Exhibit 4.2
CERTIFICATE OF DESIGNATIONS, NUMBER,
VOTING POWERS, PREFERENCES AND RIGHTS OF SERIES A CONVERTIBLE
PREFERRED SHARES
OF
VISIBLE GENETICS INC.
The undersigned DOES HEREBY CERTIFY that:
The following resolution was duly adopted by the Board of
Directors of Visible Genetics Inc., an Ontario corporation (hereinafter called
the "Corporation"), with the preferences and rights set forth therein relating
to dividends, conversion, redemption, dissolution and distribution of assets of
the Corporation having been fixed by the Board of Directors pursuant to
authority granted to it under the Corporation's Restated Articles of
Incorporation and in accordance with the provisions of the Ontario Business
Corporation Act:
RESOLVED: That, pursuant to authority conferred upon the Board
of Directors by the Restated Articles of Incorporation of the Corporation, the
Board of Directors hereby authorizes the issuance of 33,950 Series A Convertible
Preferred Shares of the Corporation, and hereby fixes the designations, powers,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof, of such shares, as
follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated "Series A Convertible Preferred Shares" (the "Series A Preferred
Stock") and the number of shares constituting such series shall be 33,950.
2. DIVIDENDS.
(a) The holders of Series A Preferred Stock shall be entitled
to receive, when and as declared by the Board of Directors, out of any funds
legally available therefor, preferential cumulative dividends payable in U.S.
dollars at the rate per annum per share of nine percent (9.0%) of the Series A
Liquidation Value (as hereinafter defined) until July 15, 2002 and thereafter at
the rate per annum per share of four percent (4.0%) of the Series A Liquidation
Value, not more. Such dividends shall be fully paid before any dividends shall
be set apart for or paid upon the Common Shares (herein the "Common Stock")) or
any other shares ranking as to dividends junior to the Series A Preferred Stock
(such Common Stock and other shares being referred to hereinafter collectively
as "Junior Stock") in any year.
(b) Dividends on the Series A Preferred Stock shall accrue
quarterly on July 15, October 15, January 15 and April 15,
beginning October 15, 1999, and shall accumulate from the date of issuance of
the Series A Preferred Stock, whether or not earned or declared and whether or
not in any fiscal year there shall be net profits or surplus available for the
payment of dividends in such fiscal year, so that if in any fiscal year or
years, dividends in whole or in part are not paid upon the Series A Preferred
Stock, unpaid dividends shall accumulate as against the holders of the Junior
Stock and any sums in any later years shall be paid to the holders of the Series
A Preferred Stock with respect to any prior year or years when dividends were
not paid.
(c) Dividends on the Series A Preferred Stock shall accrue
from the date of issuance of such shares but shall not be paid prior to July 15,
2002. Subsequent to such date, dividends on the Series A Preferred Stock,
including amounts previously accrued but unpaid, shall be paid only when and as
declared by the Board of Directors, PROVIDED, that the Board shall furnish the
holders of the Series A Preferred Stock at least thirty (30) days advance notice
of any such payment date in order to permit the holders to elect to convert
their shares of Series A Preferred Stock prior to such payment date.
(d) So long as any of the Series A Preferred Stock remains
outstanding, in no event shall any dividend whatsoever, whether in cash or other
property (other than in shares of Junior Stock), be paid or declared or any
distribution be made on the Junior Stock, nor shall any shares of the Junior
Stock be purchased, retired or otherwise acquired for a consideration by the
Corporation (i) unless the full dividends of the Series A Preferred Stock for
all past dividend periods from the date on which they became cumulative shall
have been declared and paid; and (ii) unless, if at any time the Corporation is
obligated to retire shares of the Series A Preferred Stock pursuant to the
mandatory redemption requirement set forth in Section 8 hereof, all arrears, if
any, in respect of the retirement of the Series A Preferred Stock shall have
been made good. Notwithstanding the provisions of this Section 1(d), without
declaring or paying dividends on the Series A Preferred Stock, the Corporation
may, subject to applicable law, repurchase or redeem shares of capital stock of
the Corporation from current or former officers, directors, employees or
consultants of the Corporation pursuant to the terms of restricted stock
agreements or similar agreements in effect on the date hereof (or restricted
stock agreements entered into after the date hereof containing substantially
similar repurchase or redemption terms as the restricted stock agreements or
similar agreements in effect on the date hereof, provided such restricted stock
agreements have been approved by the Board of Directors of the Corporation),
provided that the terms of such agreements provide for a repurchase or
redemption price not in excess of the price per share paid by such employee for
such share. Subject to the foregoing provisions and not otherwise, and subject
to the provisions of Section 4(d)(i) hereof, such dividends (payable in cash,
stock or otherwise) as may be determined by the Board of Directors may be
declared and
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paid on the Junior Stock from time to time out of the remaining funds of the
Corporation legally available therefor, and the Series A Preferred Stock shall
not be entitled to participate in any such dividend, whether payable in cash,
stock or otherwise.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any liquidation, distribution or sale of
assets, dissolution or winding up of the Corporation, whether voluntary or
involuntary, then before any distribution or payment shall be made to the
holders of the Junior Stock, the holders of the Series A Preferred Stock shall
be entitled to be paid out of the assets of the Corporation an amount per share
of Series A Preferred Stock, equal to One Thousand U.S. Dollars (U.S.$1,000)
plus all accrued or declared and unpaid dividends on the Series A Preferred
Stock, (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares), for each share of
Series A Preferred Stock held by them (the "Series A Liquidation Value").
