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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1999
COMMISSION FILE NO. __________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM F-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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VISIBLE GENETICS INC.
(Exact name of Registrant as specified in its charter and
translation of Registrant's name into English)
Ontario n/a
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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700 BAY STREET
SUITE 1000
TORONTO, ONTARIO
CANADA M5G 1Z6
(416) 813-3242
(Address and telephone number of Registrant's principal executive offices)
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BAER MARKS & UPHAM LLP
805 THIRD AVENUE
NEW YORK, NEW YORK 10022
ATTENTION: STEVEN S. PRETSFELDER, ESQ.
(212) 702-5730
(Name, address and telephone number of agent for service)
-----------------------------------------------------------
Copies to:
SAMUEL SCHWARTZ, ESQ.
GOLDMAN, SPRING, SCHWARTZ & KICHLER
STEVEN S. PRETSFELDER, ESQ. 40 SHEPPARD AVENUE WEST
BAER MARKS & UPHAM LLP SUITE 700
805 THIRD AVENUE TORONTO, ONTARIO
NEW YORK, NEW YORK 10022 CANADA M2N 6K9
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.|_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box|X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ___.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE REGISTRATION FEE
- --------------------------- --------------------- -------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Common Shares.............. 5,283,758 $18.00 $95,107,644 $26,439.93
- --------------------------- --------------------- -------------------- ---------------------- ----------------------
</TABLE>
(1) Pursuant to Rule 416, this Registration Statement also covers an
indeterminable number of additional common shares issuable as a result of
any future anti-dilution adjustments.
(2) This amount is based upon the average of the closing bid and asked prices
as of November 16, 1999, and is being used solely for the purpose of
calculating the registration fee pursuant to Rule 457 under the Securities
Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
SELLING SHAREHOLDERS'
PROSPECTUS
5,283,758 SHARES
VISIBLE GENETICS INC.
COMMON SHARES
This is an offering of common shares by certain holders of convertible
preferred shares and warrants of Visible Genetics Inc. The common shares covered
by this prospectus will be issued to the warrantholders, and may be sold by
them, upon exercise of their warrants, and will be issued to the holders of
convertible shares, and may be sold by them, upon conversion of their preferred
shares.
The selling shareholders will receive all of the proceeds from the sale
of the common shares, less any commissions or discounts paid to brokers or other
agents. We will not receive any of the proceeds from the sale of the common
shares.
The selling shareholders may offer and sell the common shares on the
Nasdaq National Market at prevailing market prices or in privately negotiated
transactions at prices other than the market price. On November 16, 1999, the
closing sale price for our common shares on the Nasdaq National Market was
$18.125.
--------------------
INVESTING IN OUR SHARES INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 3.
--------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------
NOVEMBER __, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................................................................1
PROSPECTUS SUMMARY...............................................................................................2
RISK FACTORS.....................................................................................................3
FORWARD-LOOKING STATEMENTS......................................................................................20
USE OF PROCEEDS.................................................................................................23
DIVIDEND POLICY.................................................................................................23
SELECTED CONSOLIDATED FINANCIAL DATA............................................................................24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................25
INFORMATION ABOUT THE COMPANY...................................................................................32
SELLING SHAREHOLDERS............................................................................................34
PLAN OF DISTRIBUTION............................................................................................36
DESCRIPTION OF CAPITAL SHARES...................................................................................37
LEGAL MATTERS...................................................................................................40
EXPERTS.........................................................................................................40
WHERE YOU CAN FIND MORE INFORMATION.............................................................................40
</TABLE>
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which we have filed with the Securities and
Exchange Commission, are incorporated by reference in this prospectus:
1) Our Annual Report on Form 20-F for the year ended December 31, 1998.
2) Our Report on Form 6-K Filing No. 3 for the Month of July, 1999,
dated July 16, 1999.
3) Our Report on Form 6-K Filing No. 1 for the Month of August 1999,
dated August 6, 1999.
4) Our Report on Form 6-K Filing No. 1 for the Month of November
1999, dated November 10, 1999.
In addition, all documents which we file with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities
Exchange Act of 1934, as amended after the date of the this prospectus and
before termination of the offering, including all annual reports on Form 20-F or
Form 10-K, and all filings on Forms 10-Q and 8-K, will be deemed to be
incorporated by reference in this prospectus and to be a part of this prospectus
from the date those documents are filed. We may also incorporate in this
prospectus any Form 6-K which we file with the Securities and Exchange
Commission by identifying in such form that it is being incorporated by
reference into this prospectus. Any statement contained in a document which is
incorporated, or deemed to be incorporated, by reference into this prospectus,
shall be considered modified or superseded for purposes of this prospectus to
the extent that a statement contained in this prospectus or in any other
subsequently filed document which also is, or is deemed to be, incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this prospectus.
You may request a copy of any document incorporated by reference in
this prospectus at no cost. To receive a copy, write us at:
Visible Genetics Inc.
700 Bay Street
Suite 1000
Toronto, Ontario, Canada M5G 1Z6
Attention: Mr. Kingsley Thomas
Or you can call us at (416) 813-3240. See "Where You Can Find More Information."
<PAGE>
PROSPECTUS SUMMARY
THIS PROSPECTUS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED
ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER
WITH THE MORE DETAILED INFORMATION REGARDING OUR COMPANY AND THE SHARES BEING
SOLD IN THIS OFFERING, WHICH INFORMATION APPEARS ELSEWHERE IN THIS PROSPECTUS
AND IN SELECTED PORTIONS OF OUR ANNUAL REPORT ON FORM 20-F AND OTHER DOCUMENTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION THAT WE HAVE INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS. ALL FINANCIAL INFORMATION PROVIDED IN THIS
PROSPECTUS IS IN U.S. DOLLARS.
OUR BUSINESS
We develop, manufacture and sell integrated DNA sequencing systems that
analyze genetic information to improve the treatment of selected diseases. Our
proprietary DNA sequencing system, called the OpenGene System, is designed to
identify mutations, or changes, in the DNA of genes associated with some
infectious diseases, cancers and other medical conditions. We believe that our
DNA sequencing systems will enable clinicians to monitor and customize the
treatment of diseases, initially for Human Immunodeficiency Virus, or HIV, and
later for other selected diseases.
DNA sequencing is generally considered the most thorough and accurate
method for genotyping diseases, such as cancer and certain viruses, including
HIV, which have high rates of mutation or numerous strains. Genotyping is the
act of selecting and reading certain components of the sequence of a specific
strand of DNA in order to understand how mutations in the DNA may influence the
onset and treatment of some diseases and medical conditions. Most existing DNA
sequencers have been developed to meet the needs of the research market and
typically do not address the needs of the clinical diagnostic market. We have
designed our OpenGene System to meet the needs of the clinical diagnostic
market.
Our OpenGene System consists of automated DNA sequencers, disposable
gel cassettes, related equipment and software and disease-specific GeneKits. Our
GeneKits contain the necessary chemicals, reagents, third-party licenses and
other consumables and materials required for sequencing specific
disease-associated genes. We have developed GeneKits for HIV, HLA (used for
tissue typing, for example, in organ transplants) and the p53 gene (implicated
in many cancers). We are developing GeneKits for hepatitis B, hepatitis C and
tuberculosis. We began selling our OpenGene System to the research and clinical
research markets in the third quarter of 1996 and began selling GeneKits in the
third quarter of 1997. More than 600 of our DNA sequencers are installed in over
150 laboratories.
The first clinical diagnostic application we are targeting is HIV. We
have developed our HIV GeneKit to enable clinicians to genotype the major HIV
species infecting patients in order to improve the management of patient
treatment. HIV is a highly variable virus with high rates of mutations, which
may lead to drug resistance. One of the central challenges in maintaining HIV
patients on long-term drug therapy is to adjust each patient's medication as
drug-resistant strains of the virus emerge. Two initial clinical trials,
including one which we conducted, have shown that patients whose drug therapy is
managed using HIV genotyping had greater reductions in viral load than HIV
patients who were not genotyped.
We plan to apply to the U.S. Food and Drug Administration, or FDA, for
approval to sell our HIV OpenGene System to the clinical diagnostic market. In
December 1998, the FDA allowed us to initiate human clinical trials of our HIV
OpenGene System under an Investigational Device Exemption application, or IDE.
We intend to use the results of our clinical trials, as well as the results of a
clinical trial conducted by others, in support of our proposed FDA application.
Our principal executive offices are located at 700 Bay Street, Suite
1000, Toronto, Ontario, Canada M5G 1Z6. Our telephone number is (416) 813-3240.
Our Web site address is WWW.VISGEN.COM. INFORMATION CONTAINED ON OUR WEBSITE
DOES NOT CONSTITUTE A PART OF THIS PROSPECTUS.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED
BELOW BEFORE MAKING AN INVESTMENT DECISION. IF ANY OF THE FOLLOWING RISKS
ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS COULD BE
MATERIALLY HARMED. THIS COULD CAUSE THE TRADING PRICE OF OUR COMMON SHARES TO
DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN
AND UNKNOWN RISKS AND UNCERTAINTIES. THESE STATEMENTS RELATE TO OUR PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THESE STATEMENTS. FACTORS THAT COULD
CONTRIBUTE TO THESE DIFFERENCES INCLUDE THOSE DISCUSSED BELOW AND ELSEWHERE IN
THIS PROSPECTUS.
WE ARE IN THE EARLY STAGES OF COMMERCIAL MANUFACTURING AND SALE OF OUR PRODUCTS
Although we began operations in 1993, we are only in the early stages
of commercially manufacturing and marketing our products. Until 1996, we devoted
much of our time to the research and development of our technology and products.
In late 1996, we began manufacturing and selling to the research and clinical
research markets, the initial versions of our automated DNA sequencers and
related products and certain GeneKits. Our limited operating history makes it
difficult to evaluate our business and our prospects for future profitability.
Our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stages of
commercial manufacturing and marketing. Sales for our 1998 fiscal year were
$10.9 million and for the nine months ended September 30, 1999 were $8.7
million. In the future, sales may not increase or they may decrease, and we may
never become profitable.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES
We incurred a net loss of $14.9 million in the year ended December 31,
1998 and $18.5 million during the nine months ended September 30, 1999. As of
September 30, 1999, our accumulated deficit was $53.5 million. Our losses have
resulted principally from expenses incurred in research and development of our
technology and products, including clinical trials, and from selling, general
and administrative expenses that we have incurred while building our business
infrastructure and in connection with our operations. We expect to continue to
incur significant operating losses in the future as we continue our research and
development efforts and expand our sales and marketing force and business
infrastructure, in an effort to achieve greater sales and expand our business.
It is uncertain when, if ever, we will become profitable. Our ability to become
profitable will depend on many factors including:
- whether we obtain regulatory approval to sell our HIV OpenGene
System and, in the future, OpenGene Systems for other
diseases, to the clinical diagnostic market in the United
States and abroad;
- if we obtain regulatory approval, the acceptance of our HIV
OpenGene System and, in the future, OpenGene Systems for other
diseases, within the clinical diagnostic market;
- our ability to successfully market and sell our HIV OpenGene
System and, in the future, OpenGene Systems for other
diseases, to the clinical diagnostic market;
- the decision of third party payors to reimburse clinicians and
patients for use of our HIV GeneKit and, in the future, other
products;
- the acceptance of genotyping as a valid method of managing
disease therapy for the diseases and genes we currently target
and intend to target in the future;
- our ability to increase sales of our products to the research
and clinical research markets;
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- our ability to effectively manage the growth of our business;
- our ability to attract and retain qualified personnel;
- our ability to continue to develop advanced versions of our
products and technologies and new products and technologies in
a timely manner; and
- our ability to obtain, and the costs of obtaining, patents and
licenses for certain products and technologies.
OUR RESULTS TEND TO FLUCTUATE FROM QUARTER TO QUARTER
Our operating results have varied on a quarterly basis in the past and
may fluctuate significantly in the future as a result of a variety of factors,
many of which are outside our control. Factors that may affect our quarterly
operating results include:
- the announcement or introduction of new products, services,
technologies or strategic relationships by us or by our
competitors;
- decisions by the FDA and foreign regulatory agencies with
respect to our HIV OpenGene System or other products;
- the acceptance of our HIV OpenGene System and other products
in the clinical diagnostic market, should we obtain required
government authorizations;
- unanticipated costs or delays in carrying out our clinical
trials;
- decisions of third party payors with respect to reimbursement
for our HIV GeneKit and other products;
- the proposal or implementation of regulatory changes in the
United States or abroad that affect our products or our
business;
- the amount and timing of operating costs and capital
expenditures relating to research and development and the
expansion of our business, operations and infrastructure;
- the amount and timing of royalties accrued for licensing of
products and technologies;
- the availability and pricing of raw materials and components
from suppliers;
- our decision to increase or decrease sales of bundled
equipment, GeneKits and other consumables at reduced prices;
- our decision to reduce prices of our products in response to
price reductions by competitors;
- our ability to successfully sell our products;
- the costs associated with, and the success of, any future
acquisitions of businesses, technologies or products, or any
strategic investments or relationships into which we may
enter;
- the cost and timing of obtaining new patent rights or licenses
from third parties;
- our ability to attract and retain personnel; and
- general economic conditions, as well as economic conditions
specific to the biotechnology industry.
Due to these and other factors, our quarterly revenues and operating
results are difficult to forecast. We believe that period-to-period comparisons
of our operating results may not be meaningful and you should not rely on any
such comparisons as an indication of our future performance. In addition, it is
likely that in one or more future quarters our operating results will fall below
the expectations of securities analysts and investors. In such event, the
trading price of our common shares could be materially harmed.
4
<PAGE>
WE MAY NOT RECEIVE FDA APPROVAL FOR OUR HIV OPENGENE SYSTEM AND, IN THE FUTURE,
OTHER HIV PRODUCTS
We intend to seek FDA approval to sell our HIV OpenGene System for
clinical diagnostic purposes in the United States. In the future, we may seek
FDA approval to sell other HIV products for clinical diagnostic purposes in the
United States. Under FDA regulations our HIV OpenGene System is currently a
Class III medical device. This means that in order to sell our HIV OpenGene
System in the United States for clinical diagnostic purposes, we will need to
obtain FDA approval. In order to get FDA approval for this device, at the
present time, we must submit a Premarket Approval application, commonly known as
a PMA. To be considered by the FDA, our PMA must be supported by extensive human
clinical data demonstrating the utility, reliability and performance of our HIV
GeneKit and OpenGene System. In December 1998, the FDA allowed us to initiate
human clinical trials of our HIV OpenGene System under our IDE application. We
have conducted one, and are continuing to conduct several additional, clinical
trials, the results of which will be submitted with our PMA application to the
FDA. In addition, for us to obtain FDA approval of our HIV OpenGene System, the
FDA must also confirm that we maintain good laboratory, clinical and
manufacturing practices. We may never obtain approval from the FDA to sell our
HIV products to the clinical diagnostic market. The clinical data from our
trials may not support the utility, reliability or performance of our products,
or our facilities may not be in compliance with the FDA's regulations. In
addition, we may choose or be required to discontinue our trials for a number of
reasons, including unanticipated interim trial reports, changes in regulations
or the adoption of new regulations, or unexpected technological developments by
our competitors. If we fail to receive FDA approval, we will be unable to carry
out our business plan to sell our HIV OpenGene System for clinical diagnostic
use in the United States and our business, financial condition and results of
operations will be materially harmed.
