EXHIBIT 4.4
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
VIROLOGIC, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
ViroLogic, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "CORPORATION"), hereby certifies that the Board of
Directors of the Corporation (the "BOARD OF DIRECTORS" or the "BOARD") pursuant
to authority of the Board of Directors as required by Section 151 of the
Delaware General Corporation Law, and in accordance with the provisions of its
Certificate of Incorporation and Bylaws, each as amended and restated through
the date hereof, has and hereby authorizes a series of the Corporation's
previously authorized Preferred Stock, par value $.001 per share (the "PREFERRED
STOCK"), and hereby states the designation and number of shares, and fixes the
relative rights, preferences, privileges, powers and restrictions thereof as
follows:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 1911 shares of
Preferred Stock, is the Series C Convertible Preferred Stock (the "SERIES C
PREFERRED STOCK") and the face amount shall be Ten Thousand U.S. Dollars
($10,000.00) per share (the "FACE AMOUNT").
II. NO DIVIDENDS
The Series C Preferred Stock will bear no dividends, and the holders of
the Series C Preferred Stock shall not be entitled to receive dividends on the
Series C Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A. "CLOSING SALES PRICE" means, for any security as of any date, the
last sales price of such security on the Nasdaq National Market ("NNM") or other
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets (or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the then outstanding shares of Series C Preferred Stock ("MAJORITY HOLDERS")
if Bloomberg Financial Markets is not then reporting closing sales prices of
such security) (collectively,
"BLOOMBERG"), or if the foregoing does not apply, the last reported sales price
of such security on a national exchange or in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
such price is reported for such security by Bloomberg, the average of the bid
prices of all market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc., in each case for such date or, if such
date was not a trading day for such security, on the next preceding date which
was a trading day. If the Closing Sales Price cannot be calculated for such
security as of either of such dates on any of the foregoing bases, the Closing
Sales Price of such security on such date shall be the fair market value as
reasonably determined by an investment banking firm selected by the Corporation
and reasonably acceptable to the Majority Holders, with the costs of such
appraisal to be borne by the Corporation.
B. "COMMON STOCK DEEMED OUTSTANDING" shall mean the number of shares of
Common Stock actually outstanding (not including shares of Common Stock held in
the treasury of the Corporation).
C. "CONVERSION DATE" means, (i) for any Optional Conversion (as defined
below), the date specified in the notice of conversion in the form attached
hereto (the "NOTICE OF CONVERSION"), so long as a copy of the Notice of
Conversion is faxed (or delivered by other means resulting in notice) to the
Corporation before 11:59 p.m., New York City time, on the Conversion Date
indicated in the Notice of Conversion; provided, however, that if the Notice of
Conversion is not so faxed or otherwise delivered before such time, then the
Conversion Date shall be the date the holder faxes or otherwise delivers the
Notice of Conversion to the Corporation, and (ii) for any Mandatory Conversion,
that date specified in the notice delivered to the holders of the Series C
Preferred Stock being converted pursuant to Article IV.C in the event that such
Mandatory Conversion occurs.
D. "CONVERSION PRICE" means $1.21, and shall be subject to adjustment as
provided herein.
E. "EXCHANGE AGREEMENT" means the Exchange Agreement by and among the
Corporation and the purchasers named therein.
F. "ISSUANCE DATE" means the date of the closing under the Securities
Purchase Agreement by and among the Corporation and the purchasers named therein
(the "SECURITIES PURCHASE AGREEMENT").
G. "N" means the number of days from, but excluding, the Issuance Date
or the date that the last payment of the Premium was made in full, whichever is
less.
H. "PREMIUM" means initially an amount equal to (the
Rate)x(N/365)x(10,000). The "RATE" shall initially be equal to .08. Thereafter,
on June 30, 2004, the Rate will increase by .01, and the Rate shall thereafter
continue to increase by .01 on the last day of each successive calendar quarter
until the Series C Preferred Stock is converted or redeemed in full; provided,
however, that the Rate shall not exceed .14. Notwithstanding the foregoing
(including the limit on the Rate set forth in the preceding sentence), in the
event that at any time and from time to time (i) the Common Stock is suspended
from trading on any of, or is not listed (and authorized) for trading on at
least one of, the NYSE (as defined below), the AMEX (as defined below), the NNM
or SmallCap (as defined
2
below) at any time, or (ii) the Closing Sales Price of the Common Stock is less
than 65% of the Conversion Price (as adjusted to reflect any stock dividends,
distributions, combinations, reclassifications and other similar transactions
effected by the Corporation in respect to its Common Stock) for at least
seventy-five (75) consecutive calendar days (each of (i) and (ii) being a
"PREMIUM DEFAULT"), then, commencing on the first day of the calendar quarter
next succeeding the calendar quarter in which such Premium Default occurs and
continuing until the Company has cured such Premium Default, the Rate shall be
increased to equal .15, and upon cure of such Premium Default (provided that no
other Premium Default has occurred and is continuing), the Rate shall be
automatically decreased to equal such amount as it would have equaled but for
the occurrence of such Premium Default(s) (including all increases to the Rate
that would have occurred during the term of such Premium Default pursuant to the
preceding sentence).
I. "WARRANTS" shall mean the warrants issued by the Corporation to the
initial holders of Series C Preferred Stock pursuant to the Securities Purchase
Agreement.
IV. CONVERSION; PAYMENT OF PREMIUM
A. Premium; Conversion at the Option of the Holder.
(i) The Premium shall be payable, at the applicable Rate, (a)
upon any conversion (regardless of whether it is an Optional Conversion or a
Mandatory Conversion) of each share of Series C Preferred Stock and (b) as to
each outstanding share of Series C Preferred Stock on March 31, June 30,
September 30 and December 31 of each year, commencing on December 31, 2002,
until such share is fully converted or fully redeemed. Payment of the Premium
shall be made in cash.
(ii) Subject to the limitations on conversions contained in
Paragraph D of this Article IV, each holder of shares of Series C Preferred
Stock may, at any time and from time to time, convert (an "OPTIONAL CONVERSION")
each of its shares of Series C Preferred Stock into a number of fully paid and
nonassessable shares of Common Stock determined in accordance with the following
formula:
$10,000
CONVERSION PRICE
B. Mechanics of Conversion. In order to effect an Optional Conversion, a
holder shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice
of Conversion to the Corporation (Attention: Secretary) and (y) surrender or
cause to be surrendered the original certificates representing the Series C
Preferred Stock being converted (the "PREFERRED STOCK CERTIFICATES"), duly
endorsed, along with a copy of the Notice of Conversion as soon as practicable
thereafter to the Corporation. Upon receipt by the Corporation of a facsimile
copy of a Notice of Conversion from a holder, the Corporation shall promptly
send, via facsimile, a confirmation to such holder stating that the Notice of
Conversion has been received, the date upon which the Corporation expects to
deliver the Common Stock issuable upon such conversion and the name and
telephone number of a contact person at the Corporation regarding the
conversion. The Corporation shall not be obligated to issue shares of Common
Stock upon a conversion unless either the Preferred Stock Certificates are
delivered to the Corporation as provided above, or the holder notifies the
Corporation that such
3
Preferred Stock Certificates have been lost, stolen or destroyed and delivers
the documentation to the Corporation required by Article XV.B hereof.
