Issuable Maximum and the Allowable Conversion Maximum. (iii) If on any Conversion Date for any shares of Preferred Stock applicable to any conversion, the Per Share Market Value of the Common Stock on the immediately preceding date exceeds $7.75, the number of shares issued upon conversion of such shares of Preferred Stock shall be reduced by a number of shares equal to 50% of (A) the amount by which such Per Share Market Value exceeds $7.75, divided by (B) such Per Share Market Value, times (C) the number of shares which would otherwise be issued upon such conversion, but for the reduction provided for in this Section 5(a)(iii). (b) Three Trading Days after the Conversion Date, the Company will deliver to the holder (i) a certificate or certificates which shall be free of restrictive legends and trading restrictions (other than those then required by law), representing the number of shares of Common Stock being acquired upon the conversion of shares of Preferred Stock (subject to any 3 reduction required pursuant to Section 5(a)(ii) or (iii)), and (ii) subject to Section 6 below, the certificate representing the number of shares of Preferred Stock not converted; provided, however that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon conversion of any shares of Preferred Stock (or with respect to shares subject to redemption pursuant to Sections 5(a)(ii) and 6, to pay the redemption price payable under Section 6), until certificates evidencing such shares of Preferred Stock are either delivered to the Company or any transfer agent for the Preferred Stock or Common Stock, or the holder notifies the Company that such certificates have been lost, stolen or destroyed and provides a bond (or other adequate security acceptable to the Company) satisfactory to the Company to indemnify the Company from any loss incurred by it in connection therewith. The Company shall, upon request of the holder, use its best efforts to deliver any certificate or certificates required to be delivered by the Company under this Section 5(b) electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions. In the case of a conversion pursuant to a Conversion Notice, if such certificate or certificates are not delivered by the date required under this Section 5(b), the holder shall be entitled by written notice to the Company at any time on or before such holder's receipt of such certificate or certificates thereafter, to rescind such conversion, in which event the Company shall immediately return the certificates representing the shares of Preferred Stock tendered for conversion. (c) (i) The Conversion Price (the "Conversion Price") in effect on any Conversion Date shall be the lesser of the Closing Price on the Trading Day immediately preceding the Original Issue Date or 82.5% of the average of the Closing Price on the three Trading Days immediately preceding the Conversion Date. For purposes of this Section, the "Closing Price" on any Trading Day shall mean the last reported closing price of the Common Stock of the Company on such day on the principal securities exchange on which the Common Stock is listed or, if the Common Stock is not so listed, the last reported bid price of the Common Stock as reported on The Nasdaq National Market on such date or, if the Common Stock is neither so listed nor so reported, the last reported bid price of the Common Stock as quoted by a registered broker-dealer for which such quotes are available on such date. (ii) If the Company, at any time while any shares of Preferred Stock are outstanding, (a) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Junior Stock payable in shares of its capital stock (whether payable in shares of its Common Stock or of capital stock of any class), (b) subdivide outstanding shares of Common Stock into larger number of shares, (c) combine outstanding shares of Common Stock into a smaller number of shares, or (d) issue by reclassification of shares of Common Stock any shares of capital stock of the Company, the Conversion Price designated in Section 5(c)(i) shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock of the Company outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section 5(c)(ii) shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. (iii) In case the Company, at any time while any shares of the Preferred Stock are outstanding, shall issue rights or warrants to all holders of Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Per 4 Share Market Value of Common Stock at the record date mentioned below, the Conversion Price designated in Section 5(c)(i) shall be multiplied by a fraction, of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Per Share Market Value. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. However, upon the expiration of any right or warrant to purchase Common Stock the issuance of which resulted in an adjustment in the Conversion Price designated in Section 5(c)(i) pursuant to this Section 5(c)(iii), if any such right or warrant shall expire and shall not have been exercised, the Conversion Price designated in Section 5(c)(i) shall immediately upon such expiration be recomputed and effective immediately upon such expiration be increased to the price which it would have been (but reflecting any other adjustments in the Conversion Price made pursuant to the provisions of this Section 5 after the issuance of such rights or warrants) had the adjustment of the Conversion Price made upon the issuance of such rights or warrants been made on the basis of offering for subscription or purchase only that number of shares of Common Stock actually purchased upon the exercise of such rights or warrants actually exercised. (iv) In case the Company, at any time while shares of Preferred Stock are outstanding, shall distribute to all holders of Common Stock (and not to holders of Preferred Stock) evidences of its indebtedness or assets or rights or warrants, to subscribe for or purchase any security (excluding those referred to in Section 5(c)(iii) above) then in each such case the Conversion Price at which each share of the Preferred Stock shall thereafter be convertible shall be determined by multiplying the Conversion Price in effect prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Per Share Market Value of Common Stock determined as of the record date mentioned above, and of which the numerator shall be such Per Share Market Value of the Common Stock on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of Common Stock as