Although our HIV OpenGene System is currently a Class III medical
device, the FDA recently asked an advisory committee of experts whether HIV
genotyping tests should be reclassified from Class III to Class II. The advisory
committee recommended reclassification subject to certain controls including
post-market surveillance of the performance of these products. If the FDA
reclassifies HIV genotyping tests from Class III to Class II, we will be able to
obtain FDA permission to market our HIV OpenGene System by submitting a 510(k)
premarket notification, commonly known as a 510(k), rather than a PMA. A 510(k)
generally contains less data than a PMA and is usually reviewed and approved
more quickly by the FDA than a PMA. While we may be able to obtain FDA approval
more quickly and less expensively if the FDA reclassifies HIV genotyping tests
from Class III to Class II, our competitors will also be able to submit 510(k)s
for their products, which would allow them to market their products sooner than
if they had to submit PMAs. Although it is likely that the FDA will follow the
recommendation of its advisory committee, the FDA is required to issue a
proposed regulation, allow the opportunity for public comment and then publish a
final regulation in order to reclassify HIV genotyping tests.
This process could take several years to complete.
We also may be required to obtain approval from some foreign regulatory
authorities to sell our HIV products to the clinical diagnostic market outside
of the United States. In some cases, we will face an approval process similar to
that required by the FDA. We cannot be certain that we will obtain the necessary
approvals to sell our HIV products to the clinical diagnostic market in these
countries. In some cases, the failure to obtain any of these approvals could
materially harm our business, financial condition and results of operations. See
"-We may not receive regulatory approval for our other products," "-The results
of our proposed HIV clinical trails are uncertain" and "-Certain of our products
are subject to government regulation."
WE MAY NOT RECEIVE REGULATORY APPROVAL FOR OUR OTHER PRODUCTS
In addition to our HIV OpenGene System, we have also developed and are
continuing to develop GeneKits for other clinical diagnostic applications. In
order to sell these GeneKits to the clinical
5
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diagnostic market, we may be required to obtain the approval of the FDA and of
foreign regulatory authorities. We may be required to conduct extensive testing
and clinical trials to support the utility, reliability and performance of our
products. We may also be required to show that our testing and manufacturing
facilities comply with applicable practices and standards. The approval process
for each additional GeneKit may be lengthy and costly and we may not be able to
obtain the required approval for each GeneKit in each country in which we desire
to sell to the clinical diagnostic market. Our failure to obtain necessary
approvals to sell our products for clinical diagnostic use in one or more
significant markets could cause material harm to our business, financial
condition and results of operations.
THE RESULTS OF OUR PROPOSED HIV CLINICAL TRIALS ARE UNCERTAIN
To support our application to the FDA, whether we submit a PMA or a
510(k), we will be expected to demonstrate through human clinical trials the
utility, reliability and performance of our HIV OpenGene System. We conducted
one trial in Europe which demonstrated that HIV patients whose drug treatments
were selected using periodic genotyping had lower viral loads than patients
whose drug treatments were selected without the use of genotyping. That trial
corroborated the results of another clinical trial conducted in the United
States in which we did not participate. In June 1999 we commenced two clinical
trials in the United States: one to test the clinical utility of our HIV
OpenGene System and another to test the reliability and performance of our HIV
GeneKits. In November 1999, we launched a 200 patient pilot study in connection
with a third, large-scale cost recovery clinical trial with the goal of
collecting additional HIV genotyping data supporting the clinical utility of
using HIV genotyping.
The results from the clinical trials already completed may not
accurately predict the results that will be obtained from the clinical trials we
plan to conduct in the future. In addition, there can be no assurance that any
clinical trials we conduct will demonstrate the utility, reliability and
performance of our HIV OpenGene System. If the new trials are unable to
demonstrate the utility, reliability and performance of our HIV OpenGene System,
we may not obtain FDA approval. In that event, our business, financial condition
and results of operations would be materially harmed. A number of companies in
the biotechnology and pharmaceutical industries have suffered significant
setbacks in advanced clinical trials, even after obtaining promising results in
earlier trials.
The completion of clinical trials for our HIV OpenGene System and, in
the future, any clinical trials of our other products, may be terminated or
delayed by many factors and there can be no assurance that delays or
terminations will not occur. For example, the rate of enrollment of patients in
our trials may affect the amount of time it takes to complete our trials.
Enrollment rates may vary throughout the course of a clinical trial and will
depend on a number of factors including: the size of the patient population, the
number of clinical trial sites, the proximity of patients to clinical trial
sites, the eligibility criteria for the trial and the existence of competitive
clinical trials. We cannot control the rate at which patients present themselves
for enrollment, and we cannot guarantee that the rate of patient enrollment will
be consistent with our expectations or be sufficient to enable clinical trials
of our products to be completed in a timely manner. In addition, certain
clinical trials are conducted with patients having the most advanced stages of
disease. During the course of treatment, these patients may die or suffer other
adverse medical effects for reasons that may not be related to the drug
treatment selections. These events could delay our trials, as well as adversely
affect the statistical analysis of clinical trial results. Any significant
delays in, or termination of, clinical trials of any of our products could
materially harm our business, financial condition and results of operations. See
"-We may not receive FDA approval for our HIV OpenGene System and, in the
future, other HIV products," "-We may not receive regulatory approval for our
other products," and "-Certain of our products are subject to government
regulation."
6
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EACH TIME WE MAKE ALTERATIONS TO ANY FDA APPROVED PRODUCTS, WE MAY
NEED TO SEEK ADDITIONAL FDA APPROVAL
If we obtain FDA approval of a PMA for our HIV OpenGene System or
any other product, we may need to seek additional FDA approval each time we
make changes to the product specifically approved by the FDA. For example, we
are seeking FDA approval to sell our HIV OpenGene System to the clinical
diagnostic market. Our HIV GeneKit, as submitted to the FDA, contains
specific reagents, dyes, enzymes, chemicals, software and other materials. If
this kit is approved, the FDA would require that we obtain additional
approval for any change to the kit's components that could alter the
performance of the kit, such as changing certain enzymes or reagents. To
obtain additional approval, we may have to conduct additional human clinical
trials to demonstrate that the altered GeneKit will produce at least the same
results as the approved GeneKit. Obtaining additional FDA approval is likely
to be time consuming and costly and we may experience delays in bringing
these upgraded or new products to market.
If the FDA reclassifies HIV genotyping tests from Class III to Class
II, we will be required to obtain prior clearance from the FDA only for those
product changes that could significantly affect safety or effectiveness.
Obtaining additional FDA approval for these changes is likely to be time
consuming and costly and we may experience delays in bringing these upgraded or
new products to market.
THE CLINICAL DIAGNOSTIC MARKET FOR GENOTYPING PRODUCTS IS NEW AND
GENOTYPING MAY NOT BECOME AN ACCEPTED METHOD OF MANAGING DRUG TREATMENT
An important part of our business strategy is our plan to sell our
products to the clinical diagnostic market if we obtain FDA and other required
regulatory approvals. Our ability to do so will depend on the widespread
acceptance and use by doctors and clinicians of genotyping to manage the
treatment of certain diseases. The use of genotyping by doctors and clinicians
for this purpose is new. Existing DNA sequencing systems have been designed
primarily for research purposes and we are not aware of any DNA sequencing
products that have been approved by the FDA for clinical diagnostic purposes.
The demand for, and acceptance by doctors and clinicians of, DNA sequencing
systems designed for the clinical diagnostic market, such as our HIV OpenGene
System, is uncertain. Factors that may influence the acceptance of genotyping by
this market include the availability of FDA approved genotyping products and the
willingness of insurance companies and other third-party payors to reimburse
doctors and patients for use of these products. If genotyping is not accepted by
this market, we will not be able to carry out our business plan and our
business, financial condition and results of operations will be materially
harmed.
OUR OPENGENE SYSTEM MAY NOT BE ACCEPTED BY THE CLINICAL DIAGNOSTIC MARKET
Even if genotyping becomes widely accepted in the clinical diagnostic
market, we cannot predict the extent to which doctors and clinicians may be
willing to utilize our OpenGene System to manage drug treatment of selected
diseases or other medical conditions. Factors that will influence the use of our
products in this market include:
- our ability to obtain FDA approval in the United States and
other required regulatory approvals in other countries;
- whether major third-party payors decide to reimburse doctors
and patients for use of our products;
- the outcomes of any current or future clinical trials testing
the utility, reliability and performance of our OpenGene
System in managing drug treatment for selected diseases or
other medical conditions; and
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- the development of competing technologies and products that
can be used for the same purposes as our products.
If our products are not accepted by the clinical diagnostic market to
manage the treatment of selected diseases and other medical conditions, our
business, financial condition and results of operations will be materially
harmed. See "-We may not receive FDA approval for our HIV OpenGene System and,
in the future, other HIV products," "We may not receive regulatory approval for
our other products," "The results of our proposed HIV clinical trials are
uncertain," "Insurance companies and other third-party payors may not reimburse
doctors and patients for our products" and "Certain of our products are subject
to government regulation."
INSURANCE COMPANIES AND OTHER THIRD-PARTY PAYORS MAY NOT REIMBURSE
DOCTORS AND PATIENTS FOR OUR PRODUCTS
Our ability to sell our HIV GeneKit and other GeneKits to the clinical
diagnostic market will depend partly on the willingness of insurance companies
and other third-party payors to reimburse doctors and patients for use of our
products. If we obtain regulatory approval to sell our products, we will seek
reimbursement from government and private health care insurers (including health
maintenance organizations) and other third-party payors. Physicians'
recommendations to use genotyping, as well as decisions by patients to pursue
genotyping, are likely to be influenced by the availability of reimbursement for
genotyping by insurance companies or other third-party payors. Government and
private third-party payors are increasingly attempting to contain health care
costs by limiting both the extent of coverage and the reimbursement rate for
testing and treatment products and services. In particular, services which are
determined to be investigational in nature or which are not considered
"reasonable and necessary" for diagnosis or treatment may be denied
reimbursement coverage. We cannot guarantee that insurers and other third-party
payors will elect to provide full or partial reimbursement coverage for our HIV
GeneKit and other GeneKits. If adequate reimbursement coverage is not available
from insurers or other third-party payors, it is uncertain whether patients will
elect to directly pay for genotyping. If insurers or other third-party payors
and patients are unwilling to pay for genotyping, our anticipated revenues would
be substantially reduced, our ability to achieve profitability would be
significantly impaired and our business, financial condition and results of
operations would be materially harmed.
WE DO NOT HAVE ANY MARKETING EXPERIENCE IN THE CLINICAL DIAGNOSTIC
MARKET AND WE RELY ON OTHER COMPANIES TO SELL OUR PRODUCTS IN SOME MARKETS
We have no experience marketing products to the clinical diagnostic
market. If the FDA approves the sale of our HIV OpenGene System and, in the
future, other products, to the clinical diagnostic market in the United States,
we intend to expand our internal sales force. It will take significant time,
money and resources to expand our sales force. We may not be able to hire, train
and retain qualified personnel with experience in the clinical diagnostic
market. We cannot be certain that we will be able to develop the marketing
capabilities necessary to successfully market and sell our products to the
clinical diagnostic market. See "We may not receive FDA approval for our HIV
OpenGene System and, in the future, other HIV products," "We may not receive
regulatory approval for our other products," "The results of our proposed HIV
clinical trials are uncertain," and "Certain of our products are subject to
government regulation."
In selected geographic markets outside North America and certain
European countries, we seek to enter into distribution and marketing
arrangements with leading distributors to sell our products to the research and
clinical diagnostic markets. In March 1999, we entered into a series of
exclusive distribution agreements. We granted Roche Diagnostics S.L. and Roche
Diagnostics K.K. exclusive rights to distribute our
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OpenGene System and GeneKits to the clinical diagnostic markets in Spain,
Portugal and Japan, respectively. We also granted Organon Teknika International
the exclusive right to distribute our OpenGene System and GeneKits to the
clinical diagnostic market in Brazil. We granted exclusive distribution rights
to Werfen Medical S.A. in Argentina and Diagnostic Technology Pty Ltd. in
Australia and New Zealand. We terminated our initial agreement with Roche
Diagnostics S.L. in September 1999 and subsequently entered into a new agreement
with Roche Diagnostics S.L. for these territories. Under the new agreement,
Roche Diagnostics S.L. will act as our exclusive agent in Spain and Portugal and
will receive a commission based on sales. In November 1999, we granted
Amersham-Pharmacia Biotech K.K. the exclusive right to distribute our products
to the research market in Japan. These agreements expire at various times from
April 2000 through April 2003, and in each case, are subject to renewal. Certain
of the agreements may also be terminated by either party upon specified notice
periods and may require us to make termination payments under certain
circumstances.
Our ability to successfully sell products to the clinical diagnostic
market in countries in which we rely on distribution agreements will depend to a
great extent on the efforts of the distributors. Should these distributors be
unwilling to sell our products or if they are unsuccessful in their efforts, our
ability to sell to these markets will be adversely affected. Failure to
successfully market our products will likely impede our ability to generate
significant revenues and become profitable.
In addition, any of our distribution agreements may be terminated
before they expire, or, when they expire, they may not be renewed on favorable
terms or at all. If these agreements are discontinued, our business, financial
condition and results of operations may be materially harmed if we could not
find other suitable distributors to sell these products. See "Certain supplies
and parts that we need are available from limited sources."
WE HAVE LIMITED MARKETING EXPERIENCE IN THE RESEARCH AND CLINICAL
RESEARCH MARKETS AND WE RELY ON AMERSHAM
We have limited experience in marketing products to the research and
clinical research markets. We have developed our own sales and marketing
staff and infrastructure which sells our products in North America and
certain countries in Europe. We have only been engaged in marketing our
products since late 1996. It is uncertain whether our sales and marketing
staff will be able to achieve our sales objectives in a timely and
cost-effective manner. In February 1996, we granted Amersham International
plc an exclusive worldwide license to use and sell the Seq4x4(TM) DNA
sequencer and related products used and sold with the sequencer, which is
designed for the research market. Our agreement with Amersham expires in
February 2000 and is renewable each year unless either party notifies the
other at least six months in advance of renewal that it wishes to terminate
the agreement. During 1998, approximately 30% of our revenues resulted from
sales of sequencers and other products to Amersham, and during the nine
months ended September 30, 1999, 15.6% of our sales resulted from sales to
Amersham. We anticipate that for the remainder of 1999 sales to Amersham will
continue to be significant. We cannot be certain that Amersham will be
successful in selling these products. In addition, we cannot be certain that
the agreement will not be terminated before expiration or that, upon
expiration, it will be renewed on favorable terms or at all.