(i) Delivery of Common Stock Upon Conversion. Upon the surrender
of Preferred Stock Certificates accompanied by a Notice of Conversion, the
Corporation (itself, or through its transfer agent) shall, no later than the
later of (a) the second business day following the Conversion Date and (b) the
business day following the date of such surrender (or, in the case of lost,
stolen or destroyed certificates, after provision of indemnity pursuant to
Article XV.B) (the "DELIVERY PERIOD"), issue and deliver (i.e., deposit with a
nationally recognized overnight courier service postage prepaid) to the holder
or its nominee (x) that number of shares of Common Stock issuable upon
conversion of such shares of Series C Preferred Stock being converted and (y) a
certificate representing the number of shares of Series C Preferred Stock not
being converted, if any. Notwithstanding the foregoing, if the Corporation's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, and so long as the certificates therefor
do not bear a legend (pursuant to the terms of the Securities Purchase
Agreement) and the holder thereof is not then required to return such
certificate for the placement of a legend thereon (pursuant to the terms of the
Securities Purchase Agreement), the Corporation shall cause its transfer agent
to promptly electronically transmit the Common Stock issuable upon conversion to
the holder by crediting the account of the holder or its nominee with DTC
through its Deposit Withdrawal Agent Commission system ("DTC TRANSFER"). If the
aforementioned conditions to a DTC Transfer are not satisfied, the Corporation
shall deliver as provided above to the holder physical certificates representing
the Common Stock issuable upon conversion. Further, a holder may instruct the
Corporation to deliver to the holder physical certificates representing the
Common Stock issuable upon conversion in lieu of delivering such shares by way
of DTC Transfer.
(ii) Taxes. The Corporation shall pay any and all taxes that may
be imposed upon it with respect to the issuance and delivery of the shares of
Common Stock upon the conversion of the Series C Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series C
Preferred Stock would result in the issuance of a fractional share of Common
Stock, such fractional share shall be payable in cash based upon the ten (10)
day average Closing Sales Price at such time, and the number of shares of Common
Stock issuable upon conversion of the Series C Preferred Stock shall be the next
lower whole number of shares.
(iv) Conversion Disputes. In the case of any dispute with respect
to a conversion, the Corporation shall promptly issue such number of shares of
Common Stock as are not disputed in accordance with subparagraph (i) above. If
such dispute involves the calculation of the Conversion Price, and such dispute
is not promptly resolved by discussion between the relevant holder and the
Corporation, the Corporation shall submit the disputed calculations to an
independent outside accountant via facsimile within three business days of
receipt of the Notice of Conversion. The accountant, at the Corporation's sole
expense, shall promptly audit the calculations and notify the Corporation and
the holder of the results no later than three business days from the date it
receives the disputed calculations. The accountant's calculation shall be deemed
conclusive, absent manifest error. The Corporation shall then issue the
appropriate number of shares of Common Stock in accordance with subparagraph (i)
above.
4
C. Mandatory Conversion. Subject to the limitations on conversion
contained in paragraph D of this Article IV, if at any time all of the Required
Conditions (as defined herein) are satisfied and (i) at any time after the first
anniversary of the Issuance Date, the Closing Sales Price of the Common Stock is
greater than $2.42 (as adjusted to reflect any stock dividends, distributions,
combinations, reclassifications and other similar transactions effected by the
Corporation in respect to its Common Stock) for at least twenty (20) consecutive
trading days, or (ii) the holders of a majority of the then-outstanding shares
of Series C Preferred Stock shall consent thereto in writing, then, at the
option of the Corporation exercisable by the delivery of written notice to the
holders of the Series C Preferred Shares, delivered no more than ten (10) days
prior to and no less than three (3) days prior to the Conversion Date stated in
such notice, convert all or any shares of Series C Preferred Shares into a
number of fully paid and nonassessable shares of Common Stock determined in
accordance with the formula set forth in Paragraph A of this Article IV (a
"MANDATORY CONVERSION"). Thereafter, the Corporation and the holders shall
follow the applicable conversion procedures set forth in Article IV.B (including
the requirement that the Holder deliver the Preferred Stock Certificates
representing the Series C Preferred Stock being converted to the Corporation);
provided, however, the Holder shall not be required to deliver a Notice of
Conversion to the Corporation. In the event the Corporation elects to convert
only a portion of the outstanding shares of Series C Preferred Stock pursuant to
this Article IV.C, the outstanding shares of Series C Preferred Stock shall be
converted pro rata among the holders based upon their aggregate relative
ownership of outstanding shares of Series C Preferred Stock as of the Conversion
Date.
(i) The "REQUIRED CONDITIONS" shall consist of the following:
(a) the registration statements required to be filed by
the Corporation pursuant to Section 2(a) of the Registration Rights Agreement,
dated as of the Issuance Date, by and among the Corporation and the initial
holders of Series C Preferred Stock (the "REGISTRATION RIGHTS AGREEMENT") shall
have been declared effective by the Securities and Exchange Commission (it being
understood that the Corporation shall comply with its obligations under Article
3 of the Registration Rights Agreement relating to the effectiveness of such
registration statements);
(b) all shares of Common Stock issuable upon conversion of
the Series C Preferred Stock and exercise of the Warrants are then (a)
authorized and reserved for issuance, (b) registered under the Securities Act of
1933, as amended (the "SECURITIES ACT"), for resale by the holders and (c)
eligible to be listed or traded on any of the New York Stock Exchange ("NYSE"),
the American Stock Exchange ("AMEX"), the NNM, or the NASDAQ SmallCap Market
("SMALLCAP") (or the successor to any of them);
(c) no Redemption Event (as defined in Article VIII below)
shall have occurred without having been cured;
(d) all amounts, if any, then accrued or payable under
this Certificate of Designation (including, without limitation, all Premiums) or
the Registration Rights Agreement shall have been paid.
5
D. Limitations on Conversions. The conversion of shares of Series C
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) Cap Amount. If, notwithstanding the representations and
warranties of the Corporation contained in Section 3(c) of the Securities
Purchase Agreement and the Exchange Agreement, the Corporation is prohibited by
Rule 4350(i) of the National Association of Securities Dealers, Inc. ("NASD"),
or any successor or similar rule, or the rules or regulations of any other
securities exchange on which the Common Stock is then listed or traded, from
issuing a number of shares of Common Stock upon conversion of Series C Preferred
Stock (together with any shares of Common Stock, or securities convertible into
Common Stock, issued pursuant to the Securities Purchase Agreement, the Exchange
Agreement or other agreements entered in connection therewith) in excess of a
prescribed amount (the "CAP AMOUNT") (without stockholder approval or
otherwise), then the Corporation shall not issue shares upon conversion of
Series C Preferred Stock in excess of the Cap Amount. Assuming solely for
purposes of this paragraph (D) that such Rule 4350(i) or similar rule is
applicable, the Cap Amount shall be 4,962,589 shares. The Cap Amount shall be
allocated pro rata to the holders of Series C Preferred Stock as provided in
Article XV.C. In the event the Corporation is prohibited from issuing shares of
Common Stock as a result of the operation of this subparagraph (i), the
Corporation shall comply with Article VII.