determined by the Board of Directors of the Company in good faith; provided, however that in the event of a distribution exceeding ten percent (10%) of the net assets of the Company, then such fair market value shall be determined by a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Company) (an "Appraiser") selected in good faith by the holders of a majority in interest of the shares of Preferred Stock; and provided, further that the Company, after receipt of the determination by such Appraiser shall have the right to select an additional Appraiser, in which case the fair market value shall be equal to the average of the determinations by each such Appraiser. In either case the adjustments shall be described in a statement provided to all holders of Preferred Stock of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made 5 whenever any such distribution is made and shall become effective immediately after the record date mentioned above. (v) All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. (vi) Whenever the Conversion Price is adjusted pursuant to Section 5(c)(ii),(iii), (iv) or (v), the Company shall promptly mail to each holder of shares of Preferred Stock, a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. (vii) In case of any reclassification of the Common Stock, any consolidation or merger of the Company with or into another person, sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange pursuant to which share exchange the Common Stock is converted into other securities, cash or property, then the holders of the shares of Preferred Stock then outstanding shall have the right thereafter to convert such shares only into the kind and amount of shares of stock and other securities and property receivable upon or deemed to be held following such reclassification, consolidation, merger, sale, transfer or share exchange by a holder of a number of shares of the Common Stock of the Company into which such shares Preferred Stock could have been converted immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange. The terms of any such consolidation, merger, sale, transfer or share exchange shall include such terms so as to continue to give to the holder of shares of Preferred Stock the right to receive the securities or property set forth in this Section 5(c)(vii) upon any conversion following such consolidation, merger, sale, transfer or share exchange. This provision shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges. (viii) In case: (A) the Company shall declare a dividend (or any other distribution) on its Common Stock; or (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of its Common Stock; or (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; or (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock of the Company (other than a subdivision or combination of the outstanding shares of Common Stock), any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory 6 share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) of the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of the shares of Preferred Stock, and shall cause to be mailed to the holders of the shares of Preferred Stock at their last addresses as they shall appear upon the stock books of the Company, at least 10 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding-up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding-up (but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the corporate action required to be specified in such notice). (d) In case at any time conditions shall arise by reason of action taken by the Company which in the opinion of the Board of Directors of the Company are not adequately covered by the other provisions hereof and which might materially and adversely affect the rights of the holders of shares of Preferred Stock (different than or distinguished from the effect generally on the rights of holders of any class of the Company's capital stock) or in case at any time any such conditions are expected to arise by reason of any action contemplated by the Company, an Appraiser selected by the holders of majority in interest of the shares of Preferred Stock shall give its opinion as to the adjustment, if any (not inconsistent with the standards established in this Section 5), of the Conversion Price (including, if necessary, any adjustment as to the securities into which shares of Preferred Stock may thereafter be convertible) and any distribution which is or would be required to preserve without diluting the rights of the holders of the shares of Preferred Stock; provided, however, that the Company, after receipt of the determination by such Appraiser, shall have the right to select an additional Appraiser, in which case the adjustment shall be equal to the average of the adjustments recommended by each such Appraiser. The Board of Directors of the Company shall make the adjustment recommended forthwith upon the receipt of such opinion or opinions or the taking of any such action contemplated, as the case may be; provided, however, that no such adjustment of the Conversion Price shall be made which in the opinion of the Appraiser(s) giving the aforesaid opinion or opinions would result in an increase of the Conversion Price to more than the Conversion Price then in effect. (e) The Company covenants that it will at all times reserve and keep available, out of its authorized and unissued Common Stock solely for the purpose of issuance upon conversion of Preferred Stock as herein provided, free from preemptive rights or any other actual 7 contingent purchase rights of Persons other than the holders of shares of Preferred Stock, such number of shares of Common Stock as shall be issuable (taking into account the adjustments and restrictions of Section 5(c) hereof) upon the conversion of all outstanding shares of Preferred Stock. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly issued and fully paid and nonassessable. (f) Except as otherwise required by Section 6 hereof, the Company shall not be required to issue stock certificates representing fractions of shares of Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the Per Share Market Value at such time. If the Company elects not, or is unable, to make such a cash payment, the holder of a share of Preferred Stock shall be entitled to receive, in lieu of the final fraction of a shares, one whole share of Common Stock; provided, however, that in no event shall any such issuance of a whole share result in the issuance of a number of shares of Common Stock in excess of the Issuable Maximum and if such issuance would so result in the issuance of a number of shares in excess of the Issuable Maximum, the holder shall be entitled to receive the cash payment described above as soon as such cash payment may be lawfully made. (g) The issuance of certificates for shares of Common Stock on conversion of Preferred Stock shall be made without charge to the holders thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate in a name other than that of the holder of the shares of Preferred Stock converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. (h) Shares of Preferred Stock converted into Common Stock shall be canceled and shall have the status of authorized but unissued shares of preferred stock. (i) If the Company intends to initiate a public offering of its securities in an amount exceeding $5 million in the aggregate and the Company reasonably believes that the conversion of any shares of Preferred Stock may have an adverse effect on the ability of the Company to complete such offering or the price at which such securities could be sold therein, the Company, upon at least 30 days prior written notice to the holders of Preferred Stock, may suspend the right of the holders of the shares of Preferred Stock to convert such shares pursuant to Section 5 for the period commencing on the date the Company files a registration statement with the Securities and Exchange Commission and terminating 90 days after the closing of the public offering, provided that the last day that the Preferred Stock is convertible (as set forth in Section 5(a)) shall be extended for such number of days as the conversion right was suspended under this Section 5(i). (j) Each Conversion Notice shall be given by facsimile and by mail, postage prepaid, addressed to the attention of the Chief Financial Officer of the Company at the facsimile telephone number and address of the principal place of business of the Company. Any such notice shall be deemed given and effective upon the earliest to occur of (i) receipt of such facsimile at the 8 facsimile telephone number specified in this Section 5(j), (ii) three days after deposit in the United States mails or (iii) upon actual receipt by the party to whom such notice is required to be given. Section 6. MANDATORY REDEMPTION OF THE PREFERRED STOCK. (a) If on the Conversion Date specified in any Conversion Notice the provisions of Section 5(a)(ii) do not permit the issuance of the full number of shares into which the shares of Preferred Stock to be converted would otherwise be convertible, then the Company shall, with respect to each share of Preferred Stock that is subject to such Conversion Notice, redeem, from funds legally available therefor at the time of such redemption, a portion of such share that is represented by the fraction that is the difference between one and the Conversion Percentage (such fraction to be known as the "Redemption Ratio"). The redemption price for such portion of each share of Preferred Stock to be redeemed shall be an amount equal to the product of (i) the Per Share Market Value on the Conversion Date, (ii) the number of shares of Common Stock into which such share of Preferred Stock would then be convertible, but for Section 5(a)(ii), times (iii) the Redemption Ratio. If any portion of such redemption price shall not be paid by the Company within 20 days after the Conversion Date, such redemption price shall be increased by an amount accruing from the twenty-first day to the fortieth day after the Conversion Date at the rate of 10% per annum, from the forty-first day to the sixtieth day at 12.5% per annum and from the sixty-first day until paid at the rate of 15% per annum. If, on any such Conversion Date, the Company is prohibited under the relevant provisions of the California General Corporation Law (the "CGCL") from paying, in whole or in part, the redemption price for any shares of Preferred Stock, any portion of the redemption price which may be lawfully paid in accordance with the CGCL shall be paid pro rata to the holders of the shares of Preferred Stock being redeemed on such Conversion Date and the remainder of such redemption price shall be paid on a pro rata basis to such holders as soon as such payment is permissible under the CGCL. Section 7. DEFINITIONS. For the purposes hereof, the following terms shall have the following meanings: "Common Stock" means shares now or hereafter authorized of the class of Common Stock, no par value, of the Company presently authorized and stock of any other class into which such shares may hereafter have been reclassified or changed. "Conversion Ratio" means, at any time, a fraction, of which the numerator is Stated Value plus accrued but unpaid dividends, and of which the denominator is the Conversion Price at such time. "Junior Stock" means the Common Stock of the Company and any other stock of the Company over which shares of the Preferred Stock has preference as to distribution of assets. "Original Issue Date" shall mean the date of the first issuance of any shares of the Preferred Stock. 9 "Per Share Market Value" means on any particular date (a) the last sale price per share of the Common Stock on such date on The Nasdaq National Market or other stock exchange on which the Common Stock has been listed or if there is no such price on such date, then the last price on such exchange on the date nearest preceding such date, or (b) if the Common Stock is not listed on The Nasdaq National Market or any stock exchange, the average of the bid and asked price for a share of Common Stock in the over-the-counter market, as reported by the NASDAQ Stock Market at the close of business on such date, or (c) if the Common Stock is not quoted on the NASDAQ Stock Market, the average of the bid and asked price for a share of Common Stock in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices), or (d) if the Common Stock is no longer publicly traded the fair market value of a share of Common Stock as determined by an Appraiser (as defined in Section 5(c)(iv) above) selected in good faith by the holders of a majority in interest of the shares of the Preferred Stock; provided, however, that the Company, after receipt of the determination by such Appraiser, shall have the right to select an additional Appraiser, in which case, the fair market value shall be equal to the average of the determinations by each such