WE NEED TO CONTINUE DEVELOPING ADVANCED TECHNOLOGY AND VERSIONS OF OUR
PRODUCTS AND NEW PRODUCTS
We believe that if we are to become and remain profitable, we must
develop advanced technology, advanced versions of our current products and new
products. New technology and products must be developed and introduced to the
market in a timely and cost-effective manner to meet both changing customer
needs and technological developments. We cannot assure you that we will be able
to successfully or timely develop any technology or products, or that any new
technology or products will achieve acceptance in the market. It is also
possible that we will not have sufficient financing to develop
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new technology or products. If we are unable to successfully develop technology
or products in the future, our ability to generate significant revenues will be
significantly impaired, we could experience additional significant losses and
our business, financial condition and results of operations would be materially
harmed.
WE HAVE LIMITED MANUFACTURING EXPERIENCE
We have limited experience in large-scale assembly and manufacturing of
our products. We assemble our DNA sequencers, certain related equipment, and our
GeneKits. We also manufacture our MicroCel cassettes, certain of the components
included in our GeneKits and other products. Since we started assembling and
manufacturing operations in 1996, we have experienced delays, quality control
problems and capacity constraints from time to time. As production increases and
we begin manufacturing and assembling new products, additional problems may
arise. These may include technological, engineering, quality control and other
production difficulties. If we experience these problems, we could be delayed in
filling orders, shipping existing products and introducing new products to the
marketplace. These problems could also adversely affect customer satisfaction
and the market acceptance of our products.
WE MAY NOT BE ABLE TO OBTAIN AND PROTECT NECESSARY PATENTS AND PROPRIETARY
RIGHTS
Our success will partly depend on our ability to obtain patents, obtain
licenses from third parties and protect our trade secrets. We own or jointly own
25 U.S. patents. We have an additional 36 U.S. patent applications pending, of
which ten have been allowed. A patent allowance is granted by the U.S. Patent
and Trademark Office if, after examination, it finds the patent application
allowable. After a patent is allowed, generally, the patent is issued as soon as
possible after payment of an issuance fee by the applicant. However, because of
the substantial backlog of patent applications in the U.S. Patent and Trademark
Office, the issuance of the patent is often delayed. Until an allowed patent is
actually issued, the U.S. Patent and Trademark Office may reverse its decision
or delay the issuance of the patent. We also have filed foreign patent
applications presently pending as PCT applications designating intergovernmental
agencies and multiple countries including the European Patent Office, Canada and
Japan. We cannot assure you that our remaining patent applications will result
in patents being issued in the United States or foreign countries. Nor can we
assure you that any technologies or products that we may develop in the future
will be patentable. In addition, we cannot guarantee that patents which have
been or will be issued will afford meaningful protection for our technology and
products. Competitors may develop products similar to ours which do not conflict
with our patents. Others may challenge our patents and, as a result, our patents
could be narrowed or invalidated. The patent position of biotechnology firms
generally is highly uncertain, involves complex legal and factual questions, and
has recently been the subject of much litigation. No consistent policy has
emerged from the U.S. Patent and Trademark Office or the courts regarding the
breadth of claims allowed or the degree of protection afforded under
biotechnology patents. In addition, there is a substantial backlog of
biotechnology patent applications at the U.S. Patent and Trademark Office and
the decisions whether to approve or reject patents may take several years.
Our success will also depend partly on our ability to operate without
infringing upon the proprietary rights of others, as well as our ability to
prevent others from infringing on our proprietary rights. We may be required at
times to take legal action in order to protect our proprietary rights. Also,
despite our best efforts, we may be sued for infringing on the patent rights of
others. Patent litigation is costly, and, even if we prevail, the cost of such
litigation could harm us. If we do not prevail, in addition to any damages we
might have to pay, we could be required to stop the infringing activity or
obtain a license. We cannot be certain that any required license would be
available to us on acceptable terms, or at all. If we fail to obtain a license,
or if the terms of a license are burdensome to us, our business, financial
condition and results of operations could be materially harmed.
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To help protect our proprietary rights in unpatented trade secrets, we
require our employees, consultants and advisors to sign confidentiality
agreements. However, we cannot guarantee that these agreements will provide us
with adequate protection if confidential information is used or disclosed
improperly. In addition, in some situations, these agreements may conflict with,
or be limited by, the rights of third parties with whom our employees,
consultants or advisors have prior employment or consulting relationships.
Further, others may independently develop similar proprietary information and
techniques, or otherwise gain access to our trade secrets.
CERTAIN OF OUR PRODUCTS ARE SUBJECT TO GOVERNMENT REGULATION
In the United States, the FDA regulates medical products. Similar
agencies exist in Canada, Japan, European countries and elsewhere.
Our products can be used in two ways. First, they can be used in
scientific research, to discover new information or develop better ways to
manage the treatment of disease. Second, they can be used in the medical care of
specific patients. In that case, they are called diagnostic medical devices.
We currently sell our products for research and clinical research
purposes. In the future, we intend to sell products for clinical diagnostic
purposes. We do not believe we need authorization from the FDA or health
authorities in foreign countries to sell our products for research purposes, as
long as they are properly labeled. We will, however, need authorization to sell
our products for clinical diagnostic purposes.
To obtain FDA authorization for a new medical device, a company may
have to submit data relating to safety and efficacy based on extensive testing.
This testing, the preparation of necessary applications and the processing of
those applications by the FDA, are expensive and may take several years to
complete. For a more complete description of the FDA approval process, see
"Information about the Company-Regulation by the FDA and Other Government
Agencies--FDA APPROVAL PROCESS."
We cannot assure you that the FDA will approve any of our products for
clinical diagnostic purposes, or do so in a timely manner. First, the tests may
fail to prove that a particular product is safe and effective. Second, it may be
too expensive for us to conduct all the necessary tests. Third, there may be
delays, or disagreements between us and the FDA about whether the tests are
adequate. Because of these and other uncertainties, you should assume that we
may experience delays in obtaining FDA approval, or that we may not receive FDA
approval to sell our products for clinical diagnostic purposes.
At the present time our HIV GeneKit is, and, in the future, other
GeneKits may, be regulated by the FDA as Class III medical devices. We believe
that our other GeneKits and products will be regulated as either Class II or
Class III medical devices. Since our HIV OpenGene System is currently regulated
as a Class III medical device we must submit a PMA in order to sell our HIV
OpenGene System in the United States for clinical diagnostic purposes. To be
considered by the FDA, our PMA must be supported by extensive human clinical
data. In December 1998, the FDA allowed us to initiate human clinical trials of
our HIV OpenGene System under our IDE application. We have conducted one, and
are continuing to conduct several additional, clinical trials, the results of
which will be submitted with our PMA to the FDA. If the FDA reclassifies HIV
genotyping tests from Class III to Class II, we will be able to submit a 510(k),
rather than a PMA, for our HIV GeneKit and HIV OpenGene System. If, however, the
FDA does not complete the reclassification process within a reasonable time
period, we may still have to submit a PMA to obtain permission to market our HIV
OpenGene System on a timely basis.
We also plan to market products outside the United States, initially in
Canada, Japan and selected countries in Europe. Government authorization
requirements similar to the FDA's exist in some of these and many other foreign
countries. Therefore, for us to get authorization to sell our products for
clinical diagnostic purposes in Canada, Japan, and Europe may also require
lengthy and costly testing procedures.
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In addition, the regulatory bodies in other countries may be affected or
influenced by significantly different criteria than those used by the FDA. Sale
of our products in these areas may be materially affected by the policies of
these bodies or the domestic politics of the countries involved.
We are or may become subject to various federal, state, foreign,
provincial and local laws and regulations, covering a broad range of topics
including:
- worker compensation;
- safe working conditions;
- laboratory and manufacturing practices; - use and disposal of
hazardous chemicals or infectious disease agents and toxic
chemicals; and
- product emissions.
In addition, our reference laboratory in Norcross, Georgia, is subject
to regulation under the Clinical Laboratory Improvement Amendments of 1988,
known as CLIA. Under CLIA, laboratories must meet various requirements,
including requirements relating to the validation of tests, training of
personnel, and quality assurance procedures. The laboratory must also be
certified by a government agency. Our Norcross laboratory performs high
complexity tests, and is therefore subject to the most stringent level of
regulation under CLIA. This laboratory is certified under CLIA and licensed by
the state of Georgia. Our failure to comply with state or CLIA requirements can
result in various penalties, including loss of certification. The imposition of
such penalties could have an adverse impact on us. In addition, some states
regulate out-of-state laboratories. The failure to comply with these state
requirements could also adversely affect us.
We are unable to predict the extent of future government regulations or
industry standards. You should assume that in the future there may be more
government regulations or industry standards affecting genetic diagnostic
testing than there are now. Existing or future regulations or industry standards
may have a material adverse effect on our operations, including the cost of
complying with regulations or standards or obtaining permits, delays or fines
resulting from loss of permits or failure to comply with regulations.
CERTAIN SUPPLIES AND PARTS THAT WE NEED ARE AVAILABLE FROM LIMITED SOURCES
We use dyes, reagents and other chemicals supplied by third parties
in our GeneKits. We believe that some dyes supplied by Amersham under our
exclusive worldwide license to use and sell Amersham dyes within our
GeneKits, may not be available from other suppliers, although our customers
might be able to purchase some, but not all, of these dyes directly from
Amersham. In addition, certain reagents and other chemicals which we use and
include in our GeneKits are available only under license from their
manufacturers. We cannot be certain that we will be able to renew these
licenses upon expiration, on favorable terms or at all. While we believe that
alternative dyes, chemicals and reagents are available, alternate products
may not be as effective as certain of the products which we presently use. If
we switched to an alternative dye, chemical or reagent, we may also have to
adapt the GeneKit's analysis software to the new product, which could take
time. If the GeneKit is FDA approved, we may also be required to seek FDA
approval for the altered GeneKit if the alternative product were to
substantially alter the performance of the GeneKit. This could cause delays
in production and in bringing the changed GeneKit to market. See "-Each time
we make alterations to any FDA approved products, we may need to seek
additional FDA approval."
We also use certain custom-designed components supplied by third
parties in our sequencers and other equipment. We believe that there are
alternative suppliers for these custom-designed parts. However, we would incur
costs in switching to alternative suppliers and would likely experience delays
in
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production of the products that use any of these parts until such time as we
were able to locate alternate suppliers or parts on acceptable terms.
We license the polymerase chain reaction technology that we use in our
GeneKits from Roche Molecular Systems, Inc. and F. Hoffmann La Roche Ltd. These
licenses are not exclusive, and, therefore, may be granted by the Roche
companies to our competitors and others. We are required to pay royalties to the
Roche companies for these licenses. One license is for the life of the patents
included within the licensing agreement, which expire at various times
commencing July 2004. The second license expires in February 2003 but will be
automatically extended until July 2004, unless the Roche companies elect not to
renew the license. After the expiration of the initial term of this license, the
Roche companies may terminate the license at any time by giving us a one-year
notice. The termination of either of these licenses would have a material
adverse effect on our ability to produce or sell GeneKits. Consequently, we
could experience a deterioration of anticipated future sales of our GeneKits and
further losses.
WE MAY BE UNABLE TO MANAGE OUR GROWTH
If we are successful in increasing sales and expanding our markets,
there will be additional demands on our management, marketing, distribution,
customer support and other operational and administrative resources and systems.
To accommodate future growth, we may have to hire a substantial number of
additional management personnel and other employees in the United States and
abroad. We may also have to add information and other systems. We cannot
guarantee that we will be able to do so. In addition, our current and future
expense levels are based largely on our investment plans and estimates of future
revenues and are, to a large extent, fixed. We may be unable to adjust spending
in a timely manner to compensate for any unexpected revenue shortfall.
Therefore, any significant shortfall in revenues as compared to our planned
expenditures would materially harm our business, financial condition, and
results of operations. We are not certain whether our current staff, systems and
infrastructure will be adequate to support and effectively monitor future
growth. If we are unable to manage our growth, we may not be able to implement
our business plan and our business, financial condition and results of
operations would be materially harmed.
OUR FUTURE ACQUISITIONS MAY BE DIFFICULT AND DISRUPTIVE, AND WE MAY NOT REALIZE
EXPECTED BENEFITS
We have made and in the future may make acquisitions of complementary
businesses, products, services or technologies. We have limited experience in
integrating newly acquired organizations into our operations.
Acquisitions expose us to many risks, including:
- difficulty in assimilating technologies, products, personnel
and operations;
- diversion of management's attention from other business
concerns;
- large write-offs and amortization expenses related to goodwill
and - other intangible assets;
- entering markets in which we have no or limited experience;
and
- incurrence of debt or assumption of other liabilities.
The occurrence of one or more of these factors could materially harm
our business, financial condition and results of operations.
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OUR INDUSTRY IS HIGHLY COMPETITIVE
The biotechnology industry is highly competitive. We compete with
entities in the United States and abroad that are engaged in the development and
production of products that analyze genetic information. They include:
- biotechnology, pharmaceutical, chemical and other companies;
- academic and scientific institutions;
- governmental agencies; and
- public and private research organizations.
Some of our major competitors include:
- manufacturers and distributors of DNA sequencers such as the
PE Biosystems Group of PE Corporation, Amersham and its
Molecular Dynamics subsidiary, LI-COR, Inc., Hitachi, Ltd. and
Molecular and Genetic BioSystems, Inc.;
- manufacturers and distributors of DNA probe-based diagnostic
systems such as Abbott Laboratories, Chiron Corp., Bayer AG,
Hoffmann-La Roche Inc., Gene Probe Inc., Digene Corporation
and Johnson & Johnson; and
- manufacturers of new technologies used to analyze genetic
information, such as chip-based and assay-based technologies,
including, Hyseq Inc., Affymetrix Inc., ChemCore Inc., CuraGen
Corp. and Nanogen, Inc.
Many of these companies and many of our other competitors have much
greater financial, technical and research and development resources and
production and marketing capabilities than we do. Smaller companies may also
prove to be significant competitors, particularly through collaborative
arrangements with large pharmaceutical and biotechnology companies. If any of
our competitors were to devote significant resources to developing an integrated
solution for genotyping, we would experience significantly more competitive
pressure. We cannot predict whether we could successfully compete with these
pressures and our revenues could suffer.
Our GeneKits also compete with homebrew genetic tests for HIV and other
diseases. Homebrew tests include a variety of small-scale genotyping tests which
typically have not undergone clinical validation and have not been approved by
the FDA or other regulatory agencies.
WE MAY NEED ADDITIONAL CAPITAL AND IF WE ISSUE OR OBTAIN ADDITIONAL FINANCING,
WE MAY NEED THE PRIOR CONSENT OF THE HOLDERS OF OUR SERIES A PREFERRED SHARES
Since we began operations we have obtained operating funds primarily by
selling shares of our company and borrowing money from investors, banks and
institutional lenders. Since late 1996, a small portion of our operating funds
have come from sales of our products.