(ii) Additional Restrictions on Conversion or Transfer. In no
event shall a holder of shares of Series C Preferred Stock of the Corporation
have the right to convert shares of Series C Preferred Stock into shares of
Common Stock or to dispose of any shares of Series C Preferred Stock to the
extent that such right to effect such conversion or disposition would result in
the holder or any of its affiliates together beneficially owning more than (a)
19.99% of the outstanding shares of Common Stock, in the case of Biotech Target
N.V. and its affiliates for so long as they continue to hold shares of Series C
Preferred Stock, or (b) 4.99% of the outstanding shares of Common Stock, in the
case of all other holders of shares of Series C Preferred Stock. For purposes of
this subparagraph, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D-G thereunder. The restriction contained in this subparagraph may not be
altered, amended, deleted or changed in any manner whatsoever unless the holders
of a majority of the outstanding shares of Common Stock and the Majority Holders
shall approve, in writing, such alteration, amendment, deletion or change.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. On or prior to the Issuance Date, the Corporation
shall reserve 5,834,711 shares of its authorized but unissued shares of Common
Stock for issuance upon conversion of the Series C Preferred Stock and
thereafter the number of authorized but unissued shares of Common Stock so
reserved (the "RESERVED AMOUNT") shall at all times be sufficient to provide for
the conversion of all of the Series C Preferred Stock outstanding at the then
current Conversion Price thereof. The Reserved Amount shall be allocated to the
holders of Series C Preferred Stock as provided in Article XV.C. In the event
that the Corporation receives the Authorized Stock Approval and the NASD Rule
Approval (as such terms are defined in the Exchange Agreement), then the
Reserved Amount shall be automatically increased to 15,793,389, or such higher
number as shall then be necessary to provide for the conversion of all of the
Series C
6
Preferred Stock outstanding at the then current Conversion Price thereof
(including, without limitation, all shares of Series C Preferred Stock issued
upon conversion of the Notes (as such term is defined in the Exchange Agreement)
issued to the former holders of the Corporation's Series B Convertible Preferred
Stock pursuant to the Exchange Agreement), and the Corporation shall immediately
take such corporate action as shall be necessary to reserve such additional
number of shares of its authorized but unissued shares of Common Stock for
issuance upon conversion of the Series C Preferred Stock.
B. Increases to Reserved Amount. If the Reserved Amount for any three
consecutive trading days (the last of such three trading days being the
"AUTHORIZATION TRIGGER DATE") shall be less than 100% of the number of shares of
Common Stock issuable upon conversion of the then outstanding shares of Series C
Preferred Stock and upon exercise of the then outstanding Warrants, the
Corporation shall immediately notify the holders of Series C Preferred Stock of
such occurrence and shall take immediate action (including, if necessary,
seeking stockholder approval to authorize the issuance of additional shares of
Common Stock) to increase the Reserved Amount to 100% of the number of shares of
Common Stock then issuable upon conversion of all of the outstanding Series C
Preferred Stock at the then current Conversion Price. In the event the
Corporation fails to so increase the Reserved Amount within 90 days after an
Authorization Trigger Date, each holder of Series C Preferred Stock shall
thereafter have the option, exercisable in whole or in part at any time and from
time to time by delivery of a Redemption Notice (as defined in Article VIII.D)
to the Corporation, to require the Corporation to purchase for cash, at an
amount per share equal to the Redemption Amount (as defined in Article VIII.B),
a portion of the holder's Series C Preferred Stock such that, after giving
effect to such purchase, the holder's allocated portion of the Reserved Amount
exceeds 100% of the total number of shares of Common Stock issuable to such
holder upon conversion of its Series C Preferred Stock. If the Corporation fails
to redeem any of such shares within five (5) business days after its receipt of
such Redemption Notice, then such holder shall be entitled to the remedies
provided in Article VIII.D.
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Defaults. If, at any time, (x) a holder of shares of
Series C Preferred Stock submits a Notice of Conversion and the Corporation
fails for any reason (other than because such issuance would exceed such
holder's allocated portion of the Reserved Amount or Cap Amount, for which
failures the holders shall have the remedies set forth in Articles V and VII,
respectively) to deliver, on or prior to the fifth business day following the
expiration of the Delivery Period for such conversion, such number of freely
tradable shares of Common Stock to which such holder is entitled upon such
conversion, or (y) the Corporation provides written notice to any holder of
Series C Preferred Stock (or makes a public announcement via press release) at
any time of its intention not to issue freely tradable shares of Common Stock
upon exercise by any holder of its conversion rights in accordance with the
terms of this Certificate of Designation (other than because such issuance would
exceed such holder's allocated portion of the Reserved Amount or Cap Amount)
(each of (x) and (y) being a "CONVERSION DEFAULT") then the holder may elect at
any time and from time to time prior to the Default Cure Date (as defined below)
for such Conversion Default, by delivery of a Redemption Notice to the
Corporation, to have all or any portion of such holder's outstanding shares of
Series C Preferred Stock purchased by the Corporation for cash, at an amount per
share equal to the Redemption Amount (as defined in Article VIII.B). If the
Corporation fails to redeem any of such
7
shares within five business days after its receipt of such Redemption Notice,
then such holder shall be entitled to the remedies provided in Article VIII.D.
"DEFAULT CURE DATE" means, as applicable, (i) with respect to a
Conversion Default described in clause (x) of its definition, the date the
Corporation effects the conversion of the full number of shares of Series C
Preferred Stock, and (ii) with respect to a Conversion Default described in
clause (y) of its definition, the date the Corporation issues freely tradable
shares of Common Stock in satisfaction of all conversions of Series C Preferred
Stock in accordance with Article IV.A, or (iii) with respect to either type of a
Conversion Default, the date on which the Corporation redeems shares of Series C
Preferred Stock held by such holder pursuant to this Article VI.A.
B. Buy-In Cure. Unless the Corporation has notified the applicable
holder in writing prior to the delivery by such holder of a Notice of Conversion
that the Corporation is unable to honor conversions, if (i) (a) the Corporation
fails to promptly deliver during the Delivery Period shares of Common Stock to a
holder upon a conversion of shares of Series C Preferred Stock or (b) there
shall occur a Legend Removal Failure (as defined in Article VIII.A(ii) below)
and (ii) thereafter, such holder purchases (in an open market transaction or
otherwise) shares of Common Stock to make delivery in satisfaction of a sale by
such holder of the unlegended shares of Common Stock (the "SOLD SHARES") which
such holder anticipated receiving upon such conversion (a "BUY-IN"), the
Corporation shall pay such holder (in addition to any other remedies available
to the holder) the amount by which (x) such holder's total purchase price
(including brokerage commissions, if any) for the unlegended shares of Common
Stock so purchased exceeds (y) the net proceeds received by such holder from the
sale of the Sold Shares. For example, if a holder purchases unlegended shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for $10,000, the Corporation will be
required to pay the holder $1,000. A holder shall provide the Corporation
written notification and supporting documentation indicating any amounts payable
to such holder pursuant to this Paragraph B. The Corporation shall make any
payments required pursuant to this Paragraph B in accordance with and subject to
the provisions of Article XV.E.