Appraiser. "Person" means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency. "Trading Day" means (a) a day on which the Common Stock is traded on The Nasdaq National Market or principal stock exchange on which the Common Stock has been listed, or (b) if the Common Stock is not listed on The Nasdaq National Market or any stock exchange, a day on which the Common Stock is traded in the over-the-counter market, as reported by the NASDAQ Stock Market, or (c) if the Common Stock is not quoted on the NASDAQ Stock Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions of reporting prices). RESOLVED FURTHER, that the President and Secretary of the Company be, and they hereby are, authorized and directed to prepare, execute, verify, and file in the Office of the California Secretary of State, a Certificate of Determination in accordance with this resolution and as required by law. Each of the undersigned further declares under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of his own knowledge. Executed at San Diego, California on the 15th day of December, 1995. /s/ Stephen P. Gardner ---------------------------------- Stephen P. Gardner, President /s/ John W. Low ---------------------------------- John W. Low, Secretary 10 EX-10.19 7 EXHIBIT 10.19 CERTIFICATE OF DETERMINATION OF SERIES C CONVERTIBLE PREFERRED STOCK OF ALPHAREL, INC. The undersigned, Stephen P. Gardner and John W. Low, hereby certify that: I. They are the duly elected and acting President and Secretary, respectively, of Alpharel, Inc., a California corporation (the "Company"). II. The Company has 1,000,000 shares of preferred stock authorized, of which 478,261 shares have been previously designated as Series A Preferred Stock, none of which are issued and outstanding as of the date hereof, and 172,500 shares have been previously designated as Series B Convertible Preferred Stock, none of which are issued and outstanding as of the date hereof. No other series of preferred stock has been designated and no other shares of preferred stock have been issued. The number of shares of preferred stock to be designated as Series C Convertible Preferred Stock is 100,000. III. Pursuant to authority given to it by the Company's Articles of Incorporation, the Board of Directors of the Company has duly adopted the following recitals and resolutions: WHEREAS, the Articles of Incorporation of the Company, as amended, provide for a class of shares known as preferred stock, issuable from time to time in one or more series; WHEREAS, the Board of Directors of the Company is authorized, within the limitations and restrictions stated in the Articles of Incorporation, to determine and alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of preferred stock, to fix the number of shares constituting any such series and to determine the designation thereof; WHEREAS, the Board of Directors of the Company desires, pursuant to its authority as aforesaid, to designate a new series of preferred stock and the number of shares constituting such series and to fix the rights, preferences, privileges and restrictions of such series. NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of the Company hereby designates a new series of preferred stock and the number of shares constituting such series and fixes the rights, preferences, privileges and restrictions relating to such series as follows: Section 1. DESIGNATION, AMOUNT, RANKING AND PAR VALUE. The series of Preferred Stock shall be designated as the Series C Convertible Preferred Stock (the "Preferred Stock"), and the number of shares so designated shall be 100,000. The par value of each share of Preferred Stock shall be $1.00. Each share of Preferred Stock shall have a stated value of $20.00 per share (the "Stated Value"). The shares of the Preferred Stock shall rank prior to the Junior Stock (as defined below) as to distribution of assets (upon liquidation or otherwise) and payment of dividends. Section 2. DIVIDENDS. (a) Holders of the Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors of the Company out of funds legally available therefor, cumulative cash dividends at the rate per share (as a percentage of the Stated Value per share) equal to 8% per annum, payable quarterly in arrears on March 31, June 30, September 30 and December 31 in each year, with the first dividend payable on June 30, 1996. Dividends on the Preferred Stock shall accrue on March 31, June 30, September 30 and December 31 of each year beginning on June 30, 1996 and shall be deemed to accrue on such date whether or not earned or declared. Each such dividend will be payable to holders of record as they appear on the books of the Company on such record dates, which shall be 30 days prior to the payment dates thereof unless another record date, which shall be no more than 45 days prior to such payment dates, shall be fixed by the Board of Directors of the Company. The party that holds the Preferred Stock on an applicable record date for any dividend payment will be entitled to receive such dividend payment and any other accrued and unpaid dividends which were accrued prior to such dividend payment date, without regard to any sale or disposition of such Preferred Stock subsequent to the applicable record date but prior to the applicable dividend payment date. The Company will pay no interest on accrued and unpaid dividends on the Preferred Stock. (b) So long as any Preferred Stock shall remain outstanding, in no event shall any dividend or distribution (other than a dividend or distribution described in Section 5) be paid upon, nor shall any distribution be made in respect of, the Junior Stock, nor shall any monies be set aside for or applied to the purchase or redemption (through a sinking fund or otherwise) of the Junior Stock unless all dividends on the Preferred Stock for all past dividend periods shall have been paid, but without interest. Section 3. VOTING RIGHTS. The holders of the Preferred Stock shall not be entitled to vote on matters submitted to the vote of the holders of Common Stock. However, so long as any shares of the Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the holders of two-thirds of the outstanding shares of the Preferred Stock, (i) alter or change adversely the powers, preferences or rights given to the Preferred Stock or (ii) authorize or create any class of stock ranking as to dividends or distribution of assets (upon liquidation or otherwise) prior to or PARI PASSU with the Preferred Stock. Section 4. LIQUIDATION. In the event of any complete liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of shares of the Preferred Stock shall be entitled to receive out of the assets of the Company, whether such assets are capital or surplus, for each share of the Preferred Stock an amount equal to $20.00 per share, plus an amount equal to accrued but unpaid dividends per share, whether declared or not, but without interest, before any distribution shall be made to the holders of Junior Stock of the Company, and if the assets of the Company shall be insufficient to pay in full such amounts, then such assets shall be distributed among such holders ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. 