(b) After the payment of the full Series A Liquidation Value
to the holders of the Series A Preferred Stock set forth in Section 3(a) above,
the remaining assets of the Corporation legally available for distribution, if
any, shall be distributed to the holders of the Junior Stock, ratably in
proportion to the full amounts to which they would otherwise be respectively
entitled.
(c) If, upon any liquidation, distribution or winding up, the
assets of the Corporation shall be insufficient to make payment in full to all
holders of Series A Preferred Stock, then such assets shall be distributed among
the holders of Series A Preferred Stock at the time outstanding, ratably in
proportion to the full amounts to which they would otherwise be respectively
entitled.
(d) The merger or consolidation of the Corporation into or
with another company, or the merger or consolidation of any other company into
or with the Corporation, in each case in which the holders of the Common Stock
and Series A Preferred Stock and any other voting capital shares of the
Corporation prior to such consolidation or merger do not hold at least 51% of
the combined voting power of the surviving person in such merger or
consolidation, or the sale, conveyance or lease of all or substantially all the
assets of the Corporation to a person, other than a company 51% or more of the
voting power of which is owned by the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes of this
Section 3.
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4. VOTING.
(a) Each issued and outstanding share of Series A Preferred
Stock shall be entitled to the number of votes equal to the number of shares of
Common Stock into which each such share of Series A Preferred Stock is
convertible (as adjusted from time to time pursuant to Section 5 hereof), at
each meeting of stockholders of the Corporation with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration other than the election of directors (as to which the Series A
Preferred Stock shall have rights voting separately as a class as set out in
paragraphs (b) and (c) below). Except as provided by law, by the provisions of
paragraphs (b), (c) and (d) below or by the provisions establishing any other
series of Preferred Shares, holders of Series A Preferred Stock and of any other
outstanding Preferred Stock shall vote together with the holders of Common Stock
as a single class.
(b) For so long as the total number of shares of Common Stock
issuable on conversion of the Series A Preferred Stock in accordance with the
provisions hereof equals at least 5% of the then outstanding shares of Common
Stock of the Corporation, the holders of Series A Preferred Stock shall have the
exclusive right, voting separately as a class, to elect one director (herein
referred to as the "Series A Director"). The Series A Director shall be elected
by the affirmative vote of the holders of record of a majority of the
outstanding shares of Series A Preferred Stock, either at meetings of
stockholders at which directors are elected, a special meeting of holders of
Series A Preferred Stock or by written consent without a meeting in accordance
with the Ontario Business Corporation Act. Each Series A Director so elected
shall serve for a term of one year and until his successor is elected and
qualified. Any vacancy in the position of a Series A Director may be filled only
by the holders of the Series A Preferred Stock. Each Series A Director may,
during his term of office, be removed at any time, with or without cause, by and
only by the affirmative vote, at a special meeting of holders of Series A
Preferred Stock called for such purpose, or the written consent, of the holders
of record of a majority of the outstanding shares of Series A Preferred Stock.
Any vacancy created by such removal may also be filled at such meeting or by
such consent. At such time as the holders of Series A Preferred Stock shall no
longer be eligible to elect a Series A Director, the term of the Series A
Director then serving shall immediately and automatically terminate without any
action by the Board of Directors, the Series A Director or any other Person.
(c) In the event (each a "Default") that the Corporation shall
be in arrears in the mandatory redemption of Series A Preferred Stock as called
for in paragraph 8(b) below, then upon written notice to the Corporation given
at any time
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during the pendency of such a Default by the holders of not less than a majority
of the outstanding shares of Series A Preferred Stock, the holders of the Series
A Preferred Stock shall as a class become entitled to special voting rights (the
"Special Voting Rights"). The Special Voting Rights of the holders of the Series
A Preferred Stock shall continue until the Default giving rise to such Special
Voting Rights shall have been cured in full, whereupon all Special Voting Rights
of the holders of the Series A Preferred Stock shall cease, subject to being
again revived from time to time upon the recurrence or occurrence of a Default.
Failure by the holders of the Series A Preferred Stock to exercise their Special
Voting Rights promptly upon the occurrence of a given Default shall not be
deemed to be a waiver of such rights, such rights being exercisable at any time
that a Default shall have occurred and be continuing.
For purposes of this Section 4(c), the term "Special Voting
Rights" shall mean the right to elect, upon the occurrence and during the
continuance of a Default as provided in the foregoing paragraph, that number of
additional directors (the "Default Directors") that, when added to the Series A
Director will constitute one more than half of the Board of Directors of the
Corporation as it will be constituted following the election of such Default
Directors.