VII. INABILITY TO CONVERT DUE TO CAP AMOUNT
A. Obligation to Cure. If at any time after the Issuance Date the then
unissued portion of any holder's Cap Amount is less than 100% of the number of
shares of Common Stock then issuable upon conversion of such holder's shares of
Series C Preferred Stock, the Corporation shall immediately notify the holders
of Series C Preferred Stock of such occurrence and each holder of Series C
Preferred Stock shall thereafter have the option, exercisable in whole or in
part at any time and from time to time, by delivery of a Redemption Notice (as
defined in Article VIII.D) to the Corporation, to require the Corporation to
purchase for cash, at an amount per share equal to the Redemption Amount (as
defined in Article VIII.B), a number of the holder's shares of Series C
Preferred Stock such that, after giving effect to such redemption, the then
unissued portion of such holder's Cap Amount exceeds 100% of the total number of
shares of Common Stock issuable upon conversion of such holder's shares of
Series C Preferred Stock. If the Corporation fails to redeem any of such shares
within five (5) business days after its receipt of such Redemption Notice, then
such holder shall be entitled to the remedies provided in Article VIII.D.
8
VIII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption by Holder. In the event (each of the events described in
clauses (i)-(vii) below after expiration of the applicable cure period (if any)
being a "REDEMPTION EVENT"):
(i) the registration statement required to be filed by the
Corporation pursuant to Section 2(a) of the Registration Rights Agreement has
not been declared effective by the 130th day following the Issuance Date or such
registration statement, after being declared effective, cannot be utilized by
the holders of Series C Preferred Stock for the resale of all of their
Registrable Securities (as defined in the Registration Rights Agreement) for an
aggregate of more than 30 days (other than as permitted under the Registration
Rights Agreement);
(ii) the Corporation fails to remove any restrictive legend on
any certificate or any shares of Common Stock issued to the holders of Series C
Preferred Stock upon conversion of the Series C Preferred Stock as and when
required by this Certificate of Designation, the Securities Purchase Agreement,
the Exchange Agreement or the Registration Rights Agreement (a "LEGEND REMOVAL
FAILURE"), and any such failure continues uncured for five business days after
the Corporation has been notified thereof in writing by the holder that the
holder has complied with the terms of the Securities Purchase Agreement or the
Exchange Agreement, as applicable, with respect to such legend removal;
(iii) the Corporation provides written notice (or otherwise
indicates) to any holder of Series C Preferred Stock, or states by way of public
announcement distributed via a press release, at any time, of its intention not
to issue, or otherwise refuses to issue, shares of Common Stock to any holder of
Series C Preferred Stock upon conversion in accordance with the terms of this
Certificate of Designation (other than due to the circumstances contemplated by
Articles V or VII for which the holders shall have the remedies set forth in
such Articles);
(iv) the Corporation or any subsidiary of the Corporation shall
make an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business, or such a receiver or trustee shall otherwise be
appointed;
(v) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for the relief of debtors shall be instituted
by the Corporation or any subsidiary of the Corporation;
(vi) the Corporation shall:
(a) sell, convey or dispose of all or substantially all of
its assets (the presentation of any such transaction for stockholder approval
being conclusive evidence that such transaction involves the sale of all or
substantially all of the assets of the Corporation);
(b) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Corporation and other than pursuant to a merger in which the Corporation is
the surviving or continuing entity and its capital stock is unchanged)
9
provided that such merger, consolidation or business combination is required to
be reported by the Company on a Current Report pursuant to Item 1 of Form 8-K,
or any successor form;
(c) either (i) fail to pay, when due, or within any
applicable grace period, any payment with respect to any indebtedness of the
Corporation in excess of $350,000 due to any third party, other than payments
contested by the Corporation in good faith, or otherwise is in breach or
violation of any agreement for monies owed or owing in an amount in excess of
$350,000 which breach or violation permits the other party thereto to declare a
default or otherwise accelerate amounts due thereunder, or (ii) suffer to exist
any other default or event of default under any agreement binding the
Corporation which default or event of default would or is likely to have a
material adverse effect on the business, operations, properties, prospects or
financial condition of the Corporation; or
(d) on or prior to the second anniversary of the Issuance
Date, issue or agree to issue any future equity or equity-linked securities or
debt which is convertible into equity or in which there is an equity component
(as the case may be, "ADDITIONAL SECURITIES"), except for any Excluded Issuance
(as defined herein); or
(vii) except with respect to matters covered by subparagraphs (i)
- -- (vi) above, as to which such applicable subparagraphs shall apply, the
Corporation otherwise shall breach any material term hereunder or under the
Securities Purchase Agreement, the Exchange Agreement, the Registration Rights
Agreement or the Warrants, including, without limitation, the representations
and warranties contained therein (i.e., in the event of a material breach as of
the date such representation and warranty was made) and if such breach is
curable, shall fail to cure such breach within 10 business days after the
Corporation has been notified thereof in writing by the holder;
then, upon the occurrence of any such Redemption Event, each holder of shares of
Series C Preferred Stock shall thereafter have the option, exercisable in whole
or in part at any time and from time to time by delivery of a Redemption Notice
(as defined in Paragraph D below) to the Corporation while such Redemption Event
continues, to require the Corporation to purchase for cash any or all of the
then outstanding shares of Series C Preferred Stock held by such holder for an
amount per share equal to the Redemption Amount (as defined in Paragraph B
below) in effect at the time of the redemption hereunder. For the avoidance of
doubt, the occurrence of any event described in clauses (i), (iii), (iv) or
(vi)(d) above shall immediately constitute a Redemption Event and there shall be
no cure period. Upon the Corporation's receipt of any Redemption Notice
hereunder (other than during the three trading day period following the
Corporation's delivery of a Redemption Announcement (as defined below) to all of
the holders in response to the Corporation's initial receipt of a Redemption
Notice from a holder of Series C Preferred Stock), the Corporation shall
immediately (and in any event within one business day following such receipt)
deliver a written notice (a "REDEMPTION ANNOUNCEMENT") to all holders of Series
C Preferred Stock stating the date upon which the Corporation received such
Redemption Notice and the amount of Series C Preferred Stock covered thereby.