2 Section 5. CONVERSION. (a) (i) Each share of Preferred Stock shall be convertible into shares of Common Stock at the Conversion Ratio (subject to reduction under Section 5(a)(ii) and (iii), at the option of the holder in whole or in part at any time after the expiration of 45 days after the Original Issue Date (as defined in Section 7 below) (the "Conversion Term"). The holder shall effect conversions by delivering to the Company a written notice (the "Conversion Notice"), accompanied by the certificate representing the shares of the Preferred Stock to be converted. Each Conversion Notice shall specify the number of shares of Preferred Stock to be converted and the date on which such conversion is to be effected (the "Conversion Date"), which shall in no event be earlier than the date such Conversion Notice is given in accordance with Section 5(j) below. Each Conversion Notice, once given, shall be irrevocable (subject to Section 5(b) below). If the holder is converting less than all shares of Preferred Stock, the Company shall promptly deliver to the holder a certificate for such number of shares of Preferred Stock as have not been converted. (ii) If on the Conversion Date (as defined below) applicable to any conversion, the Conversion Price (as defined below) then in effect is such that the aggregate number of shares of Common Stock that would then be issuable upon conversion of all then-outstanding shares of Preferred Stock, when combined with any shares of Common Stock previously issued upon conversion of any shares of Preferred Stock, would equal or exceed 500,000 shares (the "Issuable Maximum"), then the Company shall be obligated to effect the conversion of only such portion of each share of Preferred Stock subject to such conversion as is represented by the Conversion Percentage (as defined in the next sentence), and the remaining portion of such share shall be subject to the mandatory redemption provisions of Section 6. The "Conversion Percentage" shall be a fraction, the numerator of which is the "Allowable Conversion Maximum" (as defined in the next sentence) and the denominator of which is the total number of shares of Preferred Stock outstanding prior to such conversion. The Allowable Conversion Maximum at any time shall be the difference between the Issuable Maximum and the total number of shares of Common Stock previously issued upon conversion of shares of Preferred Stock. In the event of any stock split, stock dividend, recapitalization, reorganization or other similar action or event, appropriate adjustment shall be made to the Issuable Maximum and the Allowable Conversion Maximum. (iii) If on any Conversion Date for any shares of Preferred Stock applicable to any conversion, the Per Share Market Value of the Common Stock on the immediately preceding date exceeds $7.75, the number of shares issued upon conversion of such shares of Preferred Stock shall be reduced by a number of shares equal to 50% of (A) the amount by which such Per Share Market Value exceeds $7.75, divided by (B) such Per Share Market Value, times (C) the number of shares which would otherwise be issued upon such conversion, but for the reduction provided for in this Section 5(a)(iii). (b) Three Trading Days after the Conversion Date, the Company will deliver to the holder (i) a certificate or certificates which shall be free of restrictive legends and trading restrictions (other than those then required by law), representing the number of shares of Common Stock being acquired upon the conversion of shares of Preferred Stock (subject to any 3 reduction required pursuant to Section 5(a)(ii) or (iii)), and (ii) subject to Section 6 below, the certificate representing the number of shares of Preferred Stock not converted; provided, however that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon conversion of any shares of Preferred Stock (or with respect to shares subject to redemption pursuant to Sections 5(a)(ii) and 6, to pay the redemption price payable under Section 6), until certificates evidencing such shares of Preferred Stock are either delivered to the Company or any transfer agent for the Preferred Stock or Common Stock, or the holder notifies the Company that such certificates have been lost, stolen or destroyed and provides a bond (or other adequate security acceptable to the Company) satisfactory to the Company to indemnify the Company from any loss incurred by it in connection therewith. The Company shall, upon request of the holder, use its best efforts to deliver any certificate or certificates required to be delivered by the Company under this Section 5(b) electronically through The Depository Trust Company or another established clearing corporation performing similar functions. In the case of a conversion pursuant to a Conversion Notice, if such certificate or certificates are not delivered by the date required under this Section 5(b), the holder shall be entitled by written notice to the Company at any time on or before such holder's receipt of such certificate or certificates thereafter, to rescind such conversion, in which event the Company shall immediately return the certificates representing the shares of Preferred Stock tendered for conversion. (c) (i) The Conversion Price (the "Conversion Price") in effect on any Conversion Date shall be the lesser of the Closing Price on the Trading Day immediately preceding the Original Issue Date or 80% of the average of the Closing Price on the three Trading Days immediately preceding the Conversion Date. For purposes of this Section, the "Closing Price" on any Trading Day shall mean the last reported closing price of the Common Stock of the Company on such day on the principal securities exchange on which the Common Stock is listed or, if the Common Stock is not so listed, the last reported bid price of the Common Stock