At this time, our sales are not sufficient to meet our anticipated
financial requirements. Based on our current plans, we believe that current cash
balances, including proceeds from our recently completed equity financing, and
anticipated funds from operations will be sufficient to enable us to meet our
operating needs for the next 12 months. However, the actual amount of funds that
we will need during
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the next 12 months will be determined by many factors, some of which are beyond
control. These factors include:
- our success in selling our products in the research and
clinical research markets during this period;
- our ability to obtain FDA approval to sell our HIV GeneKit and
related equipment for clinical diagnostic purposes;
- if we obtain FDA approval, the acceptance of our HIV products
by the clinical diagnostic market;
- the decision of third-party payors to reimburse clinicians and
patients for use of our HIV products;
- the success of our distribution partners in marketing and
selling our products in selected markets;
- progress with research and development;
- our success in introducing new products during the period;
- our ability to manage growth;
- our incurring significant fixed overhead and other expenses
prior to increasing our revenues;
- the costs of acquiring and integrating any new business or
technologies during the period;
- the results of any other strategic relationships into which we
may enter during the period;
- the costs and timing of obtaining new patent rights;
- regulatory changes;
- competition; and
- technological developments in the market.
We may need to obtain additional funds sooner or in greater amounts
than we currently anticipate and we may need to obtain additional funds at
the end of the 12 month period. Because of our potential long-term capital
requirements, we may seek to access the public or private equity markets
whenever conditions are favorable, even if we do not have an immediate need
for additional capital at that time. If we need to obtain funds at the end of
12 months, or earlier, potential sources of financing include strategic
relationships, public or private sales of our shares or debt or other
arrangements. We do not have any committed sources of financing at this time
and it is uncertain whether additional funding will be available when we need
it on terms that will be acceptable to us or at all. If we raise funds by
selling additional common shares or other securities convertible into common
shares, the ownership interest of our existing shareholders will be diluted.
If we are not able to obtain financing when needed, we would be unable to
carry out our business plan, we would have to significantly limit our
operations and our business, financial condition and results of operations
would be materially harmed.
If we wish to issue equity securities or obtain additional financing,
we may need the consent of our shareholders holding Series A preferred shares of
our company. We will be required to obtain the consent of the holders of a
majority of our then outstanding Series A preferred shares prior to issuing any
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equity security that has rights as to dividends and liquidation that are senior
or equal to those of the Series A preferred shares. Also, under certain
circumstances, if we propose to sell equity securities, including debt
securities convertible into equity securities, certain shareholders of our
Series A preferred shares will be entitled to preemptive rights which allow them
to purchase a proportional amount of the securities being offered. We will also
be required to obtain the consent of the holders of a majority of our then
outstanding Series A preferred shares if we wish to borrow money and at such
time or as a result of such loans, the total principal amount of our
indebtedness and capitalized lease obligations exceeds $15.0 million. In
addition, if we were to enter into a credit facility with a financial
institution, we may be subject to additional limitations on our ability to incur
additional indebtedness. As a result of the above, we may be delayed in, or
prohibited from, obtaining certain types of financing. See "Description of
Capital Shares."
WE DEPEND ON QUALIFIED SCIENTIFIC, TECHNICAL AND MANAGEMENT PERSONNEL
Because of the specialized scientific nature of our business, we are
highly dependent upon our ability to attract and retain qualified scientific and
technical personnel. We also must hire additional qualified management and sales
and marketing personnel as our business expands. Competition in our industry for
scientific, sales and marketing and management personnel is intense. Loss of the
services of our key personnel in these areas could adversely affect our research
and development and sales and marketing programs and could impede the
achievement of our goals. We do not maintain key man life insurance on any of
our personnel.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS
The testing, manufacturing, sale and marketing of our products exposes
us to the risk of product liability claims. Although we have obtained product
liability insurance coverage, we cannot guarantee that product liability
insurance will continue to be available to us on acceptable terms or that our
coverage will be sufficient to protect against all claims against us. A product
liability claim, even one without merit or for which we have substantial
coverage, could result in significant legal defense costs, thereby increasing
our expenses, lowering our earnings and, depending on revenues, potentially
resulting in additional losses.
WE MAY BE SUBJECT TO LIABILITY CLAIMS BASED ON ERRORS IN OUR TESTING SERVICES
We provide DNA testing, sequencing and other services for HIV,
hepatitis B, hepatitis C and other infectious diseases, as well as for certain
cancers. These services may be used in the future by clinicians to diagnose or
treat their patients. Clinicians, patients and others may at times seek damages
for the misdiagnosis of a patient's disease based on testing errors, for the
erroneous recommendation of drug treatment based on a technician's misreading of
the sequencing results, mishandling of the patient samples or similar claims.
Although we have obtained liability insurance coverage, we cannot guarantee that
liability insurance will continue to be available to us on acceptable terms or
that our coverage will be sufficient to protect us against all claims that may
be brought against us. A liability claim, even one without merit or for which we
have substantial coverage, could result in significant legal defense costs,
thereby increasing our expenses, lowering our earnings and, depending on
revenues, potentially resulting in additional losses.
WE FACE RISKS RELATING TO OUR INTERNATIONAL OPERATIONS
We sell our products in Europe, Asia and South America and operate
offices in Europe. Therefore, we are subject to certain risks that are inherent
in an international business. These include:
- varying regulatory restrictions on sales of our products to
certain markets and unexpected changes in regulatory
requirements;
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- tariffs, customs, duties and other trade barriers;
- difficulties in managing foreign operations and foreign
distribution partners;
- longer payment cycles and problems in collecting accounts
receivable;
- political risks;
- fluctuations in currency exchange rates;
- foreign exchange controls which may restrict or prohibit
repatriation of funds;
- export and import restrictions or prohibitions, and delays
from customs brokers or government agencies;
- seasonal reductions in business activity in certain parts of
the world; and
- potentially adverse tax consequences resulting from operating
in multiple jurisdictions with differing tax laws.
Depending on the countries involved, any or all of the foregoing
factors could materially harm our business, financial condition and results of
operations.
U.S. INVESTORS IN OUR COMPANY COULD SUFFER ADVERSE TAX CONSEQUENCES IF
WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY
Although we do not believe that we were a passive foreign investment
company (or PFIC) for United States federal income tax purposes during 1998,
there can be no assurance that we will not be treated as a PFIC in 1999 or
thereafter. We would be a PFIC if 75% or more of our gross income in a taxable
year is passive income. We would also be a PFIC if at least 50% of our assets
averaged over the taxable year produce, or are held for the production of,
passive income. Passive income includes, among other items, interest, dividends,
royalties, rents and annuities. If we are or become a PFIC, many of our U.S.
shareholders will be subject to the following adverse tax consequence:
- they will be taxed at the highest ordinary income tax rates in
effect during their holding period on certain distributions on
our common shares, and gain from the sale or other disposition
of our common shares;
- they will be required to pay interest on taxes allocable to
prior periods; and
- the tax basis of our common shares will not be increased to
fair market value at the date of their death.
If we are or become a PFIC, our U.S. shareholders could avoid these tax
consequences by making a qualified electing fund election or a mark-to-market
election (a mark-to-market election, however, will not provide for an increase
of our common shares to fair market value at the date of their death). These
elections would need to be in effect for all taxable years during which we were
a PFIC and during which our U.S. shareholders held our common shares. If a U.S.
shareholder makes a qualified electing fund election, he will be taxed currently
on our ordinary income and net capital gain (unless a deferral election is in
effect). If a U.S. shareholder makes a mark-to-market election, he will include
as ordinary income each year an amount equal to the excess of the fair market
value of our common shares over his adjusted tax basis as of the close of each
year (with certain adjustments for prior years).
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If we are or become a PFIC, our U.S. shareholders will generally be
unable to exchange our common shares for common shares of an acquiring
corporation on a tax-deferred basis under the reorganization rules of the
Internal Revenue Code, and many other nonrecognition provisions of the Internal
Revenue Code will not apply to transfers of our common shares. In addition, if
we are or become a PFIC, pledges of our common shares will be treated as sales
for federal income tax purposes. Our U.S. shareholders should note that state
and local taxes may also apply if amounts are included in federal taxable income
under the PFIC rules of the Internal Revenue Code. The PFIC rules are very
complex. Our U.S. shareholders are strongly encouraged to consult with their tax
advisor concerning all of the tax consequences of investing in our common shares
and the possible benefits of making a tax election given their circumstances.
Additionally, our U.S. shareholders should review the section entitled "U.S.
Federal Income Tax Considerations" contained in our Annual Report on Form 20-F
for a more detailed description of the PFIC rules and how they may affect their
ownership of our common shares.
OUR UNLIMITED PREFERRED SHARES, CLASSIFIED BOARD OF DIRECTORS AND SERIES A
DIRECTOR COULD PREVENT OR DELAY TAKEOVERS AND, OUR PREFERRED SHARES CONTAIN
PREFERENCES OVER OUR COMMON SHARES
Our authorized capital consists of an unlimited number of common shares
and an unlimited number of preferred shares. The Board of Directors, without any
further vote by the shareholders, has the authority to issue preferred shares
and to determine the price, preferences, rights and restrictions, including
voting and dividend rights, of these shares. The rights of the holders of common
shares are subject to the rights of holders of any preferred shares that the
Board of Directors may issue in the future. That means, for example, that we can
issue preferred shares with more voting rights, higher dividend payments or more
favorable rights upon dissolution, than the common shares. If we issued certain
types of preferred shares in the future, it may also be more difficult for a
third party to acquire a majority of our outstanding voting shares. See
"Description of Capital Shares."
In July 1999, we issued 33,948 Series A preferred shares. Our Series A
preferred shares entitle the holders to certain preferences over our common
shares, including the following:
- we may not issue any securities that rank senior to, or in
parity with, the Series A preferred shares without obtaining
the approval of the holders of a majority of the Series A
preferred shares;
- we may not issue dividends to holders of common shares until
all accrued and unpaid dividends on the Series A preferred
shares are paid in full; and
- if we liquidate or wind-up our company or if we sell our
company or in certain other circumstances, holders of Series A
preferred shares are entitled to receive an amount equal to
$1,000 per Series A preferred share, or approximately $34.0
million in the aggregate, plus accrued and unpaid dividends,
before holders of common shares would be entitled to receive
any distribution.
In addition, we have a "classified" Board of Directors, which means
that only one-third of our directors are eligible for election each year.
Therefore, if shareholders wish to change the composition of the Board of
Directors, it would take at least two years to remove a majority of the existing
directors, and three years to change all directors.
Also, the holders of our Series A preferred shares are entitled to vote
as a class for one director. Each Series A Director serves for a one year term
and any vacancy may be filled only by a vote of the holders of Series A
preferred shares. In the event that we do not redeem our Series A preferred
shares as required during 2006, 2007 and 2008, then our Series A shareholders
will be entitled to special voting
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rights enabling them to elect a majority of our Board of Directors, who will
continue to serve as directors until we have redeemed our Series A preferred
shares as required.
Having a classified Board of Directors and a Series A director may, in
some circumstances, deter or delay mergers, tender offers or other possible
transactions which may be favored by some or a majority of our shareholders.
THE VOLATILITY OF THE STOCK MARKET COULD DRIVE DOWN THE PRICE OF OUR COMMON
SHARES
The market prices for securities of life sciences companies,
particularly those that are not profitable, have been highly volatile,
especially recently. Publicized events and announcements may have a significant
impact on the market price of our common shares. For example, announcements that
may have the effect of temporarily or permanently driving down the price of our
common shares include:
- failure to obtain FDA approval for our HIV OpenGene System;
- publicizing poor quarterly financial results;
- biological or medical discoveries by competitors;
- failed technological innovations;
- unfavorable domestic or foreign regulatory developments; and
- unfavorable developments concerning patents or other
proprietary rights.
In addition, the stock market from time to time experiences extreme
price and volume fluctuations which particularly affect the market prices for
emerging and life sciences companies, such as ours, and which are often
unrelated to the operating performance of the affected companies. These broad
market fluctuations may make it difficult for a shareholder to sell shares at a
price equal to or above the price at which the shares were purchased.
FUTURE SALES OF ELIGIBLE SHARES MAY LOWER THE PRICE OF OUR COMMON SHARES
As of October 29, 1999, we have outstanding 9,648,754 common shares,
not including the shares covered by this prospectus. All of those shares are
eligible for sale under Rule 144, or are otherwise freely tradable, except for
those common shares held by our affiliates.
The common shares covered by this prospectus will be issued upon
exercise of the warrants and/or conversion of the Series A preferred shares and
will be freely tradable for as long as this Registration Statement remains
effective.
In addition:
- Our affiliates own 2,352,048 shares which may be sold subject
to volume restrictions imposed by Rule 144. Our affiliates
also own options to acquire an additional 240,000 shares. The
shares to be issued upon exercise of these options have been
registered or are being registered concurrently with this
Registration Statement and may be freely sold when issued.
- Our employees (who are not deemed affiliates) hold options to
buy a total of 1,423,042 shares. The shares to be issued upon
exercise of these options have been registered or are being
registered concurrently with this Registration Statement and
may be freely sold when issued.
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- 587,154 shares, and an additional 76,734 shares issuable upon
exercise of outstanding warrants, are registered for sale
pursuant to registration statements filed with the Securities
and Exchange Commission, and may be freely sold.
- We may issue options to purchase up to an additional 251,793
shares under our stock option plans. The shares to be issued
upon exercise of these options have been registered or are
being registered concurrently with this Registration Statement
and may be freely sold when issued.
Sales of substantial amounts of common shares into the public market
could lower the market price of our common shares.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has owned shares for at least
one year would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the number of our common
shares then outstanding (which will equal approximately 96,488 shares
immediately upon the effective date of this prospectus) or (ii) the average
weekly trading volume of our common shares during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about our
company. Under Rule 144(k), a person who is not deemed to have been our
affiliate at any time during the three months preceding a sale, and who has
owned the shares proposed to be sold for at least two years, is entitled to sell
his shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
WE FACE FOREIGN CURRENCY EXCHANGE RISKS
Our financial statements are prepared in U.S. dollars and much of our
business is conducted in U.S. dollars. However, we do incur expenses in Canadian
dollars and in other foreign currencies. We also sell products to customers in
foreign countries and bill those customers in local currencies at predetermined
exchange rates. As our business expands, we anticipate that we will increasingly
incur expenses and bill and receive payments in local currencies at prevailing
exchange rates. As a result, we are exposed, and will continue to be exposed, to
risks due to fluctuations in the exchange rates between the U.S. dollar and the
Canadian dollar and the U.S. dollar and the currencies of such other countries.
We currently engage in limited foreign exchange hedging activities by purchasing
Canadian funds before they are actually required to protect ourselves against
the risk of losses due to fluctuations in exchange rates. We do not currently
engage in hedging activities for any other foreign currencies. We may suffer
losses as a result of fluctuations in the exchange rates between the U.S.
dollar and foreign currencies.
WE FACE RISKS RELATING TO YEAR 2000 ISSUES
Beginning on January 1, 2000, some computer systems and software will
produce erroneous results or fail unless they have been modified or upgraded to
process date information correctly. We have conducted a comprehensive
examination of our information technology systems, software applications and
software applications sold with our products to determine compliance with the
year 2000. Based on our examination, we believe that these systems and software
applications are year 2000 compliant.
We have contacted our material customers, suppliers and third-party
service providers to identify year 2000 problems and provide solutions to
prevent any disruption of business activities. We completed a review of the
compliance efforts by these parties in the third quarter of 1999. Based on the
information we have received, our most significant year 2000 risk would involve
disruption of our material supply and distribution channels, and in particular
the supply of certain instrument parts and supplies from single-source
suppliers. This would likely lead to material interruption in product
development and sales of our products. In addition, we could encounter
significant expenses in remedying any problems or switching to year 2000
compliant vendors and suppliers.