The Corporation shall not redeem any shares of Series C Preferred Stock during
the three trading day period following the delivery of a required Redemption
Announcement hereunder. At any time and from time to time during such three
trading day period, each holder of Series C Preferred Stock may request (either
orally or in writing) information from the Corporation with respect to the
instant redemption (including, but not limited to, the aggregate number of
shares of
10
Series C Preferred Stock covered by Redemption Notices received by the
Corporation) and the Corporation shall furnish (either orally or in writing) as
soon as practicable such requested information to such requesting holder.
B. Definition of Redemption Amount. The "REDEMPTION AMOUNT" with respect
to a share of Series C Preferred Stock means an amount equal to the greater of:
(i) V X M
-----
C P
and (ii) V X R
where:
"V" means the Face Amount thereof plus the accrued Premium
thereon through the date of payment of the Redemption Amount;
"CP" means the Conversion Price in effect on the date on which
the Corporation receives the Redemption Notice;
"M" means (i) with respect to all redemptions other than
redemptions pursuant to Article VIII.A(vi) hereof, the highest Closing Sales
Price of the Corporation's Common Stock during the period beginning on the date
on which the Corporation receives the Redemption Notice and ending on the date
immediately preceding the date of payment of the Redemption Amount and (ii) with
respect to redemptions pursuant to Article VIII.A(vi) hereof, the greater of (a)
the amount determined pursuant to clause (i) of this definition or (b) the fair
market value, as of the date on which the Corporation receives the Redemption
Notice, of the consideration payable to the holder of a share of Common Stock
pursuant to the transaction which triggers the redemption. For purposes of this
definition, "fair market value" shall be determined by the mutual agreement of
the Corporation and holders of a majority-in-interest of the shares of Series C
Preferred Stock then outstanding, or if such agreement cannot be reached within
five business days prior to the date of redemption, by an investment banking
firm selected by the Corporation and reasonably acceptable to holders of a
majority-in-interest of the then outstanding shares of Series C Preferred Stock,
with the costs of such appraisal to be borne by the Corporation; and
"R" means 120%.
C. [Intentionally omitted].
D. Redemption Defaults. If the Corporation fails to pay any holder the
Redemption Amount with respect to any share of Series C Preferred Stock within
five business days after its receipt of a notice requiring such redemption (a
"REDEMPTION NOTICE"), then the holder of Series C Preferred Stock entitled to
redemption shall be entitled to interest on the Redemption Amount at a per annum
rate equal to the lower of twenty-four percent (24%) and the highest interest
rate permitted by applicable law from the date on which the Corporation receives
the Redemption Notice
11
until the date of payment of the Redemption Amount hereunder. In the event the
Corporation is not able to redeem all of the shares of Series C Preferred Stock
subject to Redemption Notices delivered prior to the date upon which such
redemption is to be effected, the Corporation shall redeem shares of Series C
Preferred Stock from each holder pro rata, based on the total number of shares
of Series C Preferred Stock outstanding at the time of redemption included by
such holder in all Redemption Notices delivered prior to the date upon which
such redemption is to be effected relative to the total number of shares of
Series C Preferred Stock outstanding at the time of redemption included in all
of the Redemption Notices delivered prior to the date upon which such redemption
is to be effected.
IX. RANK
All shares of the Series C Preferred Stock shall rank (i) prior to (a)
the Corporation's Common Stock; and (b) any class or series of capital stock of
the Corporation hereafter created (unless, with the consent of the holders of a
majority of the Series C Preferred Stock obtained in accordance with Article
XIII hereof, such class or series of capital stock specifically, by its terms,
ranks senior to or pari passu with the Series C Preferred Stock) (collectively
with the Common Stock, "JUNIOR SECURITIES"); (ii) pari passu with the
Corporation's Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock and any other class or series of capital stock of the
Corporation hereafter created (with the written consent of the holders of a
majority of the Series C Preferred Stock obtained in accordance with Article
XIII hereof) specifically ranking, by its terms, on parity with the Series C
Preferred Stock (the "PARI PASSU SECURITIES"); and (iii) junior to any class or
series of capital stock of the Corporation hereafter created (with the written
consent of the holders of a majority of the Series C Preferred Stock obtained in
accordance with Article XIII hereof) specifically ranking, by its terms, senior
to the Series C Preferred Stock (collectively, the "SENIOR SECURITIES"), in each
case as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of 60 consecutive days and,
on account of any such event, the Corporation shall liquidate, dissolve or wind
up, or if the Corporation shall otherwise liquidate, dissolve or wind up,
including, but not limited to, the sale or transfer of all or substantially all
of the Corporation's assets in one transaction or in a series of related
transactions (only in the event a holder does not elect its rights with respect
to such sale of transfer as set forth in Article XI.B. if applicable) (a
"LIQUIDATION EVENT"), no distribution shall be made to the holders of any shares
of capital stock
12
of the Corporation (other than Senior Securities pursuant to the rights,
preferences and privileges thereof) upon liquidation, dissolution or winding up
unless prior thereto the holders of shares of Series C Preferred Stock shall
have received the Liquidation Preference with respect to each share. If, upon
the occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series C Preferred Stock and holders of
Pari Passu Securities, if any, shall be insufficient to permit the payment to
such holders of the preferential amounts payable thereon, then the entire assets
and funds of the Corporation legally available for distribution to the Series C
Preferred Stock and the Pari Passu Securities, if any, shall be distributed
ratably among such shares in proportion to the ratio that the Liquidation
Preference payable on each such share bears to the aggregate Liquidation
Preference payable on all such shares.
B. The purchase or redemption by the Corporation of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Corporation.
C. The "LIQUIDATION PREFERENCE" with respect to a share of Series C
Preferred Stock means an amount equal to the greater of (i) the Face Amount
thereof plus the accrued Premium thereon through the date of final distribution
or (ii) such amount as would have been payable per share of Series C Preferred
Stock had each share of Series C Preferred Stock been converted into Common
Stock in accordance with Article IV immediately prior to such liquidation,
dissolution or winding up. The Liquidation Preference with respect to any Pari
Passu Securities, if any, shall be as set forth in the Certificate of
Designation filed in respect thereof.
XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. Stock Splits, Stock Dividends, Etc. If, at any time on or after the
Issuance Date, the number of outstanding shares of Common Stock is increased by
a stock split, stock dividend, combination, reclassification or other similar
event, the Conversion Price shall be proportionately reduced, or if the number
of outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the
Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the Corporation's transfer agent of such change on or
before the effective date thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after
the Issuance Date, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above
13
being a "CORPORATE CHANGE"), then the holders of Series C Preferred Stock shall
thereafter have the right to receive upon conversion, in lieu of the shares of
Common Stock otherwise issuable, such shares of stock, securities and/or other
property as would have been issued or payable in such Corporate Change with
respect to or in exchange for the number of shares of Common Stock which would
have been issuable upon conversion had such Corporate Change not taken place,
and in any such case, appropriate provisions (in form and substance reasonably
satisfactory to the holders of a majority of the Series C Preferred Stock then
outstanding) shall be made with respect to the rights and interests of the
holders of the Series C Preferred Stock to the end that the economic value of
the shares of Series C Preferred Stock are in no way diminished by such
Corporate Change and that the provisions hereof (including, without limitation,
in the case of any such consolidation, merger or sale in which the successor
entity or purchasing entity is not the Corporation, an immediate adjustment of
the Conversion Price so that the Conversion Price immediately after the
Corporate Change reflects the same relative value as compared to the value of
the surviving entity's common stock that existed between the Conversion Price
and the value of the Corporation's Common Stock immediately prior to such
Corporate Change shall thereafter be applicable, as nearly as may be practicable
in relation to any shares of stock or securities thereafter deliverable upon the
conversion thereof). The Corporation shall not effect any Corporate Change
unless (i) each holder of Series C Preferred Stock has received written notice
of such transaction at least 45 days prior thereto, but in no event later than
15 days prior to the record date for the determination of stockholders entitled
to vote with respect thereto, (ii) if required by Section 4(j) of the Securities
Purchase Agreement, the consent of the Purchasers (as defined in the Securities
Purchase Agreement) shall have been obtained in accordance with such Section
4(j), and (iii) the resulting successor or acquiring entity (if not the
Corporation) assumes by written instrument (in form and substance reasonable
satisfactory to the holders of a majority of the Series C Preferred Stock) the
obligations of this Certificate of Designation (including, without limitation,
the obligation to make payments of Premium accrued but unpaid through the date
of such consolidation, merger or sale and accruing thereafter). The above
provisions shall apply regardless of whether or not there would have been a
sufficient number of shares of Common Stock authorized and available for
issuance upon conversion of the shares of Series C Preferred Stock outstanding
as of the date of such transaction, and shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
C. [Intentionally omitted].
D. Adjustment Due to Distribution. If, at any time after the Issuance
Date, the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's stockholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off))
(a "DISTRIBUTION"), then the holders of Series C Preferred Stock shall be
entitled, upon any conversion of shares of Series C Preferred Stock after the
date of record for determining stockholders entitled to such Distribution, to
receive the amount of such assets which would have been payable to the holder
with respect to the shares of Common Stock issuable upon such conversion had
such holder been the holder of such shares of Common Stock on the record date
for the determination of stockholders entitled to such Distribution. If the
Distribution involves rights, warrants, options or any other form of convertible
securities and the right to exercise or convert such securities would expire in
accordance with its terms prior to the conversion of the Series C Preferred
Stock, then the terms of such securities shall
14
provide that such exercise or convertibility right shall remain in effect until
30 days after the date the holder of Series C Preferred Stock receives such
securities pursuant to the conversion hereof.
E. [Intentionally omitted].
F. Purchase Rights. If, at any time after the Issuance Date, the
Corporation issues any securities which are convertible into or exercisable or
exchangeable for Common Stock ("CONVERTIBLE SECURITIES") or rights to purchase
stock, warrants, securities or other property (the "PURCHASE RIGHTS") pro rata
to the record holders of any class of Common Stock, then the holders of Series C
Preferred Stock will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Series C Preferred Stock (without giving effect
to the limitations contained in Article IV.D) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
G. [Intentionally omitted].
H. Exceptions to Adjustment of Conversion Price. No adjustment to the
Conversion Price will be made (i) upon the exercise of any warrants, options or
convertible securities issued and outstanding on the Issuance Date that are set
forth on Schedule 3(d) of the Securities Purchase Agreement and the Exchange
Agreement in accordance with the terms of such securities as of such date; (ii)
upon the grant or exercise of any stock or options to employees, directors or
consultants of the Corporation which may hereafter be granted to or exercised by
any employee, director or consultant under any stock option or similar benefit
plan of the Corporation now existing or to be implemented in the future, so long
as the issuance of such stock or options is approved by a majority of the Board
of Directors of the Corporation or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon issuance or
conversion of the Series C Preferred Stock or exercise of the Warrants, (iv) the
issuance of securities in connection with strategic business partnerships or
joint ventures (including, without limitation, such transactions with major
pharmaceutical lab or life sciences companies), the primary purpose of which
transactions, in the reasonable judgment of the Board of Directors, is not to
raise additional capital, or (v) the issuance of securities pursuant to any
equipment financing from a bank or similar financial or lending institution
approved by the Board of Directors (any such issuance in accordance with one of
the foregoing clauses (i) through (v), an "EXCLUDED ISSUANCE").
I. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article XI amounting to a
more than 5% change in such Conversion Price, the Corporation, at its expense,
shall promptly compute such adjustment or readjustment and prepare and furnish
to each holder of Series C Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series C Preferred Stock, furnish to such
holder a like certificate setting forth (i) such adjustment or readjustment,
(ii) the Conversion Price at the time in effect and (iii) the number of shares
of
15
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of a share of Series C Preferred
Stock.
J. Other Action Affecting Conversion Price. If the Corporation takes any
action affecting the Common Stock after the date hereof that would be covered by
Article XI.A through H, but for the manner in which such action is taken or
structured, which would in any way diminish the value of the Series C Preferred
Stock, then the Conversion Price shall be adjusted in such manner as the Board
of Directors of the Corporation shall in good faith determine to be equitable
under the circumstances.
XII. VOTING RIGHTS
The holders of the Series C Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
(the "BUSINESS CORPORATION Law"), in this Article XII and in Article XIII below.
Notwithstanding the above, the Corporation shall provide each holder of
Series C Preferred Stock with prior notification of any meeting of the
stockholders (and copies of proxy materials and other information sent to
stockholders). If the Corporation takes a record of its stockholders for the
purpose of determining stockholders entitled to (a) receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (b) to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of the
Corporation, or any proposed merger, consolidation, liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least 15 days prior to the record date specified therein (or 45 days
prior to the consummation of the transaction or event, whichever is earlier, but
in no event earlier than public announcement of such proposed transaction), of
the date on which any such record is to be taken for the purpose of such vote,
dividend, distribution, right or other event, and a brief statement regarding
the amount and character of such vote, dividend, distribution, right or other
event to the extent known at such time.
To the extent that under the Business Corporation Law the vote of the
holders of the Series C Preferred Stock, voting separately as a class or series,
as applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the then
outstanding shares of the Series C Preferred Stock represented at a duly held
meeting at which a quorum is present or by written consent of the holders of at
least a majority of the then outstanding shares of Series C Preferred Stock
(except as otherwise may be required under the Business Corporation Law) shall
constitute the approval of such action by the class. To the extent that under
the Business Corporation Law holders of the Series C Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series C Preferred Stock shall be entitled to a number
of votes equal to the number of shares of Common Stock into which it is then
convertible (subject to the limitations contained in Article IV.D(ii)) using the
record date for the taking of such vote of stockholders as the date as of which
the Conversion Price is calculated.