as reported on The Nasdaq National Market on such date or, if the Common Stock is neither so listed nor so reported, the last reported bid price of the Common Stock as quoted by a registered broker-dealer for which such quotes are available on such date. (ii) If the Company, at any time while any shares of Preferred Stock are outstanding, (a) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Junior Stock payable in shares of its capital stock (whether payable in shares of its Common Stock or of capital stock of any class), (b) subdivide outstanding shares of Common Stock into larger number of shares, (c) combine outstanding shares of Common Stock into a smaller number of shares, or (d) issue by reclassification of shares of Common Stock any shares of capital stock of the Company, the Conversion Price designated in Section 5(c)(i) shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock of the Company outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section 5(c)(ii) shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. (iii) In case the Company, at any time while any shares of the Preferred Stock are outstanding, shall issue rights or warrants to all holders of Common Stock entitling 4 them to subscribe for or purchase shares of Common Stock at a price per share less than the Per Share Market Value of Common Stock at the record date mentioned below, the Conversion Price designated in Section 5(c)(i) shall be multiplied by a fraction, of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Per Share Market Value. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. However, upon the expiration of any right or warrant to purchase Common Stock the issuance of which resulted in an adjustment in the Conversion Price designated in Section 5(c)(i) pursuant to this Section 5(c)(iii), if any such right or warrant shall expire and shall not have been exercised, the Conversion Price designated in Section 5(c)(i) shall immediately upon such expiration be recomputed and effective immediately upon such expiration be increased to the price which it would have been (but reflecting any other adjustments in the Conversion Price made pursuant to the provisions of this Section 5 after the issuance of such rights or warrants) had the adjustment of the Conversion Price made upon the issuance of such rights or warrants been made on the basis of offering for subscription or purchase only that number of shares of Common Stock actually purchased upon the exercise of such rights or warrants actually exercised. (iv) In case the Company, at any time while shares of Preferred Stock are outstanding, shall distribute to all holders of Common Stock (and not to holders of Preferred Stock) evidences of its indebtedness or assets or rights or warrants, to subscribe for or purchase any security (excluding those referred to in Section 5(c)(iii) above) then in each such case the Conversion Price at which each share of the Preferred Stock shall thereafter be convertible shall be determined by multiplying the Conversion Price in effect prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Per Share Market Value of Common Stock determined as of the record date mentioned above, and of which the numerator shall be such Per Share Market Value of the Common Stock on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of Common Stock as determined by the Board of Directors of the Company in good faith; provided, however that in the event of a distribution exceeding ten percent (10%) of the net assets of the Company, then such fair market value shall be determined by a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Company) (an "Appraiser") selected in good faith by the holders of a majority in interest of the shares of Preferred Stock; and provided, further that the Company, after receipt of the determination by such Appraiser shall have the right to select an additional Appraiser, in which case the fair market value shall be equal to the average of the determinations by each such Appraiser. In either case the adjustments shall be described in a statement provided to all holders of Preferred Stock of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made 5 whenever any such distribution is made and shall become effective immediately after the record date mentioned above. (v) All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. (vi) Whenever the Conversion Price is adjusted pursuant to Section 5(c)(ii),(iii), (iv) or (v), the Company shall promptly mail to each holder of shares of Preferred Stock, a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. (vii) In case of any reclassification of the Common Stock, any consolidation or merger of the Company with or into another person, sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange pursuant to which share exchange the Common Stock is converted into other securities, cash or property, then the holders of the shares of Preferred Stock then outstanding shall have the right thereafter to convert such shares only into the kind and amount of shares of stock and other securities and property receivable upon or deemed to be held following such reclassification, consolidation, merger, sale, transfer or share exchange by a holder of a number of shares of the Common Stock of the Company into which such shares Preferred Stock could have been converted immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange. The terms of any such consolidation, merger, sale, transfer or share exchange shall include such terms so as to continue to give to the holder of shares of Preferred Stock the right to receive the securities or property set forth in this Section 5(c)(vii) upon any conversion following such consolidation, merger, sale, transfer or share exchange. This provision shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges. (viii) In case: (A) the Company shall declare a dividend (or any other distribution) on its Common Stock; or (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of its Common Stock; or (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; or (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock of the Company (other than a subdivision or combination of the outstanding shares of Common Stock), any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory 6 share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) of the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of the shares of Preferred Stock, and shall cause to be mailed to the holders of the