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. You can identify
these forward-looking statements when you see us using words such as "expect,"
"anticipate," "estimate," "believe," "intend," "may," "predict," and other
similar expressions. These forward looking statements cover, among other items:
- acceptance of our products in the clinical diagnostic market;
- acceptance of genotyping in the clinical diagnostic market;
- our marketing and sales plans;
- our expectations about the markets for our products;
- the performance of our products;
- our intention to introduce new products;
- our future capital needs;
- FDA and other regulatory approval for certain of our products;
- our proposed clinical trials;
- reimbursement of our products by insurance companies and other
third-party payors;
- our ability to compete in the research, clinical research and
clinical diagnostic markets;
- our patent applications; and
- the status of year 2000 compliance efforts of our company, and
our material customers and suppliers.
We have based these forward-looking statements largely on our current
expectations. However, forward-looking statements are subject to a number of
risks and uncertainties, certain of which are beyond our control. Actual results
could differ materially from those anticipated as a result of the factors
described under "Risk Factors" including, among others:
- delays in obtaining, or our inability to obtain, approval by
the FDA and other regulatory authorities for our HIV OpenGene
System and, in the future, certain of our other products for
the clinical diagnostic market;
- refusal of insurance companies and other third-party payors to
reimburse patients and clinicians for our products;
- uncertainty of acceptance of genotyping, in general, and of
our products, in particular, in the clinical diagnostic
market;
- problems, delays and expenses we may face with our proposed
clinical trials;
- problems that we may face in manufacturing, marketing and
distributing our products;
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- delays in the issuance of, or the failure to obtain, patents
or licenses for certain of our products and technologies;
- problems with important suppliers and business partners;
- delays in developing, or the failure to develop, new products
and enhanced versions of existing products; and
- the timing of our future capital needs or our inability to
raise additional capital when needed.
We do not undertake any obligation to publicly update or revise any
forward-looking statements contained in this prospectus or incorporated by
reference, whether as a result of new information, future events or otherwise.
Because of these risks and uncertainties, the forward-looking statements and
circumstances discussed in this prospectus might not transpire.
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<PAGE>
USE OF PROCEEDS
All of the common shares offered by this prospectus are being offered
by the selling shareholders. We will not receive any proceeds from sales of
common shares by the selling shareholders.
DIVIDEND POLICY
SERIES A PREFERRED SHARES. Dividends on our Series A preferred shares
accrue at the rate of 9% per year during the first three years after issuance,
and 4% per year thereafter. Dividends will not be payable for the first three
years. After three years, at our option, we may pay dividends in cash. If
dividends are not paid in cash, they will continue to accrue and will be
convertible into additional common shares upon conversion of the preferred
shares. See "Description of Capital Shares."
COMMON SHARES. We have not declared or paid any cash dividends on our
common shares. We currently intend to retain any future earnings for use in the
operation and expansion of our business. We do not anticipate paying any cash
dividends on our common shares in the foreseeable future.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA The
following selected consolidated financial data set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our Consolidated Financial
Statements and the Notes thereto included in our Annual Report on Form 20-F,
incorporated into the prospectus by reference. The Consolidated Statement of
Operations data for fiscal years 1996, 1997 and 1998 and the Consolidated
Balance Sheet data as of December 31, 1997 and 1998, as set forth below, have
been derived from our consolidated financial statements included in our
Annual Report on Form 20-F, which have been audited by PricewaterhouseCoopers
LLP, Chartered Accountants in Canada, whose report with respect to such
financial statements appears in our Annual Report on Form 20-F. The
Consolidated Statement of Operations data for fiscal years 1994 and 1995 and
the Consolidated Balance Sheet data as of December 31, 1994, 1995 and 1996,
as set forth below, have been derived from audited consolidated financial
statements not included in this prospectus. The Consolidated Statement of
Operations data for the nine-month periods ended September 30, 1998 and 1999
and the Consolidated Balance Sheet data as of September 30, 1999 are derived
from unaudited consolidated financial statements included in our Report on
Form 6-K Filing No. 1 for the Month of November 1999, dated November 10,
1999, and incorporated into this prospectus by reference, which in the
opinion of our management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial data for
such period. Historical results are not necessarily indicative of results to
be expected for any future period.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except number of common shares outstanding and net loss per share
amounts)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
STATEMENT OF OPERATIONS 1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ -- -- $ 978 $ 3,033 $ 10,875
Cost of Sales -- -- 561 1,995 6,673
Gross margin -- -- 417 1,038 4,202
Sales, general and administrative
expense 450 1,476 3,377 7,448 11,516
Research and development 482 1,241 2,745 4,123 6,289
Other -- -- -- 654 420
Loss from operations before
interest (932) (2,717) (5,705) (11,187) (14,023)
Interest income 9 12 609 774 264
Interest and financing
expense -- (19) (69) (3) (1,132)
Net (loss) $ (923) $ (2,724) $ (5,165) $ (10,416) $ (14,891)
Net (loss) per share $ (0.32) $ (0.65) $ (0.89) $ (1.48) $ (1.91)
Weighted average number of
Common shares outstanding 2,902,735 4,181,599 5,791,367 7,059,578 7,782,094
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
STATEMENT OF OPERATIONS 1998 1999
---- ----
(unaudited)
<S> <C> <C>
Sales $ 6,797 $ 8,672
Cost of Sales 4,406 6,318
Gross margin 2,391 2,354
Sales, general and administrative
expense 7,655 13,409
Research and development 5,005 5,986
Other -- --
Loss from operations before
interest (10,269) (17,041)
Interest income 200 351
Interest and financing
expense (434) (1,783)
Net (loss) $ (10,503) $ (18,473)
Net (loss) per share $ (1.42) $ (2.03)
Weighted average number of
Common shares outstanding 7,416,393 9,508,358
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ------------
(UNAUDITED)
BALANCE SHEET DATA
<S> <C> <C> <C> <C> <C> <C>
Cash and short-term investment $ 633 $ 403 $ 18,928 $ 7,588 $ 11,274 $ 18,956
Working capital $ 869 $ 418 $ 20,061 $ 9,561 $ 8,432 $ 24,656
Indebtedness -- $ 500 -- -- $ 7,495 --
Total assets $ 1,217 $ 1,791 $ 22,606 $ 13,936 $ 27,783 $ 36,315
Shareholders' equity $ 1,040 $ 841 $ 21,795 $ 12,610 $ 14,579 $ 4,723
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction
with "Selected Consolidated Financial Data" and our Consolidated Financial
Statements and Notes thereto included elsewhere in this prospectus. In addition
to historical information, the following discussion contains certain
forward-looking statements that involve known and unknown risks and
uncertainties, such as statements of our plans, objectives, expectations and
intentions. Our actual results could differ materially from those discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and in the
section entitled "Risk Factors," and "Forward Looking Statements" as well as
those discussed elsewhere herein.
OVERVIEW
We began operations in 1993. Until 1996, we devoted substantially all
of our resources to the research and development of our technology and products.
In late 1996, we began manufacturing and selling our products to the research
and clinical research markets.
- Our products and services are described below.
- SEQUENCING SYSTEMS. Sequencing systems consist of automated
DNA sequencers and related equipment, and our proprietary DNA
analysis and data management software.
- GENEKITS AND OTHER CONSUMABLES. GeneKits consist of various
reagents, enzymes, primers and other chemicals, and other
consumables consist of disposable gel cassettes, acrylamide
and other materials.
TESTING, SEQUENCING AND OTHER SERVICES. We provide services, such as
viral load testing, genotyping and other molecular services, through our
wholly-owned subsidiaries, Applied Sciences, Inc., which we acquired in
1997, and ACT Gene S.A., which we acquired in 1998.
During 1996 and 1997, we generated revenues primarily by selling
sequencing systems. During this period, our business strategy focused on
installing our DNA sequencers and related equipment in research and clinical
research facilities. During 1998, we began to shift our strategy to target the
clinical diagnostic market and to place greater emphasis on generating recurring
revenues from sales of GeneKits and other consumables initially to the research
and clinical research markets and, subject to FDA approval, to the clinical
diagnostic market. As part of this strategy, we may sell our DNA sequencers at
reduced prices to customers who commit to purchase significant quantities of
GeneKits and other consumables, or we may bundle the sequencers and GeneKits for
sale at favorable prices. This strategy may result, initially, in reduced gross
margins and additional losses as we attempt to expand our installed base of DNA
sequencers. However, we believe that this strategy, over the long term, will
help us maximize recurring sales of our HIV GeneKit and other GeneKits to the
clinical diagnostic market, should we receive FDA approval.
OUR OPERATIONS
SALES. Sales consist of revenues from the sale of sequencing systems,
GeneKits and other consumables as well as from the sale of testing services.
Sales include shipping charges, but exclude sales and excise taxes. Revenue from
the sale of our products is recognized when shipment occurs and title passes to
the customer. Revenue from the sale of testing and other services is recognized
when the service is provided and there is a reasonable assurance of
collectibility. Sales of bundled sequencing systems and GeneKits are recognized
proportionately as the components of the bundle are shipped to customers. The
total sales price of the bundle is allocated to the components proportionately
based on the retail prices
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typically charged for such components if they were sold individually rather than
as part of the bundle. For an analysis of sales by product segment and
geographic market, see Note 12 to our Consolidated Financial Statements.
COST OF SALES. Cost of sales consists of manufacturing costs including
materials, labor and overhead chargeable to inventory. The gross margin from
sales of our products and services varies depending on product category,
distribution channel and geographic market. Gross margin is calculated by
subtracting cost of sales from sales. We sell our products in North America,
Europe, Asia, Australia and South America. In the United States, Canada and many
countries in Europe, we sell our products directly through our own sales force.
In selected geographic and product markets, we seek to sell our products through
distribution, marketing or agency agreements with leading distributors.
Currently, we have entered into agreements with distributors in Spain, Portugal,
Japan, Australia, New Zealand, Argentina and Brazil.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses consist primarily of salaries and related expenses,
occupancy costs, utilities, professional fees, consulting fees, travel costs,
capital taxes, depreciation of fixed assets and amortization of costs paid to
patent counsel.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of salaries and related expenses for employees engaged in
research and development, occupancy costs, consulting fees, travel costs,
depreciation and amortization of fixed assets and costs related to FDA clinical
trials for our HIV OpenGene System.
INTEREST INCOME. Interest income consists of income earned on cash,
cash equivalents and marketable securities.
INTEREST AND FINANCING EXPENSE. Interest and finance expense consists
of interest paid or accrued, and amortization of warrant costs and other
financing expenses.
Our financial statements are presented in U.S. dollars and are prepared
in accordance with generally accepted accounting principles in the United
States.
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
SALES. Sales increased 28% to $8.7 million for the nine months ended
September 30, 1999, compared with $6.8 million for the same period of the prior
year. This increase resulted primarily from increased sales of our GeneKits and
other consumables. In the nine months ended September 30, 1999, automated DNA
sequencing systems accounted for 57% of total sales, compared to approximately
73% of total sales in the same period of the prior year. GeneKits and other
consumables accounted for 33% of total sales, compared to approximately 13% of
total sales in the same period of the prior year. Testing services accounted for
10% of total sales, compared to 14% of total sales in the same period of the
prior year. Sales in North America, Europe, and Asia and South America were $3.9
million, $3.4 million and $1.4 million, respectively, during the nine months
ended September 30, 1999, as compared to $5.6 million, $1.0 million and $0.2
million, respectively, during the nine months ended September 30, 1998.
COST OF SALES. Cost of sales increased to $6.3 million for the nine
months ended September 30, 1999, from $4.4 million in the same period of the
prior year. In the nine months ended September 30, 1999, cost of sales
aggregated 73% of sales, compared to 65% of sales in the same period of the
prior year. This increase in cost of sales was primarily related to the
increase in sales and a write-off of obsolete and discontinued instruments
and related parts totaling $0.62 million recorded in the second quarter of
1999.
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SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses increased 75% to $13.4 million for the nine months ended
September 30, 1999, compared with $7.7 million for the same period of the prior
year. This increase resulted primarily from increased payroll and personnel
costs due to the continued growth of our business, costs of quality control and
regulatory departments established in 1998 and the continued expansion of our
sales force in North America and Europe. Sales and marketing expenses included
in sales, general and administrative expenses increased 93% to $7.0 million for
the nine months ended September 30, 1999, compared with $3.6 million for the
same period of the prior year.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 20% to $6.0 million for the nine months ended September 30, 1999,
compared with $5.0 million for the same period of the prior year. This increase
resulted from increased payroll and personnel costs, along with increased
purchases of laboratory supplies, as we developed additional GeneKits and
continued our research programs. Additionally, we incurred costs for
pre-clinical and clinical trials related to our FDA submission for our HIV
OpenGene System.
INTEREST INCOME. Interest income was $0.4 million for the nine months
ended September 30, 1999, compared with $0.2 million for the same period of the
prior year.
INTEREST AND FINANCING EXPENSE. Interest and financing expense
increased to $1.8 million for the nine months ended September 30, 1999, compared
with $0.4 million for the same period of the prior year. This increase was due
to interest and financing costs on our term loan agreements entered into in
April and September 1998 and the Warburg Pincus financing in July 1999. See
"Liquidity and Capital Resources." Of the total interest and financing expense,
$1.3 million was a non-cash charge due to the amortization of costs attributable
to warrants issued in connection with our term loans and the Warburg Pincus
financing, compared to $0.2 million for the same period of the prior year.
COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1998 TO FISCAL YEAR ENDED DECEMBER
31, 1997
SALES. Sales increased 259% to $10.9 million in 1998 from $3.0 million
in 1997. This increase resulted from increased sales of our automated DNA
sequencers, GeneKits and other consumables and testing services. In 1998, 412
automated DNA sequencing systems were sold, an increase of 353% from the 91
systems sold in 1997. In 1998, automated DNA sequencing systems accounted for
74% of sales, compared to 90% of sales in 1997. GeneKits and other consumables
accounted for 13% of sales in 1998, compared to 8% in 1997. Testing services
accounted for 13% of sales in 1998 compared to 2% of sales in 1997 as a result
of our acquisition in 1998 of a DNA diagnostic testing company. Sales during
1998 in North America, Europe, and Asia and South America were $7.4 million,
$3.0 million and $0.5 million, respectively, as compared to $2.8 million, $0.2
million and $0.05 million, respectively, during 1997.
COST OF SALES. Cost of sales increased to $6.7 million in 1998 from
$2.0 million in 1997. In 1998, cost of sales aggregated 61% of sales, a decrease
from 66% of sales in 1997. Cost of sales decreased in 1998 as a percentage of
sales due to improvements in our manufacturing processes, as well as economies
of scale as production of automated DNA sequencing systems, GeneKits and other
consumables increased compared to the previous year.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses increased 55% to $11.5 million in 1998 from $7.4 million
in 1997. This increase resulted primarily from increased payroll and personnel
costs due to the growth of our business, establishment of quality control and
regulatory departments and development of a sales force in North America and in
certain countries in
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<PAGE>
Europe. Sales and marketing expenses included in sales, general and
administrative expenses increased 126% to $6.1 million in 1998 from $2.7 million
in 1997.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 53% to $6.3 million in 1998 from $4.1 million in 1997. This increase
in research and development expenses resulted from increased payroll and
personnel costs along with increased purchases of laboratory supplies as we
continued to develop GeneKits and expanded our research programs.