16
XIII. PROTECTION PROVISIONS
So long as any shares of Series C Preferred Stock are outstanding, the
Corporation shall not take any of the following corporate actions (whether by
merger, consolidation or otherwise) without first obtaining the approval (by
vote or written consent, as provided by the Business Corporation Law) of the
holders of a majority of the then outstanding shares of Series C Preferred
Stock:
(a) alter or change the rights, preferences or privileges
of the Series C Preferred Stock;
(b) alter or change the rights, preferences or privileges
of any capital stock of the Corporation so as to affect adversely the Series C
Preferred Stock;
(c) create any Senior Securities;
(d) create any Pari Passu Securities;
(e) increase the authorized number of shares of Series C
Preferred Stock;
(f) issue any shares of Senior Securities or Pari Passu
Securities;
(g) issue any shares of Series C Preferred Stock other
than pursuant to the Securities Purchase Agreement or the Notes issued pursuant
to the Exchange Agreement;
(h) redeem, or declare or pay any cash dividend or
distribution on, any Junior Securities;
(i) increase the par value of the Common Stock; or
(j) issue any debt securities that would have any
preferences over the Series C Preferred Shares upon liquidation of the
Corporation.
Notwithstanding the foregoing, no change pursuant to this Article XIII shall be
effective to the extent that, by its terms, it applies to less than all of the
holders of shares of Series C Preferred Stock then outstanding.
XIV. PARTICIPATION RIGHT
A. Participation Right. Subject to the terms and conditions specified in
this Article XIV, until the second anniversary of the Issuance Date, the holders
of shares of Series C Preferred Stock shall have a right to participate with
respect to the issuance or possible issuance of any Additional Securities on the
same terms and conditions as offered by the Corporation to the other purchasers
of such Additional Securities. Each time the Corporation proposes to offer any
Additional Securities, the Corporation shall make an offering of such Additional
Securities to each holder of shares of Series C Preferred Stock in accordance
with the following provisions:
(i) The Corporation shall deliver a notice (the "ISSUANCE
NOTICE") to the holders of shares of Series C Preferred Stock stating (a) its
bona fide intention to offer such Additional
17
Securities, (b) the number of such Additional Securities to be offered, (c) the
price and terms, if any, upon which it proposes to offer such Additional
Securities, and (d) the anticipated closing date of the sale of such Additional
Securities.
(ii) By written notification received by the Corporation, within
twenty (20) days after giving of the Issuance Notice, any holder of shares of
Series C Preferred Stock may elect to purchase or obtain, at the price and on
the terms specified in the Issuance Notice, up to that number of such Additional
Securities which equals such holder's Pro Rata Amount (as defined below). The
"PRO RATA AMOUNT" for any given holder of shares of Series C Preferred Stock
shall equal that portion of the Additional Securities that the Corporation
proposes to offer which equals the proportion that the number of shares of
Common Stock that such holder owns or has the right to acquire (without giving
effect to the limitations contained in Article IV.D) bears to the total number
of shares of Common Stock then outstanding (assuming in each case the full
conversion and exercise of all convertible and exercisable securities then
outstanding); provided, however, that in the event that any such holder
exercises its right to redeem its shares of Series C Preferred Stock in
connection with the issuance of such Additional Securities (as provided in
Article VIII.A(vi)(d)), then such holder's Pro Rata Amount shall be increased
(but not decreased) to the extent necessary to equal (x) such number of shares
of Common Stock (if the Additional Securities being issued are Common Stock) or
(y) that number of Additional Securities as are convertible into or exchangeable
for such number of shares of Common Stock (if the Additional Securities being
issued are Convertible Securities), as is obtained by dividing (a) the
Redemption Amount attributable to such holder's shares of Series C Preferred
Stock being redeemed by (b) (i) the price per share at which such Common Stock
is being issued (if the Additional Securities being issued are Common Stock) or
(ii) the conversion or exchange price at which such Additional Securities are
convertible into or exchangeable for shares of Common Stock (if the Additional
Securities being issued are Convertible Securities), and in such event the
Corporation shall be obligated to sell such number of Additional Securities to
each such holder, even if the aggregate Pro Rata Amount for all such holders
exceeds the aggregate amount of Additional Securities that the Corporation had
initially proposed to offer. The Corporation shall promptly, in writing, inform
each holder of shares of Series C Preferred Stock which elects to purchase all
of the Additional Shares available to it ("FULLY-EXERCISING HOLDER") of any
other holder's failure to do likewise. During the five-day period commencing
after such information is given, each Fully-Exercising Holder shall be entitled
to obtain that portion of the Additional Securities for which the holders of
shares of Series C Preferred Stock were entitled to subscribe but which were not
subscribed for by such holders which is equal to the proportion that the number
of shares of Series C Preferred Stock held by such Fully-Exercising Holder bears
to the total number of shares of Series C Preferred Stock held by all
Fully-Exercising Holders who wish to purchase some of the unsubscribed shares.
(iii) If all Additional Securities which the holders of shares of
Series C Preferred Stock are entitled to obtain pursuant to Article XIV.A(ii)
are not elected to be obtained as provided in Article XIV.A(ii) hereof, the
Corporation may, during the 75-day period following the expiration of the period
provided in Article XIV.A(ii) hereof, offer the remaining unsubscribed portion
of such Additional Securities to any person or persons at a price not less than,
and upon terms no more favorable to the offeree than, those specified in the
Issuance Notice. If the Corporation does not consummate the sale of such
Additional Securities within such period, the right provided hereunder shall be
deemed to be revived and such Additional Securities shall not be offered or sold
unless first
18
reoffered to the holders of shares of Series C Preferred Stock in accordance
herewith.
(iv) The participation right in this Article XIV shall not be
applicable to (a) any Excluded Issuance, or (b) any issuance of securities as to
which the holders of a majority of the then outstanding shares of Series C
Preferred Stock shall have executed a written waiver of the rights contained in
this Article XIV.
(v) The participation right set forth in this Article XIV may not
be assigned or transferred, except that such right is assignable by each holder
of shares of Series C Preferred Stock to any wholly-owned subsidiary or parent
of, or to any corporation or entity that is, within the meaning of the
Securities Act, controlling, controlled by or under common control with, any
such holder.
B. Prohibition on Issuance of Additional Securities. Notwithstanding any
other provision in this Certificate of Designation to the contrary, the
Corporation shall not be permitted to issue any Additional Securities to any
party (including, without limitation, the holders of Series C Preferred Stock
pursuant to this Article XIV) in the event that the Corporation is currently in
default (or an event has occurred that, with notice or lapse of time or both,
would put the Corporation in default) of its redemption obligations pursuant to
this Certificate of Designation.
XV. MISCELLANEOUS
A. Cancellation of Series C Preferred Stock. If any shares of Series C
Preferred Stock are converted pursuant to Article IV or redeemed or repurchased
by the Corporation, the shares so converted or redeemed shall be canceled, shall
return to the status of authorized, but unissued preferred stock of no
designated series, and shall not be issuable by the Corporation as Series C
Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity (without any bond or other security) reasonably satisfactory to the
Corporation, or (z) in the case of mutilation, upon surrender and cancellation
of the Preferred Stock Certificate(s), the Corporation shall execute and deliver
new Preferred Stock Certificate(s) of like tenor and date. However, the
Corporation shall not be obligated to reissue such lost or stolen Preferred
Stock Certificate(s) if the holder contemporaneously requests the Corporation to
convert such Series C Preferred Stock.