Immediately upon the accrual of the Special Voting Rights of
the holders of Series A Preferred Stock, the number of directors of the
Corporation shall automatically be increased by the requisite number of Default
Directors and each of the Default Directors shall be elected only by vote of the
holders of Series A Preferred Stock, voting as a class. The holders of the
Series A Preferred Stock may at their option at any time, upon the occurrence
and during the continuance of a Default, exercise the Special Voting Rights to
elect each of the Default Directors either at a special meeting of holders of
Series A Preferred Stock or by written consent without a meeting in accordance
with the Ontario Business Corporation Act. Each Default Director shall serve for
a term of one year and until his successor is elected and qualified, or until
the earlier termination of the Special Voting Rights of the holders of the
Series A Preferred Stock. Upon the election of the Default Directors, then so
long as the holders of the Series A Preferred Stock are entitled to the Special
Voting Rights, the presence of a majority of the directors shall be required for
there to be a quorum at all meetings of the Board of Directors of the
Corporation, and of the Executive Committee of the Corporation if there be such
a committee. So long as the holders of the Series A Preferred Stock are entitled
to the Special Voting Rights, any vacancy in the position of a Default Director
may be filled only by the holders of the Series A Preferred Stock. Each Default
Director may, during his term of office, be removed at any time, with or without
cause, by and only by the affirmative vote, at a special meeting of holders of
the Series A Preferred Stock called for such purpose, or the written consent, of
the holders of record of a majority of the outstanding shares of the Series A
Preferred
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Stock. Any vacancy created by such removal may also be filled at such meeting or
by such consent. Upon the termination of the Special Voting Rights of the
holders of the Series A Preferred Stock, the terms of office of the Default
Directors shall forthwith automatically terminate without any action of the
Board of Directors, the Default Directors, the holders of the Series A Preferred
Stock or any other Person and the number of directors of the Corporation shall
thereupon be automatically appropriately decreased.
(d) In addition to any other rights provided by law, the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of a majority of the outstanding shares of Series A
Preferred Stock:
(i) authorize or effect the incurrence, creation or
assumption, or suffer the existence of any indebtedness of the Company
or any subsidiary for borrowed money or for the deferred purchase price
of property or services (other than current trade liabilities incurred
in the ordinary course of business or liabilities created as a result
of the endorsement of negotiable instruments for deposit or collection
in the ordinary course of business), any other indebtedness of the
Company or any subsidiary which is evidenced by a note, bond, debenture
or similar debt instrument, and capitalized lease obligations of the
Company or any subsidiary in an aggregate amount at any time
outstanding in excess of U.S. $15,000,000; or
(ii) authorize any additional shares of Series A Preferred
Stock or amend, alter or repeal the preferences, special rights or
other powers of the Series A Preferred Stock so as to affect materially
and adversely the Series A Preferred Stock. For the purpose of this
Section 4(d)(ii), the authorization or issuance of any other series of
Preferred Shares with preference or priority over, or being on a parity
with the Series A Preferred Stock as to the right to receive either
dividends or amounts distributable upon liquidation, dissolution or
winding up of the Corporation shall be deemed so to affect materially
and adversely the Series A Preferred Stock.
5. OPTIONAL CONVERSION. Each share of Series A Preferred Stock
may be converted at any time, at the option of the holder thereof, into the
number of fully-paid and nonassessable shares of Common Stock obtained by
dividing the then Series A Liquidation Value by the Conversion Price then in
effect, PROVIDED, HOWEVER, that on any redemption of any Series A Preferred
Stock or any liquidation of the Corporation, the right of conversion shall
terminate at the close of business on the full business day immediately
preceding the date fixed for such redemption or for the payment of any amounts
distributable on liquidation to the holders of Series A Preferred Stock.
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(a) The initial conversion price shall be U.S.$11.00 per share of the
Corporation's Common Stock (the "Initial Conversion Price"). The Initial
Conversion Price and the applicable conversion price from time to time in effect
(both the "Conversion Price") are subject to adjustment as hereinafter provided.
(b) The Corporation shall not issue fractions of shares of Common Stock
upon conversion of Series A Preferred Stock or scrip in lieu thereof. If any
fraction of a share of Common Stock would, except for the provisions of this
paragraph (b), be issuable upon conversion of any Series A Preferred Stock, the
Corporation shall in lieu thereof pay to the person entitled thereto an amount
in cash equal to the current value of such fraction, calculated to the nearest
one-hundredth (1/100) of a share, to be computed (i) if the Common Stock is
listed on any national securities exchange or quoted on NASDAQ, on the basis of
the last sales price of the Common Stock on such exchange or NASDAQ (or the
quoted closing bid price if there shall have been no sales) on the date of
conversion, or (ii) if no last sales prices are then being quoted for the Common
Stock, on the basis of the mean between the closing bid and asked prices for the
Common Stock on the date of conversion as reported by Nasdaq, or its successor,
or (iii) if there are no such closing bid and asked prices, on the basis of the
fair market value per share as determined by the Board of Directors of the
Corporation.