In April 1998, we acquired 100% of the shares of ACT Gene S.A., a DNA
diagnostic testing company, for 85,000 common shares and cash payable of $0.7
million. This acquisition was accounted for as a purchase, and resulted in the
recording of an excess of purchase price over tangible net assets of $0.5
million, of which $0.4 million was determined to be in-process research and
development, and reflected as an expense in 1998.
INTEREST INCOME. Interest income declined to $0.3 million in 1998 from
$0.8 million in 1997.
INTEREST AND FINANCING EXPENSE. Interest and financing expense
increased to $1.1 million in 1998 from approximately nil in 1997 due to interest
paid or accrued and the amortization of costs attributable to warrants issued in
connection with term loans entered into in April and September 1998.
COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1997 TO FISCAL YEAR ENDED DECEMBER
31, 1996
SALES. Sales increased 210% to $3.0 million in 1997 from $1.0 million
in 1996. This increase resulted from increased sales of our automated DNA
sequencers and GeneKits and other consumables. In 1997, 91 automated DNA
sequencing systems were sold, an increase of 112% from the 43 systems sold in
1996. In 1997, automated DNA sequencing systems accounted for 89% of total
sales, compared to 95% of total sales in 1996. GeneKits and other consumables
accounted for 9% of total sales in 1997, compared to 5% of total sales in 1996.
Sales during 1997 in North America, Europe, and Asia and South America were $2.8
million, $0.2 million and $0.05 million, respectively, as compared to $0.8
million, $0.1 million and nil, respectively, during 1996.
COST OF SALES. Cost of sales increased to $2.0 million in 1997 from
$0.6 million in 1996. In 1997, cost of sales aggregated 66% of sales as compared
to 57% of sales in 1996. Cost of sales increased in 1997 as a percentage of
sales due to capacity constraints and various manufacturing challenges as
production increased to meet demand.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses increased 121% to $7.4 million in 1997 from $3.4 million
in 1996. This increase primarily resulted from increased payroll and personnel
costs as we hired additional selling, marketing, administrative and management
personnel due to our growth, and the costs of developing a sales force in North
America and certain countries in Europe. Sales and marketing costs included in
sales, general and administrative expenses increased to $2.7 million in 1997
from $0.7 million in 1996.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 50% to $4.1 million in 1997 from $2.7 million in 1996. This increase
resulted from increased payroll and personnel costs along with increased
purchases of laboratory supplies as we established a research facility in
Pittsburgh, the continued development of GeneKits at our main lab in Toronto and
with outside researchers and increased design and development costs associated
with our OpenGene System.
Effective October 1997, we acquired Applied Sciences, Inc., a
Georgia-based diagnostics company specializing in HIV genotyping. This
acquisition was accounted for as a purchase and resulted in the recording of an
excess of purchase price over tangible assets of $0.7 million. This amount was
determined to be in-process research and development and was reflected as an
expense in 1997.
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INTEREST INCOME. Interest income increased to $0.8 million in 1997 from
$0.6 million in 1996. This increase resulted because in 1996 we earned only six
months' interest following our initial public offering in June 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through
private placements of equity, with aggregate net proceeds of approximately $47.7
million, and an initial public offering in June 1996, which raised net proceeds
of approximately $25.8 million. We have also borrowed $8.0 million from
institutional lenders and in the past utilized a bank credit facility.
BANK CREDIT FACILITY. In 1997, we obtained a bank line of credit for up
to $1.1 million from the Royal Bank of Canada. The loan was secured by a lien on
our accounts receivable, inventory and fixed assets. In April 1998, the bank
line was repaid and the line was cancelled.
INSTITUTIONAL LOANS. On April 30, 1998, our subsidiary, Visible
Genetics Corp., or VGC, borrowed $7.0 million from various funds for which Hilal
Capital Management LLC serves as investment advisor or management company. We
refer to these funds in this prospectus as our "institutional lenders" or the
"Hilal funds." In September 1998, VGC borrowed an additional $1.0 million from
these lenders. The interest rate of the loans was 10% per year. Interest and
principal on the $7.0 million loan were payable on or about April 29, 1999, and,
on the $1.0 million loan, were payable on December 28, 1999.
On April 30, 1999, we and the institutional lenders agreed to delay the
payment date of the $7.0 million loan to December 31, 1999, and to move up the
payment date of the $1.0 million loan to July 1, 1999. The institutional lenders
later extended the payment date to the earlier of July 22, 1999, or the
completion of the Warburg Pincus financing (described below). In addition, the
institutional lenders agreed to permit us to borrow up to an additional $5.0
million of loans from other lenders which would be senior to the $7.0 million
loan and junior to the $1.0 million loan.
We guaranteed VGC's obligations under both loans. We gave the
institutional lenders a security interest in most of our assets to secure our
obligations under the guaranty, including a pledge of the outstanding stock of
VGC. Both the loan agreements and the guaranty imposed certain restrictions on
us and our subsidiaries, including limitations on loans and other obligations
which we may incur.
As part of the loan arrangements, we granted the institutional lenders
warrants to purchase our common shares. Initially, we granted the institutional
lenders warrants to purchase 420,000 common shares which may be exercised until
April 2003, at a price of $10.00 per share. When we borrowed an additional $1.0
million from the institutional lenders in September 1998, we granted them
warrants for an additional 120,000 common shares which may be exercised until
September 2003, at a price of $10.00 per share. On April 30, 1999, we granted
the institutional lenders warrants to purchase an additional 140,000 common
shares which may be exercised until April 30, 2006, at a price of $17.00 per
share. As a result, non-cash charges of $0.6 million were recorded as financing
expenses in 1998.
On July 15, 1999, we repaid all of the loans made to us by the Hilal
Funds. Of the $8.0 million principal amount of the loans, we paid $4.1 million
of principal plus accrued interest on the loan in cash. The Hilal Funds
converted the remaining $3.9 million principal amount plus accrued interest into
3,948 Series A preferred shares and 147,098 warrants to purchase our common
shares. The Series A preferred shares and warrants have the same terms as
those granted to Warburg Pincus (as described below).
WARBURG PINCUS FINANCING. On July 15, 1999, certain affiliated funds
managed by E.M. Warburg, Pincus & Co., LLC, invested $30.0 million in our
company. In consideration for this investment, we issued to the Warburg Pincus
Funds 30,000 Series A preferred shares convertible at the
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holders' option into common shares at $11.00 per share, and warrants to purchase
1,100,000 common shares exercisable for four years at a purchase price of $12.60
per share. For a description of the Series A preferred shares and the warrants,
see "Description of Capital Shares."
CAPITAL EXPENDITURES. Additions to fixed assets were approximately $0.8
million, $1.1 million and $3.3 million for the years ended December 31, 1996,
1997 and 1998, respectively and $1.5 million for the nine months ended September
30, 1999. We expect capital expenditures to increase over the next several years
as we expand our facilities and acquire additional manufacturing and scientific
equipment.
CURRENT AND FUTURE FINANCING NEEDS. We have incurred negative cash flow
from operations since we started our business. We have spent, and expect to
continue to spend, substantial amounts to complete our planned product
development efforts, expand our sales and marketing activities, conduct our
clinical trials, conduct research, build our business infrastructure and expand
our manufacturing capabilities. At this time, funds from operations are not
sufficient to meet our operating needs and other anticipated financial
requirements.
We believe, based on our current plans, that our cash on hand and
anticipated funds from operations will be sufficient to enable us to meet our
operating needs for the next 12 months. However, the actual amount of funds
we will need to operate for the next 12 months is subject to many factors,
some which are beyond are control. We may need to obtain additional funds
sooner or in greater amounts than we currently anticipate and we may need to
obtain additional funds at the end of the 12 month period. If we need to
obtain funds at the end of 12 months, or earlier, potential sources of
financing include strategic relationships, public or private sales of our
shares or debt or other arrangements. We do not have any committed sources of
financing at this time and it is uncertain whether additional funding will be
available when we need it on terms that will be acceptable to us or at all.
If we raise funds by selling additional common shares or other securities
convertible into common shares, the ownership interest of our existing
shareholders will be diluted. If we are not able to obtain financing when
needed, we would be unable to carry out our business plan, we would have to
significantly limit our operations and our business, financial condition and
results of operations would be materially harmed.
If we wish to issue equity securities or obtain additional
financing, we will need the consent of the Series A preferred shareholders
under certain circumstances. We will be required to obtain the consent of the
holders of a majority of the then outstanding Series A preferred shares prior
to issuing any equity security that has rights as to dividends and
liquidation that are senior or equal to those of the Series A preferred
shares. We will also be required to obtain the consent of the holders of a
majority of the then outstanding Series A preferred shares if we wish to
borrow money and at such time or as a result of such loans, the total
principal amount of our indebtedness and capitalized lease obligations
exceeds $15.0 million. As a result, we may be delayed in, or prohibited from,
obtaining certain types of financing.
See "Risk Factors- We may need additional capital and if we issue or
obtain additional financing, we may need the prior consent of the holders of our
Series A preferred shares."
YEAR 2000
As the year 2000 approaches, an issue exists for companies that rely on
computers as a result of the computer industry's past practice of using two
digits rather than four digits to identify the applicable year. Consequently,
many software applications and programs may not properly recognize calendar
dates beginning in the year 2000. If not corrected, these applications and
programs could fail or create erroneous results.
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We have conducted a comprehensive examination of our information
technology systems and the software applications sold with our products to
determine year 2000 compliance. Based on our examination, we believe that these
systems and software applications are year 2000 compliant.
We do not expect that the costs associated with achieving year 2000
compliance will have a material adverse effect on our future results of
operations, liquidity or capital resources. We estimate that the cost of our
year 2000 compliance efforts will be approximately $470,000, of which $450,000
represents the cost of a new enterprise system purchased in 1998. While we did
not purchase the new system specifically in response to year 2000 issues, our
efforts at compliance accelerated the timetable for purchasing the system. We
believe that the costs to be incurred in reviewing our non-information
technology systems will be immaterial.
We have contacted our material customers, suppliers and third-party
service providers to identify year 2000 problems and provide solutions to
prevent any disruption of business activities. We completed a review of the
compliance efforts by these parties in the third quarter of 1999. Based on
the information we have received, our most significant year 2000 risk would
involve disruption of our material supply and distribution channels, and in
particular the supply of certain instrument parts and supplies from
single-source suppliers. This would likely lead to material interruption in
product development and sales of our products. In addition, we could
encounter significant expenses in remedying any problems or switching to year
2000 compliant vendors and suppliers. See "Risk Factors-We face risks
relating to year 2000 issues."
EURO CONVERSION
Effective January 1, 1999, 11 of the 15 member countries of the
European Union adopted the euro as their common legal currency and each
participant established fixed conversion rates between their sovereign, or
legacy, currencies and the common euro currency. The legacy currencies of the
individual countries are scheduled to remain legal tender as denominations of
the euro until January 1, 2002, when euro-denominated bills and coins will be
introduced. During this transition period, public and private parties may choose
to pay for goods and services using either the euro or the participating
country's legacy currency. By July 1, 2002, the legacy currencies will be phased
out entirely as legal tender.
We currently conduct business operations in U.S. and Canadian dollars
and several other currencies. Since our information systems and processes
generally accommodate multiple currencies, we anticipate that any necessary
modification to our information systems, equipment and processes to accommodate
euro transactions will be made on a timely basis and do not expect any failures
that would have a material adverse effect on our financial position or results
of operations.
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INFORMATION ABOUT THE COMPANY
For a detailed description of our business and information about our
management, see our Annual Report on Form 20-F which is incorporated into this
prospectus by reference. The following information supplements or supercedes, as
may be appropriate, the information contained in our Annual Report on Form 20-F.
GENEKITS
We are no longer developing a GeneKit for human
papillomavirus. We feel our resources are better utilized by concentrating on
other GeneKits we are currently developing, such as hepatitis B, hepatitis C and
tuberculosis.
MANAGEMENT CHANGES
In July 1999, certain affiliated funds managed by E.M Warburg, Pincus &
Co., LLC, invested $30.0 million in our Company in exchange for 30,000 Series A
convertible preferred shares and warrants to purchase 1.1 million common shares
of our Company. Holders of our Series A preferred shares are entitled to vote as
a class for one director. Pursuant to that right, our Series A shareholders
appointed Jonathan S. Leff, a Vice President of E.M. Warburg, Pincus & Co., LLC
(see below for biography), as their representative to our Board of Directors.
Since Canadian law requires that a majority of our Board of Directors be
residents of Canada, Dr. Thomas C. Merigan, Jr. resigned as a director, thus
allowing our Company to remain in compliance with the law. Mr. Leff has filled
the position held by Dr. Merigan. Mr. Leff also serves on the Audit Committee
and the Compensation Committee of our Board of Directors. Mr. Leff, who is 31,
joined E.M. Warburg, Pincus & Co., LLC in July 1996 as an Associate, and in
January 1999, he became a Vice President. Mr. Leff is also a director of
VitalCom Inc., a provider of patient information networks and software, and a
number of private health care companies.
On November 10, 1999, Dr. John K. Stevens, our founder, and Chairman of
the Board of Directors retired from the Board. In accordance with the terms of
his employment agreement, Dr. Stevens will receive a severance package of 2
years salary plus benefits. We have extended the termination date of Dr.
Stevens' options until 2003. Upon retirement, Dr. Stevens repaid a $323,405 loan
owed to our company which was payable in 2006 and a $50,000 loan owed to our
company which was payable in December 1999.
In July 1999, Jeffrey D. Sherman, Vice President, Finance and Chief
Financial Officer, resigned from our company. A search firm has been retained to
identify a suitable candidate to fill the vacancy. Mr. Sherman has been
providing us with consulting services on an as required basis during the
transition period.
On November 10, 1999, Timothy W. Ellis was appointed Chief Operating
Officer for our company. In this role, he will be responsible in North America
for achieving overall business objectives, organizing and developing our sales
and marketing activities, and managing all manufacturing including instruments,
consumables and diagnostic kits. Mr. Ellis will be based in Atlanta, where our
wholly owned subsidiary, Applied Sciences, Inc. is currently located. We are in
the process of establishing a new 100,000 square foot facility in Atlanta that
will house its kit manufacturing operations, sales and marketing, and the
existing Applied Sciences, Inc.
operations.
Mr. Ellis has been involved in the diagnostics business for over 25
years, having held a variety of positions with a number of companies including
General Manager of Abbott Laboratories' Clinical Chemistry Business Unit,
President of Dynex Technologies, and President of Genetic Systems
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Corporation. Mr. Ellis received Bachelor of Science and Master of Science
degrees from Bradley University.