C. Allocation of Cap Amount and Reserved Amount. The initial Cap Amount
and Reserved Amount shall be allocated pro rata among the holders of Series C
Preferred Stock based on the number of shares of Series C Preferred Stock issued
to each holder. Each increase to the Cap Amount and the Reserved Amount shall be
allocated pro rata among the holders of Series C Preferred Stock based on the
number of shares of Series C Preferred Stock held by each holder at the time of
the increase in the Cap Amount or Reserved Amount. In the event a holder shall
sell or otherwise transfer any of such holder's shares of Series C Preferred
Stock, each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or
Reserved Amount which remains allocated to any person or entity which does
19
not hold any Series C Preferred Stock shall be allocated to the remaining
holders of shares of Series C Preferred Stock, pro rata based on the number of
shares of Series C Preferred Stock then held by such holders.
D. Quarterly Statements of Available Shares. For each calendar quarter
beginning in the quarter in which the initial registration statement required to
be filed pursuant to Section 2(a) of the Registration Rights Agreement is
declared effective and thereafter so long as any shares of Series C Preferred
Stock are outstanding, the Corporation shall deliver (or cause its transfer
agent to deliver) to each holder a written report notifying the holders of any
occurrence which prohibits the Corporation from issuing Common Stock upon any
such conversion. The report shall also specify (i) the total number of shares of
Series C Preferred Stock outstanding as of the end of such quarter, (ii) the
total number of shares of Common Stock issued upon all conversions of Series C
Preferred Stock prior to the end of such quarter, (iii) the total number of
shares of Common Stock which are reserved for issuance upon conversion of the
Series C Preferred Stock as of the end of such quarter and (iv) the total number
of shares of Common Stock which may thereafter be issued by the Corporation upon
conversion of the Series C Preferred Stock before the Corporation would exceed
the Cap Amount and the Reserved Amount. The Corporation (or its transfer agent)
shall use its best efforts to deliver the report for each quarter to each holder
prior to the tenth day of the calendar month following the quarter to which such
report relates. In addition, the Corporation (or its transfer agent) shall
provide, as promptly as practicable delivery to the Corporation of a written
request by any holder, any of the information enumerated in clauses (i) - (iv)
of this Paragraph D as of the date of such request.
E. Payment of Cash; Defaults. Whenever the Corporation is required to
make any cash payment to a holder under this Certificate of Designation (as
payment of any Premium, upon redemption or otherwise), such cash payment shall
be made to the holder within five business days after delivery by such holder of
a notice specifying that the holder elects to receive such payment in cash and
the method (e.g., by check, wire transfer) in which such payment should be made
and any supporting documentation reasonably requested by the Corporation to
substantiate the holder's claim to such cash payment or the amount thereof. If
such payment is not delivered within such five business day period, such holder
shall thereafter be entitled to interest on the unpaid amount at a per annum
rate equal to the lower of eighteen percent (18%) and the highest interest rate
permitted by applicable law until such amount is paid in full to the holder.
F. Status as Stockholder. Upon submission of a Notice of Conversion by a
holder of Series C Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their issuance would exceed
such holder's allocated portion of the Reserved Amount or Cap Amount) shall be
deemed converted into shares of Common Stock and (ii) the holder's rights as a
holder of such converted shares of Series C Preferred Stock shall cease and
terminate, excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such holder because of a failure by the Corporation to comply
with the terms of this Certificate of Designation. In situations where Article
VI.B is applicable, the number of shares of Common Stock referred to in clauses
(i) and (ii) of the immediately preceding sentence shall be determined on the
date on which such shares of Common Stock are delivered to the holder.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the sixth business day after the
20
expiration of the Delivery Period with respect to a conversion of Series C
Preferred Stock for any reason, then (unless the holder otherwise elects to
retain its status as a holder of Common Stock by so notifying the Corporation
within five business days after the expiration of such 6 business day period
after expiration of the Delivery Period) the holder shall regain the rights of a
holder of Series C Preferred Stock with respect to such unconverted shares of
Series C Preferred Stock and the Corporation shall, as soon as practicable,
return such unconverted shares to the holder. In all cases, the holder shall
retain all of its rights and remedies for the Corporation's failure to convert
Series C Preferred Stock.
G. Remedies Cumulative. The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Corporation to comply with the terms of this Certificate of Designation. The
Corporation acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the holders of Series C Preferred Stock and that the
remedy at law for any such breach may be inadequate. The Corporation therefore
agrees, in the event of any such breach or threatened breach, that the holders
of Series C Preferred Stock shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
H. Waiver. Notwithstanding any provision in this Certificate of
Designation to the contrary, any provision contained herein and any right of the
holders of Series C Preferred Stock granted hereunder may be waived as to all
shares of Series C Preferred Stock (and the holders thereof) upon the written
consent of the holders of not less than a majority of the shares of Series C
Preferred Stock then outstanding, unless a higher percentage is required by
applicable law, in which case the written consent of the holders of not less
than such higher percentage shall be required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
21
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 15th day of November, 2002.
VIROLOGIC, INC.
By: /s/ WILLIAM D. YOUNG
---------------------------------
Name: William D. Young
Title: Chairman & CEO
22
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series C Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares
of Series C Preferred Stock (the "CONVERSION"), represented by stock certificate
No(s). ___________ (the "PREFERRED STOCK CERTIFICATES"), into shares of common
stock ("COMMON STOCK") of ViroLogic, Inc. (the "CORPORATION") according to the
conditions of the Certificate of Designations, Preferences and Rights of Series
C Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATION"), as of the date
written below. If securities are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto. No fee will be charged to the holder for any conversion, except
for transfer taxes, if any. Each Preferred Stock Certificate is attached hereto
(or evidence of loss, theft or destruction thereof).
Except as may be provided below, the Corporation shall electronically
transmit the Common Stock issuable pursuant to this Notice of Conversion to the
account of the undersigned or its nominee (which is _________________) with DTC
through its Deposit Withdrawal Agent Commission System ("DTC TRANSFER").
The undersigned acknowledges and agrees that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series C Preferred Stock have been or will be made only pursuant to an effective
registration of the transfer of the Common Stock under the Securities Act of
1933, as amended (the "ACT"), or pursuant to an exemption from registration
under the Act.
[ ] In lieu of receiving the shares of Common Stock issuable pursuant to
this Notice of Conversion by way of DTC Transfer, the undersigned hereby
requests that the Corporation issue and deliver to the undersigned
physical certificates representing such shares of Common Stock.
Date of Conversion:
------------------------------
Applicable Conversion Price:
---------------------
Signature:
---------------------------------------
Name:
--------------------------------------------
Address:
-----------------------------------------
-----------------------------------------
-----------------------------------------
23