shares of Preferred Stock at their last addresses as they shall appear upon the stock books of the Company, at least 10 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding-up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding-up (but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the corporate action required to be specified in such notice). (d) In case at any time conditions shall arise by reason of action taken by the Company which in the opinion of the Board of Directors of the Company are not adequately covered by the other provisions hereof and which might materially and adversely affect the rights of the holders of shares of Preferred Stock (different than or distinguished from the effect generally on the rights of holders of any class of the Company's capital stock) or in case at any time any such conditions are expected to arise by reason of any action contemplated by the Company, an Appraiser selected by the holders of majority in interest of the shares of Preferred Stock shall give its opinion as to the adjustment, if any (not inconsistent with the standards established in this Section 5), of the Conversion Price (including, if necessary, any adjustment as to the securities into which shares of Preferred Stock may thereafter be convertible) and any distribution which is or would be required to preserve without diluting the rights of the holders of the shares of Preferred Stock; provided, however, that the Company, after receipt of the determination by such Appraiser, shall have the right to select an additional Appraiser, in which case the adjustment shall be equal to the average of the adjustments recommended by each such Appraiser. The Board of Directors of the Company shall make the adjustment recommended forthwith upon the receipt of such opinion or opinions or the taking of any such action contemplated, as the case may be; provided, however, that no such adjustment of the Conversion Price shall be made which in the opinion of the Appraiser(s) giving the aforesaid opinion or opinions would result in an increase of the Conversion Price to more than the Conversion Price then in effect. (e) The Company covenants that it will at all times reserve and keep available, out of its authorized and unissued Common Stock solely for the purpose of issuance upon conversion of Preferred Stock as herein provided, free from preemptive rights or any other actual 7 contingent purchase rights of Persons other than the holders of shares of Preferred Stock, such number of shares of Common Stock as shall be issuable (taking into account the adjustments and restrictions of Section 5(c) hereof) upon the conversion of all outstanding shares of Preferred Stock. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly issued and fully paid and nonassessable. (f) Except as otherwise required by Section 6 hereof, the Company shall not be required to issue stock certificates representing fractions of shares of Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the Per Share Market Value at such time. If the Company elects not, or is unable, to make such a cash payment, the holder of a share of Preferred Stock shall be entitled to receive, in lieu of the final fraction of a shares, one whole share of Common Stock; provided, however, that in no event shall any such issuance of a whole share result in the issuance of a number of shares of Common Stock in excess of the Issuable Maximum and if such issuance would so result in the issuance of a number of shares in excess of the Issuable Maximum, the holder shall be entitled to receive the cash payment described above as soon as such cash payment may be lawfully made. (g) The issuance of certificates for shares of Common Stock on conversion of Preferred Stock shall be made without charge to the holders thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate in a name other than that of the holder of the shares of Preferred Stock converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. (h) Shares of Preferred Stock converted into Common Stock shall be canceled and shall have the status of authorized but unissued shares of preferred stock. (i) If the Company intends to initiate a public offering of its securities in an amount exceeding $5 million in the aggregate and the Company reasonably believes that the conversion of any shares of Preferred Stock may have an adverse effect on the ability of the Company to complete such offering or the price at which such securities could be sold therein, the Company, upon at least 30 days prior written notice to the holders of Preferred Stock, may suspend the right of the holders of the shares of Preferred Stock to convert such shares pursuant to Section 5 for the period commencing on the date the Company files a registration statement with the Securities and Exchange Commission and terminating 90 days after the closing of the public offering, provided that the last day that the Preferred Stock is convertible (as set forth in Section 5(a)) shall be extended for such number of days as the conversion right was suspended under this Section 5(i). (j) Each Conversion Notice shall be given by facsimile and by mail, postage prepaid, addressed to the attention of the Chief Financial Officer of the Company at the facsimile telephone number and address of the principal place of business of the Company. Any such notice shall be deemed given and effective upon the earliest to occur of (i) receipt of such facsimile at the 8 facsimile telephone number specified in this Section 5(j), (ii) three days after deposit in the United States mails or (iii) upon actual receipt by the party to whom such notice is required to be given. Section 6. MANDATORY REDEMPTION OF THE PREFERRED STOCK. (a) If on the Conversion Date specified in any Conversion Notice the provisions of Section 5(a)(ii) do not permit the issuance of the full number of shares into which the shares of Preferred Stock to be converted would otherwise be convertible, then the Company shall, with respect to each share of Preferred Stock that is subject to such Conversion Notice, redeem, from funds legally available therefor at the time of such redemption, a portion of such share that is represented by the fraction that is the difference between one and the Conversion Percentage (such fraction to be known as the "Redemption Ratio"). The redemption price for such portion of each share of Preferred Stock to be redeemed shall be an amount equal to the product of (i) the Per Share Market Value on