(c) Whenever the Conversion Price shall be adjusted as provided in
Section 6 hereof, the Corporation shall forthwith file at the principal office
of the transfer agent for the Series A Preferred Stock (or if no transfer agent
shall at the time be appointed, then the Corporation at its principal office), a
statement, signed by the Chairman of the Board, the President, any Vice
President or Treasurer of the Corporation, showing in reasonable detail the
facts requiring such adjustment and the Conversion Price that will be effective
after such adjustment. The Corporation shall also cause a notice setting forth
any such adjustments to be sent by mail, first class, postage prepaid, to each
record holder of Series A Preferred Stock at his or its address appearing on the
stock register. If such notice relates to an adjustment resulting from an event
referred to in paragraph 6(g), such notice shall be included as part of the
notice required to be mailed and published under the provisions of paragraph
6(g) hereof.
(d) In order to exercise the conversion privilege, the holder of any
Series A Preferred Stock to be converted shall surrender his or its certificate
or certificates therefore to the principal office of the transfer agent for the
Series A Preferred Stock (or if no transfer agent shall at the time be
appointed, then the Corporation at its principal office), and shall give written
notice to the Corporation at such office that the holder elects to convert the
Series A Preferred Stock represented by
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such certificates, or any number thereof. Such notice shall also state the name
or names (with address) in which the certificate or certificates for shares of
Common Stock which shall be issuable on such conversion shall be issued, subject
to any restrictions on transfer relating to shares of the Series A Preferred
Stock or shares of Common Stock upon conversion thereof. If so required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly authorized in writing. The date of receipt
by the transfer agent (or by the Corporation if the Corporation serves as its
own transfer agent) of the certificates and notice shall be the conversion date.
As soon as practicable after receipt of such notice and the surrender of the
certificate or certificates for Series A Preferred Stock as aforesaid, the
Corporation shall cause to be issued and delivered at such office to such
holder, or on his or its written order, a certificate or certificates for the
number of full shares of Common Stock issuable on such conversion in accordance
with the provisions hereof and cash as provided in paragraph (b) of this Section
5 in respect of any fraction of a share of Common Stock otherwise issuable upon
such conversion.
(e) The Corporation shall at all times when the Series A Preferred
Stock shall be outstanding reserve and keep available out of its authorized but
unissued stock, for the purposes of effecting the conversion of the Series A
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series A Preferred Stock.
(f) All shares of Series A Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall forthwith cease and terminate except
only the right of the holder thereof to receive shares of Common Stock in
exchange therefor. Any shares of Series A Preferred Stock so converted shall be
retired and canceled and shall not be reissued, and the Corporation may from
time to time take such appropriate action as may be necessary to reduce the
authorized Series A Preferred Stock accordingly.
6. ANTI-DILUTION PROVISIONS.
(a) In order to prevent dilution of the right granted hereunder, the
Conversion Price shall be subject to adjustment from time to time in accordance
with this paragraph 6(a). At any given time the Conversion Price, whether as the
Initial Conversion Price (U.S.$11.00 per share) or as last adjusted, shall be
that dollar (or part of a dollar) amount the payment of which shall be
sufficient at the given time to acquire one share of the Corporation's Common
Stock upon conversion of shares of
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Series A Preferred Stock. For purposes of this Section 6, the term "Number of
Common Shares Deemed Outstanding" at any given time shall mean the sum of
(x) the number of shares of the Corporation's Common Stock outstanding at such
time, (y) the number of shares of the Corporation's Common Stock issuable upon
the exercise or conversion of any then outstanding options, warrants or other
convertible securities (including the Series A Preferred Stock) and (z), without
duplication, the number of shares of the Corporation's Common Stock deemed to be
outstanding under subparagraphs 6(b)(1) to (9), inclusive, at such time.
(b) Except as provided in paragraph 6(c) or 6(f) below, if and whenever
on or after the date of initial issuance of the Series A Preferred Stock (the
"Initial Issuance Date"), the Corporation shall issue or sell, or shall in
accordance with subparagraphs 6(b)(1) to (9), inclusive, be deemed to have
issued or sold any shares of its Common Stock for a consideration per share less
than the Conversion Price in effect immediately prior to the time of such issue
or sale, then forthwith upon such issue or sale (the "Triggering Transaction"),
the Conversion Price shall, subject to subparagraphs (1) to (9) of this
paragraph 6(b), be reduced to the Conversion Price (calculated to the nearest
tenth of a cent) determined by dividing:
(i) an amount equal to the sum of (x) the product derived by
multiplying the Number of Common Shares Deemed Outstanding immediately
prior to such Triggering Transaction by the Conversion Price then in
effect, plus (y) the consideration, if any, received by the Corporation
upon consummation of such Triggering Transaction, by
(ii) an amount equal to the sum of (x) the Number of Common
Shares Deemed Outstanding immediately prior to such Triggering
Transaction plus (y) the number of shares of Common Stock issued (or
deemed to be issued in accordance with subparagraphs 6(b)(1) to (9)) in
connection with the Triggering Transaction.