On November 10, 1999, we agreed with Dr. Chalom Sayada, that Dr. Sayada
would no longer continue to serve as our Vice President for European Business
Development. However, Dr. Sayada will continue to provide marketing and strategy
consulting services to our company through May 2001 pursuant to a consulting
agreement.
On November 16, 1999, William C. Sullivan was appointed Vice
President, Diagnostic Manufacturing for our company. In this role, he will be
responsible for managing our kit manufacturing facility in Pittsburgh and
establishing a new manufacturing facility in Atlanta.
Mr. Sullivan has over 25 years of clinical laboratory in vitro
diagnostics experience. Most recently he served as Vice President, Operations
for Nichols Institute Diagnostics, a unit of Quest Diagnostics. Prior to
that, he held various positions at Laboratory Corporation of America, and its
predecessor company, Roche Biomedical Laboratories, Inc., Gen Trak, Inc. and
Geometric Data, then a subsidiary of Smithkline Beckman.
SERVICE AND ENFORCEMENT OF LEGAL PROCESS
Our company is incorporated under the laws of the Province of Ontario,
Canada and a substantial portion of our assets are located in Canada. Certain of
our directors and officers and certain of the experts named in this prospectus
are residents of Canada, and all or a substantial portion of their assets are
located outside the United States. As a result, if any of our shareholders were
to bring a lawsuit against our officers, directors or experts in the United
States it may be difficult for them to effect service of legal process within
the United States upon those people who are not residents of the United States
or to realize in the United States upon judgments of courts of the United States
based upon civil liability under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended (including the rules promulgated
thereunder by the Commission). In addition, our attorneys in Canada, Goldman,
Spring, Schwartz & Kichler, have advised us that a judgment of a United States
court based solely upon civil liability under these laws would probably be
enforceable in Canada if the U.S. court in which the judgment were obtained had
a basis for jurisdiction in the matter. Our attorneys have also advised us that,
in their opinion, there is substantial doubt whether an action could be brought
successfully in Canada in the first instance on the basis of liability
predicated solely upon such laws.
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SELLING SHAREHOLDERS
The following table provides certain information with respect to the
common shares issuable upon exercise of the warrants and/or conversion of the
Series A preferred shares held by each selling shareholder as of November 16,
1999. In consideration for a $30.0 million investment in our company, we
issued to the Warburg Pincus Funds 30,000 Series A preferred shares, and
warrants to purchase 1,100,000 common shares exercisable for four years at a
purchase price of $12.60 per share. In conjunction with the Warburg Pincus
financing, the Hilal Funds converted $3.9 million of debt plus accrued
interest into 3,948 Series A preferred shares and warrants to purchase
147,098 common shares exercisable for four years at a purchase price of
$12.60 per share. We granted the Warburg Pincus Funds and the Hilal Funds
certain registration rights, pursuant to which the common shares issuable
upon exercise of their warrants and conversion of their Series A preferred
shares are now being registered.
The Series A preferred shares are convertible to common shares at a
conversion price of $11.00 per share. Dividends accrue at the rate of 9% of the
liquidation value of the shares through July 15, 2002 and 4% of the liquidation
value until July 15, 2008. The liquidation value of the Warburg Pincus Funds'
Series A preferred shares is $30.0 million and the liquidation value of the
Hilal Funds' Series A preferred shares is $3.9 million. Dividends accrue
quarterly on the 15th day of January, April, July and October.
For purposes of the table below, the number of common shares offered
includes all common shares which a listed shareholder is entitled to receive
upon conversion of its Series A preferred shares plus accrued dividends on
those shares through October 15, 1999. The number of common shares which a
listed shareholder may receive upon conversion will increase as dividends
accrue, and therefore, the number of shares offered pursuant to this
prospectus will increase accordingly.
Although the table below includes shares which a holder of Series A
preferred shares is entitled to receive upon conversion as of October 15, 1999,
this prospectus (and the registration statement of which this prospectus is a
part) covers a total of 5,283,758 shares which includes all shares that
would be issued if all Series A preferred shares are converted by October 15,
2002. If any of the Series A preferred shares are converted sooner, then fewer
common shares would be issued. Similarly, if cash dividends were paid after
July 15, 2002 (the first date dividends may be paid), the cash dividends paid
would not be converted into common shares. However, we are required to give
the holders of Series A preferred shares notice and the opportunity to convert
their shares prior to the payment of any dividend. If cash dividends are not
paid and all of the Series A preferred shares are converted at a date after
October 15, 2002, then more common shares would be issued upon conversion.
In that case, we would be required to file an additional registration statement
covering the excess shares to be issued as a result of dividends accruing after
October 15, 2002. See "Description of Capital Shares."
Except as described in our Annual Report on Form 20-F or otherwise
noted in the footnotes following the table, none of the selling shareholders has
held any position or office, or has had a material relationship with our Company
or our subsidiaries or other affiliates within the past three years, other than
owning the common shares. Except as otherwise noted, all of the common shares
issuable upon exercise of the warrants and/or conversion of Series A preferred
shares owned by each selling shareholder are registered for sale pursuant to
this prospectus. The selling shareholders, however, are not under any obligation
to exercise their warrants or convert their Series A preferred shares or sell
all or any portion of their common shares, nor are the selling shareholders
obligated to sell any of their common shares immediately under this prospectus.
We will not receive any proceeds from any sales of common shares by the selling
shareholders.
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<TABLE>
<CAPTION>
Number of Common Shares
Common Offered Number of Percentage
Shares Owned Pursuant Common Shares Common Shares
BEFORE to this Owned After Owned After
SELLING SHAREHOLDER OFFERING(1) PROSPECTUS(2) OFFERING(3) OFFERING(9)
- ------------------- --------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Warburg, Pincus Equity Partners, L.P. (4) 1,837,380 1,837,380 0 0
Warburg, Pincus Ventures International, L.P(4) 1,944,318 1,944,318 0 0
Warburg, Pincus Netherlands Equity Partners I, C.V. (4) 58,329 58,329 0 0
Warburg, Pincus Netherlands Equity Partners II, C.V. (4) 38,886 38,886 0 0
Warburg, Pincus Netherlands Equity Partners III, C.V. (4) 9,721 9,721 0 0
Hilal Capital, LP(5) 146,317(6) 74,362 71,955 *
Hilal Capital QP, LP(5) 381,408(7) 189,058 192,350 1.9%
Hilal Capital International, Ltd. (5) 491,185(8) 250,662 240,523 2.4%
</TABLE>
- ------------------
* Less than 1%
(1) Includes shares issuable upon exercise of warrants and conversion of
Series A preferred shares.
(2) Assumes the exercise of all warrants issued and conversion of all
Series A preferred shares (including accrued interest at 9% per year)
outstanding at exercise prices in effect on October 29, 1999.
(3) Assuming all of the common shares offered by each selling shareholder
are sold in the offering.
(4) Jonathan S. Leff, a director of our Company, is also a Vice President
of E.M. Warburg, Pincus & Co., LLC, advisor to the funds.
(5) For the relationship of the Hilal funds to our company, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources-INSTITUTIONAL
LOANS."
(6) In addition to the warrants issued in July 1999, includes warrants to
purchase 46,213 shares at a purchase price of $10.00 per shares and
warrants to purchase 11,284 shares at a purchase price of $17.00 per
share.
(7) In addition to the warrants issued in July 1999, includes warrants to
purchase 115,688 shares at a purchase price of $10.00 per shares and
warrants to purchase 28,683 shares at a purchase price of $17.00 per
share.
(8) In addition to the warrants issued in July 1999, includes warrants to
purchase 156,099 shares at a purchase price of $10.00 per shares and
warrants to purchase 38,033 shares at a purchase price of $17.00 per
share.
(9) Common shares issuable upon exercise of warrants and conversion of
Series A preferred shares are deemed outstanding for computing the
percentage ownership of the person holding the warrants and Series A
preferred shares but are not deemed outstanding for computing the
percentage ownership of any other person. This information is based
on 9,648,754 common shares outstanding on October 29, 1999.
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PLAN OF DISTRIBUTION
The common shares may be sold from time to time by the selling
shareholders in one or more transactions at fixed prices, at market prices at
the time of sale, at varying prices determined at the time of sale or at
negotiated prices. The selling shareholders may offer their common shares in one
or more of the following transactions:
- on any national securities exchange or quotation service on
which the common shares may be listed or quoted at the time of
sale, including the Nasdaq National Market;
- in the over-the-counter market;
- in private transactions;
- through options;
- by pledge to secure debts and other obligations;
- or a combination of any of the above transactions.
The common shares described in this prospectus may be sold from time to
time directly by the selling shareholders. Alternatively, the selling
shareholders may from time to time offer common shares to or through
underwriters, broker/dealers or agents. The selling shareholders and any
underwriters, broker/dealers or agents that participate in the distribution of
the common shares may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933. Any profits on the resale of common shares and any
compensation received by any underwriter, broker/dealer or agent may be deemed
to be underwriting discounts and commissions under the Securities Act of 1933.
Any shares covered by this prospectus which qualify for sale pursuant
to Rule 144 under the Securities Act of 1933 may be sold under Rule 144 rather
than pursuant to this prospectus. The selling shareholders may not be able to
sell all of their shares under Rule 144. The selling shareholders may transfer,
devise or gift such shares by other means not described in this prospectus.
To comply with the securities laws of certain jurisdictions, the common
shares must be offered or sold only through registered or licensed brokers or
dealers. In addition, in certain jurisdictions, the common shares may not be
offered or sold unless they have been registered or qualified for sale or an
exemption is available and complied with.
The anti-manipulation provisions of Rules 101 through 104 under
Regulation M of the Securities Exchange Act of 1934 may apply to purchases and
sales of common shares by the selling shareholders. In addition, there are
restrictions on market-making activities by persons engaged in the distribution
of the common shares.
We have agreed to pay all of the expenses relating to the registration,
offering and sale of the common shares by the selling shareholders to the
public, other than commissions or discounts of underwriters, broker-dealers or
agents.
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DESCRIPTION OF CAPITAL SHARES
GENERAL
The current authorized capital of our company consists of an unlimited
number of common shares and an unlimited number of preferred shares. Any series
of preferred shares which our Board of Directors may issue could have rights
equal or superior to the rights of the common shares.
COMMON SHARES
The holders of common shares are entitled to receive dividends if, as
and when declared by our Board of Directors, subject to the rights of the
holders of any other class of our shares entitled to receive dividends in
priority to the common shares. Some of our loan agreements restrict our rights
to pay dividends to the holders of the common shares and give our lenders
priority over the rights of the shareholders in the event our company were to be
liquidated or dissolved. If our company were liquidated or dissolved, the
holders of common shares would be entitled to receive all assets remaining after
the rights of the holders of any other class of shares entitled to receive
assets in priority to the holders of the common shares have been satisfied.
The holders of the common shares are entitled to one vote for each
common share held at all meetings of our shareholders.
PREFERRED SHARES
Our Board of Directors is authorized to issue an unlimited number of
preferred shares in one or more series, to fix the number of preferred shares
and determine the designations, rights (including voting and dividend rights),
privileges, restrictions and conditions attaching to the shares of each such
series, without further vote or action by the shareholders. Because the terms of
the preferred shares may be fixed by our Board of Directors without shareholder
action, the preferred shares could, subject to regulatory policies, be issued
quickly, with terms calculated to defeat a takeover of our company or to make
the removal of our directors and executive officers more difficult. Under
certain circumstances, this could have the effect of decreasing the market value
of the common shares. The preferred shares may have voting rights superior to
the common shares and may rank senior to the common shares as to dividends and
as to the distribution of assets in the event our company were liquidated or
dissolved.
On July 15, 1999, our Board of Directors authorized the issuance of
33,950 shares of Series A Convertible Preferred Shares. The Series A preferred
shares are convertible at the holders' option into common shares at $11.00 per
share. The preferred shares contain provisions under which the conversion price
would be reduced on a weighted average basis if we issue shares, options or
certain other securities at prices lower than the conversion price (subject to
certain exceptions), and would also be adjusted upon the issuance of certain
other securities, certain recapitalization events and in certain other
circumstances to protect the holders against the dilutive effect of those
events.
Dividends on the preferred shares accrue quarterly at the rate of 9%
per year during the first three years after issuance, and 4% per year
thereafter and are compounded annually. Dividends will not be payable for the
first three years. After three years, at our option, we may pay dividends in
cash. If dividends are not paid in cash, they will continue to accrue and will
be convertible into additional common shares upon conversion of the preferred
shares.
After the third anniversary and prior to the seventh anniversary of the
date of issuance of the preferred shares, we would have the right to redeem the
outstanding preferred shares at a price, which we call the redemption price,
equal to $1,000 per share, plus accrued but unpaid dividends, provided that the
price of our common shares on the Nasdaq National Market equals or exceeds 150%
of the conversion price for 20 trading days during a consecutive 30-day period
ending within 10 days before we notify
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shareholders of the redemption. We will be required to redeem one-third of any
remaining outstanding preferred shares on each of the seventh, eighth and ninth
anniversaries of the date of issuance at the redemption price, and we will be
permitted to redeem the preferred shares at any time beginning on the seventh
anniversary after issuance. If we fail to redeem the shares as required, holders
may appoint a majority of our Board of Directors, who will continue to serve
until we have redeemed the preferred shares as required.
The holders of Series A preferred shares will be entitled to vote as a
group with the holders of common shares on all matters except that holders of
Series A preferred shares will be entitled to vote separately for one director
and will not be entitled to participate in the vote for any other directors of
our company. Our agreements with the holders of Series A preferred shares
provide that we will be prohibited from declaring or issuing any dividends to
holders of our common shares before paying all unpaid dividends on the Series A
preferred shares. We will also be prohibited from issuing any equity securities
that are senior or equal in rank to the Series A preferred shares without
approval of the holders of a majority of the Series A preferred shares. If our
company were to be liquidated or sold or under certain other circumstances,
holders of Series A preferred shares would be entitled to receive an amount
equal to $1,000 per share, plus accrued dividends, before holders of our common
shares would be entitled to any distributions. Holders of Series A preferred
shares would also be entitled to certain other rights, including the right to
participate, on a pro rata basis, in future company financings, subject to
certain exceptions. We also are prohibited from incurring indebtedness for
borrowed money and capital lease obligations in excess of $15.0 million
outstanding at any one time, without first obtaining approval of the holders of
a majority of the Series A preferred shares. See "Risk Factors-We may need
additional capital and if we issue or obtain additional financing, we may need
the prior consent of the holders of our Series A preferred shares" and "Our
unlimited preferred shares, classified board of directors and Series A director
could prevent or delay takeovers and, our preferred shares contain preferences
over our common shares."
WARRANTS
On July 15, 1999, we issued 1,247,098 warrants to purchase our common
shares, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources." Each warrant is
exercisable for four years at an initial purchase price of $12.60, subject to
customary antidilution provisions. For a description of additional warrants
which we have issued, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources" and our
Annual Report on Form 20-F.
CLASSIFIED BOARD
Our Board of Directors is divided into three classes. The
classification of the Board of Directors was implemented in March 1996. See
"Risk Factors- Our unlimited preferred shares, classified board of directors and
Series A director could prevent or delay takeovers and, our preferred shares
contain preferences over our common shares."