the Conversion Date, (ii) the number of shares of Common Stock into which such share of Preferred Stock would then be convertible, but for Section 5(a)(ii), times (iii) the Redemption Ratio. If any portion of such redemption price shall not be paid by the Company within 20 days after the Conversion Date, such redemption price shall be increased by an amount accruing from the twenty-first day to the fortieth day after the Conversion Date at the rate of 10% per annum, from the forty-first day to the sixtieth day at 12.5% per annum and from the sixty-first day until paid at the rate of 15% per annum. If, on any such Conversion Date, the Company is prohibited under the relevant provisions of the California General Corporation Law (the "CGCL") from paying, in whole or in part, the redemption price for any shares of Preferred Stock, any portion of the redemption price which may be lawfully paid in accordance with the CGCL shall be paid pro rata to the holders of the shares of Preferred Stock being redeemed on such Conversion Date and the remainder of such redemption price shall be paid on a pro rata basis to such holders as soon as such payment is permissible under the CGCL. Section 7. DEFINITIONS. For the purposes hereof, the following terms shall have the following meanings: "Common Stock" means shares now or hereafter authorized of the class of Common Stock, no par value, of the Company presently authorized and stock of any other class into which such shares may hereafter have been reclassified or changed. "Conversion Ratio" means, at any time, a fraction, of which the numerator is Stated Value plus accrued but unpaid dividends, and of which the denominator is the Conversion Price at such time. "Junior Stock" means the Common Stock of the Company and any other stock of the Company over which shares of the Preferred Stock has preference as to distribution of assets. "Original Issue Date" shall mean the date of the first issuance of any shares of the Preferred Stock. 9 "Per Share Market Value" means on any particular date (a) the last sale price per share of the Common Stock on such date on The Nasdaq National Market or other stock exchange on which the Common Stock has been listed or if there is no such price on such date, then the last price on such exchange on the date nearest preceding such date, or (b) if the Common Stock is not listed on The Nasdaq National Market or any stock exchange, the average of the bid and asked price for a share of Common Stock in the over-the-counter market, as reported by the NASDAQ Stock Market at the close of business on such date, or (c) if the Common Stock is not quoted on the NASDAQ Stock Market, the average of the bid and asked price for a share of Common Stock in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices), or (d) if the Common Stock is no longer publicly traded the fair market value of a share of Common Stock as determined by an Appraiser (as defined in Section 5(c)(iv) above) selected in good faith by the holders of a majority in interest of the shares of the Preferred Stock; provided, however, that the Company, after receipt of the determination by such Appraiser, shall have the right to select an additional Appraiser, in which case, the fair market value shall be equal to the average of the determinations by each such Appraiser. "Person" means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency. "Trading Day" means (a) a day on which the Common Stock is traded on The Nasdaq National Market or principal stock exchange on which the Common Stock has been listed, or (b) if the Common Stock is not listed on The Nasdaq National Market or any stock exchange, a day on which the Common Stock is traded in the over-the-counter market, as reported by the NASDAQ Stock Market, or (c) if the Common Stock is not quoted on the NASDAQ Stock Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions of reporting prices). RESOLVED FURTHER, that the President and Secretary of the Company be, and they hereby are, authorized and directed to prepare, execute, verify, and file in the Office of the California Secretary of State, a Certificate of Determination in accordance with this resolution and as required by law. Each of the undersigned further declares under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of his own knowledge. Executed at San Diego, California on the 5th day of April, 1996. /S/ Stephen P. Gardner ---------------------------------- Stephen P. Gardner, President /S/ John W. Low ---------------------------------- John W. Low, Secretary 10 EX-11 8 EXHIBIT 11 EXHIBIT 11 ALPHAREL, INC. STATEMENT RE COMPUTATION OF NET INCOME PER SHARE (Unaudited) (In thousands except per share data)
For the three months For the six months ended June 30, ended June 30, -------------------- -------------------- 1996 1995 1996 1995 --------- --------- --------- --------- Net income per consolidated financial statements $ 875 $ 427 $ 1,552 $ 652 --------- --------- --------- --------- --------- --------- --------- --------- Primary net income per share: Weighted average common shares 18,404 13,913 17,696 13,827 Common stock equivalents: Common stock options 608 155 684 239 Common stock warrants - - - - Convertible preferred stock 175 - 88 - --------- --------- --------- --------- Weighted average shares outstanding 19,187 14,068 18,468 14,066 --------- --------- --------- --------- --------- --------- --------- --------- Fully diluted net income per share: Weighted average common shares 18,404 13,913 17,696 13,827 Common stock equivalents: Common stock options 608 155 684 239 Common stock warrants - - - - Convertible preferred stock 175 - 88 - --------- --------- --------- --------- Weighted average shares outstanding 19,187 14,068 18,468 14,066 --------- --------- --------- --------- --------- --------- --------- --------- Net income per share: Primary $ .05 $ .03 $ .08 $ .05 --------- --------- --------- --------- --------- --------- --------- --------- Fully diluted $ .05 $ .03 $ .08 $ .05 --------- --------- --------- --------- --------- --------- --------- ---------
EX-27 9 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS FOUND ON PAGES 2 AND 3 OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO DATE 06/30/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JUN-30-1996 901 0 8,157 0 455 10,382 6,819 (4,728) 19,341 4,825 0 0 0 59,769 (47,723) 19,341 12,167 12,167 4,646 4,646 1,756 0 47 1,552 0 1,552 0 0 0 1,552 .08 .08
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