For purposes of determining the adjusted Conversion Price
under this paragraph 6(b), the following subsections (1) to (9), inclusive,
shall be applicable, and the outstanding shares of Series A Preferred Stock
shall be deemed converted for all purposes and computations under this Section
6(b) and the then current Conversion Price shall be deemed the Conversion Price
per share:
(1) In case the Corporation at any time shall in any manner
grant (whether directly or by assumption in a merger or otherwise) any
rights to subscribe for or to purchase, or any options for the purchase
of, Common Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being herein
called "Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities"),
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whether or not such Options or the right to convert or exchange any
such Convertible Securities are immediately exercisable and the price
per share for which the Common Stock is issuable upon exercise,
conversion or exchange (determined by dividing (x) the total amount,
if any, received or receivable by the Corporation as consideration
for the granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon the exercise
of all such Options, plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof,
by (y) the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or the conversion or exchange of
such Convertible Securities) shall be less than the Conversion Price
in effect immediately prior to the time of the granting of such Option,
then the total maximum amount of Common Stock issuable upon the
exercise of such Options or in the case of Options for Convertible
Securities, upon the conversion or exchange of such Convertible
Securities shall (as of the date of granting of such Options) be deemed
to be outstanding and to have been issued and sold by the Corporation
for such price per share. No adjustment of the Conversion Price shall
be made upon the actual issue of such shares of Common Stock or such
Convertible Securities upon the exercise of such Options or upon the
actual issue of such shares of Common Stock upon conversion or exchange
of such Convertible Securities, except as otherwise provided in
subparagraph (3) below.
(2) In case the Corporation at any time shall in any manner
issue (whether directly or by assumption in a merger or otherwise) or
sell any Convertible Securities, whether or not the rights to exchange
or convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (x) the total amount received or
receivable by the Corporation as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (y) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the Conversion Price in
effect immediately prior to the time of such issue or sale, then the
total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall (as of the date of
the issue or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued and sold by the Corporation for
such price per share. Except as otherwise provided in subparagraph (3)
below, no adjustment of the
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Conversion Price shall be made upon the actual issue of such Common
Stock upon exercise of the rights to exchange or convert under such
Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any rights to subscribe
for or to purchase or any option to purchase any such Convertible
Securities for which adjustments of the Conversion Price have been or
are to be made pursuant to other provisions of this Section 6, no
further adjustment of the Conversion Price shall be made by reason of
such issue or sale.
(3) If the purchase price provided for in any Options referred
to in subparagraph (1), the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities referred
to in subparagraphs (1) or (2), or the rate at which any Convertible
Securities referred to in subparagraph (1) or (2) are convertible into
or exchangeable for Common Stock shall change at any time (other than
under or by reason of provisions designed to protect against dilution
of the type set forth in paragraphs 6(b) or 6(d)), the Conversion Price
in effect at the time of such change shall forthwith be readjusted to
the Conversion Price which would have been in effect at such time had
such Options or Convertible Securities still outstanding provided for
such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or
sold. If the purchase price provided for in any Option referred to in
subparagraph (1) or the rate at which any Convertible Securities
referred to in subparagraphs (1) or (2) are convertible into or
exchangeable for Common Stock, shall be adjusted at any time under or
by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Stock upon the
exercise of any such Option or upon conversion or exchange of any such
Convertible Security, the Conversion Price then in effect hereunder
shall forthwith be adjusted to such respective amount as would have
been obtained had such Option or Convertible Security never been issued
as to such Common Stock and had adjustments been made upon the issuance
of the shares of Common Stock delivered as aforesaid.
(4) On the expiration of any Option or the termination of any
right to convert or exchange any Convertible Securities, the Conversion
Price then in effect hereunder shall forthwith be increased to the
Conversion Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such expiration or
termination, never been issued and the Common Stock issuable thereunder
shall no longer be deemed outstanding.
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(5) In case any rights, Options or Convertible Securities
shall be issued in connection with the issue or sale of other
securities of the Corporation, together comprising one integral
transaction in which no specific consideration is allocated to such
rights, Options or Convertible Securities by the parties thereto, such
rights, Options or Convertible Securities shall be deemed to have been
issued without consideration.
(6) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor shall be deemed to
be the amount received by the Corporation therefor, before deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith.
In case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Corporation shall
be the fair value of such consideration as determined in good faith and
in the reasonable exercise of business judgment by the Board of
Directors of the Corporation. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase such Common
Stock or Convertible Securities shall be issued in connection with any
merger in which the Corporation is the surviving corporation, the
amount of consideration therefor shall be deemed to be the fair value
as determined in good faith and in the reasonable exercise of business
judgment by the Board of Directors of the Corporation of such portion
of the assets and business of the non-surviving corporation as such
Board shall determine in good faith and in the reasonable exercise of
business judgment, to be attributable to such Common Stock, Convertible
Securities, rights or options, as the case may be.
(7) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account
of the Corporation, and the disposition of any shares so owned or held
shall be considered an issue or sale of Common Stock for the purpose of
this section 6(b).
(8) In case the Corporation shall declare a dividend or make
any other distribution upon the stock of the Corporation payable in
Options or Convertible Securities, then in such case any Options or
Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold
without consideration.