The holders of our Series A preferred shares are entitled to vote as a
class for one director. Each Series A Director serves for a one year term and
any vacancy may be filled only by a vote of the holders of Series A preferred
shares. In the event that we do not redeem our Series A preferred shares as
required during 2006, 2007 and 2008, then our Series A shareholders will be
entitled to special voting rights enabling them to elect a majority of our Board
of Directors, who will continue to serve as directors until we have redeemed our
Series A preferred shares as required. See "Risk Factors- Our unlimited
preferred
38
<PAGE>
shares, classified board of directors and Series A director could prevent or
delay takeovers and, our preferred shares contain preferences over our common
shares."
TRANSFER AGENT
The transfer agent and registrar for our common shares is ChaseMellon
Shareholder Services, LLC, Overpeck Center, 85 Challenger Road, Ridgefield Park,
New Jersey 07660.
39
<PAGE>
LEGAL MATTERS
The validity of the common shares being offered hereby has been
passed upon for us by our attorneys, Goldman, Spring, Schwartz & Kichler,
Ontario, Canada. Certain other matters relating to this offering with respect
to United States securities laws will be passed upon by our attorneys, Baer
Marks & Upham LLP, New York, New York. Certain matters relating to regulation
by the U.S. Food and Drug Administration will be passed upon by our
attorneys, Hyman, Phelps & McNamara, P.C., Washington, D.C. Samuel Schwartz,
a senior partner of Goldman, Spring, Schwartz & Kichler, is a director of the
Company. Mr. Schwartz holds options to purchase an aggregate of 100,040
common shares at various exercise prices.
EXPERTS
Our Consolidated Financial Statements as of December 31, 1997 and
1998 and for the years ended December 31, 1996, 1997 and 1998, included in
our Annual Report on Form 20-F, and incorporated herein by reference, have
been audited by PricewaterhouseCoopers LLP, Chartered Accountants in Canada,
as stated in their report appearing in our Annual Report on Form 20-F. The
Consolidated Financial Statements have been included herein in reliance upon
such report, given upon the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a
Registration Statement on Form F-3 under the Securities Act with respect to the
common shares offered hereby. This prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement. Certain items of the Registration Statement are
contained in exhibits and schedules as permitted by the rules and regulations of
the Securities and Exchange Commission. Statements made in this prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement or to our Annual
Report on Form 20-F, certain items of which are incorporated by reference into
this prospectus, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
We are subject to the informational requirements of the Exchange Act
and file reports and other information with the Securities and Exchange
Commission. Reports and other information which we file with the Securities and
Exchange Commission, including the Registration Statement on Form F-3 of which
this prospectus is a part, may be inspected and copied at the public reference
facilities of the Securities and Exchange Commission at:
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
7 World Trade Center
New York, New York 10048
500 West Madison Street
Suite 1400
Chicago, Illinois 60661
You can also obtain copies of this material by mail from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Additionally, copies of this
material may also be obtained from the Securities and Exchange Commission's
Internet site at http://www.sec.gov. The Commission's telephone number is
1-800-SEC-0330.
40
<PAGE>
- --------------------------------------------------------------------------------
5,283,758 SHARES
VISIBLE GENETICS INC.
COMMON SHARES
---------------------------
SELLING SHAREHOLDERS' PROSPECTUS
---------------------
, 1999
---------------------
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THE SELLING SHAREHOLDERS ARE OFFERING TO SELL, AND
SEEKING OFFERS TO BUY, COMMON SHARES ONLY IN JURISDICTIONS WHERE OFFERS AND
SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF
THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON SHARES.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses of the Company in
connection with the offering described in this Registration Statement. All of
these expenses are being borne by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee $27,450
Accounting fees $10,000
Legal fees $15,000
Printing and engraving..... $10,000
Miscellaneous $ 5,000
Total.... $67,450
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 136 of the Ontario Business Corporations Act and Section 7 of
the Company's By-Laws Nos. 1 and 2 provide for the indemnification of directors
and officers of the Company. Under these provisions, the Company shall indemnify
a director or officer of the Company (or a former director or officer) against
all costs, charges and expenses, including amounts paid to settle an action or
satisfy a judgment, reasonably incurred by such director or officer in respect
of any civil, criminal or administrative action or proceeding (other than in
respect of an action by or on behalf of the Company to procure a judgment in its
favor) to which such director or officer (or a former director or officer) is
made a party by reason of his or her position with the Company, provided such
director or officer: (a) acted honestly and in good faith with a view to the
best interests of the Company and (b) in the case of a criminal or
administrative action or proceeding that is enforced by a monetary penalty, had
reasonable grounds for believing that his conduct was lawful. In respect of an
action by or on behalf of the Company to procure a judgment in its favor, the
Company, with the approval of a court, may indemnify a director or officer of
the Company (or a former director or officer) against all costs, charges and
expenses reasonably incurred by him in connection with such action if he
fulfills the conditions set out in clauses (a) and (b) of the previous sentence.
Notwithstanding the foregoing, a director or officer of the Company (or a former
director or officer) is entitled to indemnification from the Company with
respect to all costs, charges and expenses reasonably incurred by him in
connection with the defense of any civil, criminal or administrative action or
proceeding to which he is made a party by reason of his position with the
Company if he was substantially successful on the merits in his defense of the
action or proceeding and he fulfills the conditions in clauses (a) and (b) of
the second sentence of this paragraph.
Jonathan S. Leff, one of our directors, is also indemnified pursuant to
venture fund partnership agreements, as well as supplemental coverage through
Warburg, Pincus & Co.
The Company also has a policy insuring it and its directors and
officers against certain liabilities and has entered into indemnification
agreements with each of its directors and officers.
II-1
<PAGE>
ITEM 16. EXHIBITS
The following exhibits are being filed herewith:
3.1 Amended Articles of Incorporation of the Company.(1)
3.2 Amended and Restated Bylaws of the Company.(2)
4.1 Specimen of Certificate for Common Shares.(3)
4.2 Certificate of Designations, Number, Voting Powers,
Preferences and Rights of Series A Convertible Preferred
shares of Visible Genetics Inc.
5.1 Opinion of Goldman, Spring, Schwartz & Kichler as to the
legality of the Common Shares
23.1 Consent of Goldman, Spring, Schwartz & Kichler (included in
Exhibit 5.1)
23.2 Consent of Baer Marks & Upham LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Hyman, Phelps & McNamara, P.C.
24 Powers of Attorney (included on the executed signature page of
this Registration Statement)
- -----------------------
(1) Incorporated by reference from Exhibit 3.1 to Amendment No. 1 to the
Company's Registration Statement on Form F-1, File No. 333-3118 filed with the
Securities and Exchange Commission on May 15, 1996.
(2) Incorporated by reference from Exhibit 3.2 to Amendment No. 1 to the
Company's Registration Statement on Form F-1, File No. 333-3118 filed with the
Securities and Exchange Commission on May 15, 1996.
(3) Incorporated by reference from Exhibit 4.1 to Amendment No. 1 to the
Company's Registration Statement on Form F-1, File No. 333-3118 filed with the
Securities and Exchange Commission on May 15, 1996.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement.
(i) To include any Prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement; and
II-2
<PAGE>
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remains unsold
at the termination of the offering.
(4) To file a post-effective amendment to the Registration
Statement to include any financial statements required by Rule 3-19 of
Regulation S-X at the start of any delayed offering or throughout a
continuous offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
in the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the Prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the Prospectus to provide such interim financial information.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form F-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Toronto, Province of Ontario, Canada, on the 17 day
of November 1999.
VISIBLE GENETICS INC.
By: /s/ Richard T. Daly
-------------------------------------
Richard T. Daly
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard T. Daly and Samuel Schwartz or
any of them, as his true and lawful attorney-in-fact and agents, with full
powers of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement on Form F-3, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
President and Chief
/s/ Richard T. Daly Executive Officer
_________________________ (principal executive officer
Richard T. Daly and principal financial November 17, 1999
officer)
</TABLE>
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard T. Daly and Samuel Schwartz or
any of them, as his true and lawful attorney-in-fact and agents, with full
powers of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement on Form F-3, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Samuel Schwartz
- -------------------------------------
Samuel Schwartz Secretary and Director November 17, 1999
/s/ Michael A. Cardiff
- -------------------------------------
Michael A. Cardiff Director November 17, 1999
/s/ Sheldon Inwentash
- -------------------------------------
Sheldon Inwentash Director November 17, 1999
/s/ Jonathan S. Leff
- -------------------------------------
Jonathan S. Leff Director November 17, 1999
/s/ Dr. J. Robert S. Prichard
- -------------------------------------
Dr. J. Robert S. Prichard Director November 17, 1999
/s/ Dr. Lloyd M. Smith
- -------------------------------------
Dr. Lloyd M. Smith Director November 17, 1999
/s/ Dr. Konrad M. Weis
- -------------------------------------
Dr. Konrad M. Weis Director November 17, 1999
</TABLE>
II-5
<PAGE>
Authorized Representative in the United States:
/s/ Steven S. Pretsfelder
------------------------------------ November 17, 1999
Steven S. Pretsfelder
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
<S> <C> <C>
3.1 Amended Articles of Incorporation of the Company.(1)
3.2 Amended and Restated Bylaws of the Company.(2)
4.1 Specimen of Certificate for Common Shares.(3)
4.2 Certificate of Designations, Number, Voting Powers,
Preferences and Rights of Series A Convertible Preferred
shares of Visible Genetics Inc.
5.1 Opinion of Goldman, Spring, Schwartz & Kichler as to the
legality of the Common Shares
23.1 Consent of Goldman, Spring, Schwartz & Kichler (included in
Exhibit 5.1)
23.2 Consent of Baer Marks & Upham LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Hyman, Phelps & McNamara, P.C.
24 Powers of Attorney (included on the executed signature page
of this Registration Statement)
</TABLE>
- -----------------------
(1) Incorporated by reference from Exhibit 3.1 to Amendment No. 1 to the
Company's Registration Statement on Form F-1, File No. 333-3118 filed with the
Securities and Exchange Commission on May 15, 1996.
(2) Incorporated by reference from Exhibit 3.2 to Amendment No. 1 to the
Company's Registration Statement on Form F-1, File No. 333-3118 filed with the
Securities and Exchange Commission on May 15, 1996.
(3) Incorporated by reference from Exhibit 4.1 to Amendment No. 1 to the
Company's Registration Statement on Form F-1, File No. 333-3118 filed with the
Securities and Exchange Commission on May 15, 1996.
<PAGE>
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,
<PAGE>
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
2
<PAGE>
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.
3
<PAGE>
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
4
<PAGE>
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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<PAGE>
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,
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<PAGE>
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
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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
<PAGE>
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
<PAGE>
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:
20
<PAGE>
EXHIBIT 5.2
November 16, 1999
Visible Genetics Inc.
Suite 1000, Box 333
700 Bay Street
Toronto, Ontario
Canada M5G 1Z6
Gentlemen:
RE: Visible Genetics Inc.
REGISTRATION STATEMENT ON FORM F-3
We have acted as Canadian counsel to Visible Genetics Inc. (the
"Company") in connection with the preparation and filing with the Securities and
Exchange Commission of the Company's Registration Statement on Form F-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") relating to the registration of (the "Offering") 5,283,758
common shares (the "Common Shares"), to be sold by the Selling Shareholders.
Capitalized terms used herein but not otherwise defined shall have the
respective meanings set forth in the Registration Statement.
In connection with the foregoing, we have examined copies of the
Company's Amended and Restated Articles of Incorporation (the "Restated Articles
of Incorporation") and the Amended and Restated by-laws, the Registration
Statement and all exhibits thereto, the minutes of various meetings or unanimous
written consents of the Board of Directors of the Company, and originals,
photocopies or certified copies of all such records of the Company, and all such
agreements, certificates of public officials, certificates of officers and
representatives of the Company and others, and such other documents, papers,
statutes and authorities, as we deemed necessary to form the basis of the
opinion hereinafter expressed. In such examination, we have assumed the
genuineness of all signatures, the authenticity and accuracy of all documents
submitted to us as originals and the conformity to original documents of all
documents supplied to us as copies. As to various questions of fact material to
such opinion, we have relied upon statements and certificates of officers of the
Company and others.
Based upon the foregoing and subject to the qualifications and
limitations stated herein, we are of the opinion that the Common Shares, when
sold by the Selling Shareholders, will be validly issued, fully paid and
non-assessable.
<PAGE>
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the captions "Service
and Enforcement of Legal Process" and "Legal Matters" in the Prospectus forming
a part of the Registration Statement. We hereby also consent to the
incorporation by reference of this consent into a subsequent registration
statement filed by the Company pursuant to Rule 462(b) under the Securities Act
relating to the offering covered by the Registration Statement. In giving such
consent, we do not thereby concede that we are in the category of persons whose
consent is required under Section 7 of the Securities Act or the rules and
regulations promulgated thereunder, or that we are "experts" within the meaning
of the Securities Act or the rules and regulations promulgated thereunder.
Yours very truly
/s/ GOLDMAN, SPRING, SCHWARTZ & KICHLER
<PAGE>
EXHIBIT 23.2
We hereby consent to the use of our name under the caption "Legal
Matters" in the prospectus forming a part of this Registration Statement on Form
F-3 of Visible Genetics Inc. In giving such consent, we do not thereby concede
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933 as amended (the "Act"), or the rules and
regulations thereunder, or that we are "experts" within the meaning of the Act
or such rules and regulations.
Dated: November 17, 1999
Very truly yours,
/s/ Baer Marks & Upham LLP
<PAGE>
EXHIBIT 23.3
PRICEWATERHOUSECOOPERS
- --------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
CHARTERED ACCOUNTANTS
5700 Yonge Street
Suite 1900
November 17, 1999 North York Ontario
Canada M2M 4K7
Telephone +1 (416) 218 1500
Facsimile +1 (416) 218-1499
Direct Tel. +1 (416) 218-1432
Direct Fax +1 (416) 218-1499
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form F-3 of Visible Genetics Inc. (the "Company") dated November
17, 1999, of our report dated February 19, 1999 relating to our audit of the
Company's consolidated balance sheets as at December 31, 1998 and 1997 and the
consolidated statements of operations, deficit, comprehensive loss, and cash
flows for the years ended December 31, 1998, 1997 and 1996, which report is
included in the Company's Annual Report on Form 20-F dated July 14, 1999, and to
the reference in the Registration Statement to our firm under the heading
"Experts."
/s/ PRICEWATERHOUSECOOPERS LLP
- ----------------------------------------
Chartered Accountants
PricewaterhouseCoopers LLP is a Canadian member form of PricewaterhouseCoopers
International, an English company limited by guarantee.
<PAGE>
EXHIBIT 23.4
We hereby consent to the use of our name under the caption "Legal
Matters" in the prospectus forming a part of this Registration Statement on Form
F-3 of Visible Genetics Inc. In giving such consent, we do not thereby concede
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended (the "Act"), or the rules and
regulations thereunder, or that we are "experts" within the meaning of the Act
or such rules and regulations.
Dated: November 16, 1998
Very truly yours,
/s/ Hyman, Phelps & McNamara, P.C.
