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Effect of a US Domicile
Aqua Bounty is a company incorporated in the State of Delaware, USA under the Delaware General Corporation Law (“DGCL”). There are a number of differences between the corporate structure of Aqua Bounty and that of a public limited company incorporated in the UK under the Act.
While the Directors consider that it is appropriate to retain the majority of the usual features of a publicly traded US corporation, they intend to take certain actions, whenever practicable, to meet UK standard practice. Set out below is a description of the principal differences and, where appropriate, the actions the Board intends to take.
a) Pre-emptive Rights
Under Delaware law shareholders do not have pre-emptive rights over the further issuance of shares of Aqua Bounty’s common stock (the “Common Shares”), and Aqua Bounty has no obligation to provide any pre-emptive rights to its common shareholders. In accordance with its Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”), for so long as Aqua Bounty’s Common Shares are admitted to AIM, Aqua Bounty has agreed not to allot or issue for cash in any calendar year Common Shares in excess of ten per cent of Aqua Bounty’s outstanding Common Shares from time to time unless such issue is made pursuant to a fully pre-emptive offer or stock option plan or 75 per cent of holders of Common Shares of Aqua Bounty voting (in person or by proxy) at a quorate meeting of shareholders have voted in favour of a resolution approving such issue.
b) Takeovers
Aqua Bounty will not be subject to the City Code on Takeovers and Mergers, and certain provisions contained in Aqua Bounty’s Certificate of Incorporation and by-laws may make a hostile takeover of Aqua Bounty more difficult to achieve. So long as any shares of capital stock of Aqua Bounty are traded on AIM, however, Aqua Bounty’s Certificate of Incorporation will contain a provision requiring any person that acquires securities representing 30 per cent or more of Aqua Bounty’s voting power to make a cash offer for the remaining issued and outstanding capital stock of Aqua Bounty at the highest price that person has paid in the preceding 12 months. The Certificate of Incorporation also requires any person who holds securities representing between 30 per cent and 50 per cent of Aqua Bounty’s voting power and then acquires any additional securities to make such a mandatory offer. Shareholdings or shareholders who act in concert are looked at individually and separately in determining whether the 30 per cent has been attained and an increase has occurred.
Aqua Bounty’s securities are not currently publicly traded in the US markets nor are they registered with the US Securities and Exchange Commission (the “SEC”). In the event that Aqua Bounty’s securities are registered with the SEC and become listed on a US national securities exchange, the mandatory offer provisions described above will cease to apply.
Aqua Bounty is also governed by the provisions of section 203 of the DGCL. Section 203 generally prohibits a publicly held Delaware corporation from engaging in a ‘‘business combination’’ with an ‘‘interested stockholder’’ for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A ‘‘business combination’’ includes mergers, stock sales, asset sales, similar transactions and other transactions resulting in a financial benefit to the interested stockholder. An ‘‘interested stockholder’’ is a person who, together with affiliates and associates, owns (or within three years, did own) 15 per cent or more of the corporation’s voting stock.
c) Limitation of Director Liability
The Certificate of Incorporation and the Company’s by-laws limit the liability of the Directors and the Officers of the Company to the fullest extent permitted by Delaware law. Specifically, Directors of Aqua Bounty will not be personally liable for money damages with respect to any acts or omissions in the performance of his or her duties as a Director, except for liability (i) for any breach of the Director’s duty of loyalty to Aqua Bounty or its Shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, which relates to unlawful declarations of dividends or other distributions of assets to Shareholders or the unlawful purchase of shares of the corporation, or (iv) for any transaction from which the Director or officers derived an improper personal benefit. If the DGCL is amended to eliminate or limit the personal liability of Directors, then, after approval by Aqua Bounty shareholders, the Certificate of Incorporation or by-laws may be amended to eliminate or limit Director liability to the fullest extent permitted by the DGCL, as so amended.
d) Additional Corporate Matters
The Certificate of Incorporation also provides that (i) the affirmative vote of a majority of the voting power of all of the then-outstanding shares of the voting stock of Aqua Bounty shall be required to adopt, amend or repeal any provision of the by-laws of Aqua Bounty; (ii) the Board of Directors shall also have the power to adopt, amend or repeal the by-laws; (iii) Shareholders may not take any action by written consent; (iv) special meetings of Shareholders may be called only by the Board or by the Chief Executive Officer or the Chairman of the Board, or by the holders of not less than 25 per cent of the Common Shares; and (v) the affirmative vote of a majority of the voting power of all the Common Shares, voting together as a single class, shall be required to amend the provisions of the Certificate of Incorporation regarding the composition of the Board of Directors, stockholder action and meetings and limitation on Director liability (other than any amendment of such provisions in connection with a restatement of the Certificate of Incorporation). Advance notice of stockholder business is to be provided as set forth in the by-laws. The foregoing provisions of the Certificate of Incorporation may discourage certain types of transactions involving an actual or potential change in control of Aqua Bounty and could have the effect of delaying, deterring or preventing a change in control of Aqua Bounty.
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