(9) For purposes of this section 6(b), in case the Corporation
shall take a record of the holders of its Common
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Stock for the purpose of entitling them (x) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible
Securities, or (y) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such
right or subscription or purchase, as the case may be.
Upon each adjustment of the Conversion Price resulting from
any Common Stock issued, issuable or deemed outstanding under subparagraphs (1)
to (9) above, the registered holder of shares of Series A Preferred Stock shall
thereafter be entitled to acquire upon conversion of each share of Series A
Preferred Stock, at the Conversion Price resulting from such adjustment, the
number of shares of the Corporation's Common Stock determined by dividing the
then current Series A Liquidation Value by the Conversion Price resulting from
such adjustment.
(c) In the event the Corporation shall declare a dividend upon the
Common Stock (other than a dividend payable in Common Stock) payable otherwise
than out of earnings or earned surplus, determined in accordance with generally
accepted accounting principles, including the making of appropriate deductions
for minority interests, if any, in subsidiaries (herein referred to as
"Liquidating Dividends"), then, as soon as possible after the conversion of any
Series A Preferred Stock, the Corporation shall pay to the person converting
such Series A Preferred Stock an amount equal to the aggregate value at the time
of such exercise of all Liquidating Dividends (including but not limited to the
Common Stock which would have been issued at the time of such earlier exercise
and all other securities which would have been issued with respect to such
Common Stock by reason of stock splits, stock dividends, mergers or
reorganizations, or for any other reason). For the purposes of this paragraph
6(c), a dividend other than in cash shall be considered payable out of earnings
or earned surplus only to the extent that such earnings or earned surplus are
charged an amount equal to the fair value of such dividend as determined in good
faith by the Board of Directors of the Corporation.
(d) In case the Corporation shall at any time (i) subdivide the
outstanding Common Stock or (ii) issue a Common Stock dividend on its
outstanding Common Stock, the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock shall be proportionately increased by
the same ratio as the subdivision or dividend (with appropriate adjustments to
the Conversion Price in effect immediately prior to such subdivision or
dividend). In case the Corporation shall at any time combine its outstanding
Common Stock, the number of shares issuable upon conversion of the Series A
Preferred Stock immediately prior to such combination shall be proportionately
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decreased by the same ratio as the combination (with appropriate adjustments to
the Conversion Price in effect immediately prior to such combination).
(e) If any capital reorganization or reclassification of the capital
stock of the Corporation, or consolidation or merger of the Corporation with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities, cash or other property with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the holders of the Series A Preferred
Stock shall have the right to acquire and receive upon conversion of the Series
A Preferred Stock, such shares of stock, securities, cash or other property
issuable or payable (as part of the reorganization, reclassification,
consolidation, merger or sale) with respect to or in exchange for such number of
outstanding shares of the Corporation's Common Stock as would have been received
upon conversion of the Series A Preferred Stock at the Conversion Price then in
effect. The Corporation will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Corporation) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument mailed or
delivered to the holders of the Series A Preferred Stock at the last address of
each such holder appearing on the books of the Corporation, the obligation to
deliver to each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
purchase. If a purchase, tender or exchange offer is made to and accepted by the
holders of more than 50% of the outstanding shares of Common Stock of the
Corporation, the Corporation shall not effect any consolidation, merger or sale
with the person having made such offer or with any Affiliate of such person,
unless prior to the consummation of such consolidation, merger or sale the
holders of the Series A Preferred Stock shall have been given a reasonable
opportunity to then elect to receive upon the conversion of the Series A
Preferred Stock either the stock, securities or assets then issuable with
respect to the Common Stock of the Corporation or the stock, securities or
assets, or the equivalent, issued to previous holders of the Common Stock in
accordance with such offer. For purposes hereof, the term "Affiliate" with
respect to any given person shall mean any person controlling, controlled by or
under common control with the given person.
(f) The provisions of this Section 6 shall not apply to any Common
Stock issued, issuable or deemed outstanding under subparagraphs 6(b)(1) to (9)
inclusive: (i) to any person pursuant to any stock option, stock purchase or
similar plan, arrangement or agreement for the benefit of officers, employees,
directors, contractors or consultants of the Corporation or its
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subsidiaries in effect on the Initial Issuance Date or thereafter adopted by the
Board of Directors of the Corporation, (ii) pursuant to options, warrants and
conversion rights in existence on the Initial Issuance Date (provided that the
terms of such instruments are not modified after the Initial Issuance Date),
(iii) to Dr. Thomas Merigan in connection with the letter of understanding
previously entered into by the Company with Dr. Merigan, or (iv) on conversion
of the Series A Preferred Stock or upon exercise or exchange of the Common Share
Purchase Warrants being issued on the Initial Issuance Date.
(g) In the event that:
(1) the Corporation shall declare any cash dividend upon its
Common Stock, or
(2) the Corporation shall declare any dividend upon its Common
Stock payable in stock or make any special dividend or other
distribution to the holders of its Common Stock, or
(3) the Corporation shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any
class or other rights, or
(4) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, including any
subdivision or combination of its outstanding shares of Common Stock,
or consolidation or merger of the Corporation with, or sale of all or
substantially all of its assets to, another corporation, or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in connection with such event, the Corporation shall give to the holders
of the Series A Preferred Stock:
(i) at least twenty (20) days prior written notice of the
date on which the books of the Corporation shall
close or a record shall be taken for such dividend,
distribution or subscription rights or for
determining rights to vote in respect of any such
reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up;
and
(ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least
twenty (20) days prior written notice of the date
when the same shall take place. Such notice in
accordance with the foregoing clause (i) shall also
specify, in the case of any such dividend,
15
distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and such
notice in accordance with the foregoing clause (ii) shall also
specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization,
reclassification consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be. Each such
written notice shall be given by first class mail, postage
prepaid, addressed to the holders of the Series A Preferred
Stock at the address of each such holder as shown on the books
of the Corporation.
(h) If at any time or from time to time on or after the
Initial Issuance Date, the Corporation shall grant, issue or sell any Options,
Convertible Securities or rights to purchase property (the "Purchase Rights")
pro rata to the record holders of any class of Common Stock of the Corporation
and such grants, issuances or sales do not result in an adjustment of the
Conversion Price under paragraph 6(b) hereof, then each holder of Series A
Preferred Stock shall be entitled to acquire (within thirty (30) days after the
later to occur of the initial exercise date of such Purchase Rights or receipt
by such holder of the notice concerning Purchase Rights to which such holder
shall be entitled under paragraph 6(g)) and upon the terms applicable to such
Purchase Rights either:
(i) the aggregate Purchase Rights which such holder could
have acquired if it had held the number of shares of
Common Stock acquirable upon conversion of the Series
A Preferred Stock immediately before the grant,
issuance or sale of such Purchase Rights; provided
that if any Purchase Rights were distributed to
holders of Common Stock without the payment of
additional consideration by such holders,
corresponding Purchase Rights shall be distributed to
the exercising holders of the Series A Preferred
Stock as soon as possible after such exercise and it
shall not be necessary for the exercising holder of
the Series A Preferred Stock specifically to request
delivery of such rights; or
(ii) in the event that any such Purchase Rights shall have
expired or shall expire prior to the end of said
thirty (30) day period, the number of shares of
Common Stock or the amount of property which such
holder could have acquired upon such exercise at the
time or times at which the Corporation granted,
issued or sold such expired Purchase Rights.
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(i) If any event occurs as to which, in the opinion of the
Board of Directors of the Corporation, the provisions of this Section 6 are not
strictly applicable or if strictly applicable would not fairly protect the
rights of the holders of the Series A Preferred Stock in accordance with the
essential intent and principles of such provisions, then the Board of Directors
of the Corporation shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such rights as aforesaid, but in no event shall any adjustment have the
effect of increasing the Conversion Price as otherwise determined pursuant to
any of the provisions of this Section 6 except in the case of a combination of
shares of a type contemplated in paragraph 6(d) and then in no event to an
amount larger than the Conversion Price as adjusted pursuant to paragraph 6(d).
7. MANDATORY CONVERSION.
(a) Each share of Series A Preferred Stock shall automatically
be converted into shares of Common Stock at its then effective Conversion Price
for such shares (i) upon the vote to so convert of the holders of at least a
majority of the shares of Series A Preferred Stock then outstanding or (ii) once
at least a majority of the shares of Series A Preferred Stock issued on the
original date of issuance of the Series A Preferred Stock shall have been
converted into Common Stock.
(b) All holders of record of shares of Series A Preferred
Stock will be given at least 10 days' prior written notice of the date fixed and
the place designated for mandatory conversion of all of such shares of Series A
Preferred Stock pursuant to this Section 7. Such notice will be sent by mail,
first class, postage prepaid, to each record holder of shares of Series A
Preferred Stock at such holder's address appearing on the stock register. On or
before the date fixed for conversion each holder of shares of Series A Preferred
Stock shall surrender his or its certificates or certificates for all such
shares to the Corporation at the place designated in such notice, and shall
thereafter receive certificates for the number of shares of Common Stock to
which such holder is entitled pursuant to this Section 7. On the date fixed for
conversion, all rights with respect to the Series A Preferred Stock so converted
will terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefore, to receive certificates for the
number of shares of Common Stock into which such Series A Preferred Stock has
been converted. If so required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by written instrument or instruments
of transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or by his attorneys duly authorized in writing. All
certificates evidencing shares of Series A Preferred Stock which are required
17
to be surrendered for conversion in accordance with the provisions hereof shall,
from and after the date such certificates are so required to be surrendered, be
deemed to have been retired and canceled and the shares of Series A Preferred
Stock represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. As soon as practicable after the date of
such mandatory conversion and the surrender of the certificate or certificates
for Series A Preferred Stock as aforesaid, the Corporation shall cause to be
issued and delivered to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions hereof and cash as
provided in paragraph (b) of Section 5 in respect of any fraction of a share of
Common Stock otherwise issuable upon such conversion.
8. REDEMPTION.
(a) The Corporation, at its option, may redeem (to the extent
that such redemption shall not violate any applicable provisions of the Ontario
Business Corporation Act) all, but not less than all, of the shares of Series A
Preferred Stock at a price equal to the then Series A Liquidation Value (subject
to adjustment in the event of any stock dividend, stock split, stock
distribution or combination with respect to such shares) (such price is
hereinafter referred to as the "Redemption Price"), at any time after the third
anniversary of the Initial Issuance Date (any such date of redemption is
hereafter referred to as an "Optional Redemption Date"), PROVIDED, that prior to
July 15, 2006, no shares of Series A Preferred Stock may be so called for
redemption unless the closing price per share of Common Stock for any twenty
(20) trading days within a period of thirty (30) consecutive trading days ending
within ten (10) business days of the date on which notice of such redemption is
given to the holders of the Series A Preferred Stock, shall have been at least
150% of the Conversion Price in effect on such date. For purposes of the
foregoing calculation, "closing price" shall mean for any given date: (i) if the
Common Stock is listed on any national securities exchange or quoted on NASDAQ,
on the basis of the last sales price of the Common Stock on such exchange or
NASDAQ (or the quoted closing bid price if there shall have been no sales) on
such date, or (ii) if no last sales prices are then being quoted for the Common
Stock, on the basis of the mean between the closing bid and asked prices for the
Common Stock on such date as reported by Nasdaq, or its successor, or (iii) if
there are no such closing bid and asked prices, on the basis of the fair market
value per share as determined by the Board of Directors of the Corporation.
(b) The Corporation shall redeem the Series A Preferred Stock
(to the extent that such redemption shall not violate any applicable provisions
of the Ontario Business
18
Corporation Act) at a price equal to the Redemption Price as follows: (i) on
July 15, 2006, the Corporation shall redeem the number of shares of Series A
Preferred Stock equal to thirty-three percent (33%) of the shares of Series A
Preferred Stock outstanding on such date, (ii) on the July 15, 2007, the
Corporation shall redeem the number of shares of Series A Preferred Stock equal
to fifty percent (50%) of the shares of Series A Preferred Stock outstanding on
such date, and (iii) on July 15, 2008, the Corporation shall redeem all shares
of Series A Preferred Stock which remain outstanding as of such date (each of
the above dates hereinafter referred to as a "Mandatory Redemption Date" and,
together with an Optional Redemption Date a "Redemption Date"). If the
Corporation is unable at any Mandatory Redemption Date to redeem any shares of
Preferred Stock then to be redeemed because such redemption would violate the
applicable provisions of the Ontario Business Corporation Act, then the
Corporation shall redeem such shares as soon thereafter as redemption would not
violate such laws.
(c) In the event of any redemption of only a part of the then
outstanding Series A Preferred Stock, the Corporation shall effect such
redemption pro rata among the holders thereof (based on the number of shares of
Series A Preferred Stock held on the date of notice of redemption).
(d) At least thirty (30) days prior to each Redemption Date,
written notice shall be mailed, postage prepaid, to each holder of record of
Series A Preferred Stock to be redeemed, at his or its post office address last
shown on the records of the Corporation, notifying such holder of the number of
shares so to be redeemed, specifying the Redemption Date and the date on which
such holder's conversion rights (pursuant to Section 5 hereof) as to such shares
terminate and calling upon such holder to surrender to the Corporation, in the
manner and at the place designated, his or its certificate or certificates
representing the shares to be redeemed (such notice is hereinafter referred to
as the "Redemption Notice"). On or prior to each Redemption Date, each holder of
Series A Preferred Stock to be redeemed shall surrender his or its certificate
or certificates representing such shares to the Corporation, in the manner and
at the place designated in the Redemption Notice, and thereupon the Redemption
Price of such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be canceled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares. From and after the Redemption Date,
unless there shall have been a default in payment of the Redemption Price, all
rights of the holders of the Series A Preferred Stock designated for redemption
in the Redemption Notice as holders of Series A Preferred Stock of the
Corporation (except the right to receive the Redemption Price without interest
upon surrender of their certificate or certificates) shall cease with respect to
such shares, and such
19
shares shall not thereafter be transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever.
(e) Except as provided in paragraphs (a) and (b) above, the
Corporation shall have no right to redeem the shares of Series A Preferred Stock
other than with the consent of the holders of 66 2/3% of the then outstanding
shares of Series A Preferred Stock. Any shares of Series A Preferred Stock so
redeemed shall be permanently retired, shall no longer be deemed outstanding and
shall not under any circumstances be reissued, and the Corporation may from time
to time take such appropriate corporate action as may be necessary to reduce the
authorized Series A Preferred Stock accordingly. Nothing herein contained shall
prevent or restrict the purchase by the Corporation, from time to time either at
public or private sale, of the whole or any part of the Series A Preferred Stock
at such price or prices as the Corporation may determine, subject to the
provisions of applicable law.
IN WITNESS WHEREOF, Visible Genetics Inc. has caused this
Certificate of Designations, Number, Voting Powers, Preferences and Rights of
Series A Convertible Preferred Stock to be duly executed by its President this
___ day of July, 1999.
VISIBLE GENETICS INC.
By
-----------------------------------
Name:
Title:
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