<PAGE> 1
EXHIBIT 3.1
[INDUSTRY CANADA LOGO] Industrie Canada
RESTATED CERTIFICATE CERTIFICAT
OF INCORPORATION DE CONSTITUTION A JOUR
CANADA BUSINESS LOI CANADIENNE SUR
CORPORATIONS ACT LES SOCIETES PAR ACTIONS
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<CAPTION>
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HYDROGENICS CORPORATION -
CORPORATION HYDROGENIQUE 236237-6
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Name of corporation-Denomination de la societe Corporation number-Numero de la societe
<S> <C>
I hereby certify that the article of Je certifie que les statuts constitutifs de la
incorporation of the above-named corporation societe susmentionnee ont ete mis a jour en
were restated under section 180 of the Canada vertu de l'article 180 de la Loi canadienne sur
Business Corporations Act as set out in the les societes par actions, tel qu'il est indique
attached restated articles of incorporation. dans les statuts mis a jour ci-joints.
[SIG] September 29, 2000 / le 29 septembre 2000
Director - Directeur Effective Date of Restatement -
Date d'entree en vigueur de la mise a jour
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<PAGE> 2
<TABLE>
<CAPTION>
FORM 7 FORMULE 7
[INDUSTRY CANADA LOGO] Industry Canada Industrie Canada RESTATED ARTICLES OF STATUTS CONSTITUTIFS
Canada Business Loi canadienne sur les INCORPORATION MIS A JOUR
Corporations Act societes par actions (SECTION 180) (ARTICLE 180)
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<S> <C>
1 - Name of corporation - Denomination de la societe |Corporation No. - N' de la societe
HYDROGENICS CORPORATION - |
CORPORATION HYDROGENIQUE | 236237-6
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2 - The place in Canada where the registered office is situated Lieu au Canada ou est situe le siege social
Regional Municipality of York, Province of Ontario
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3 - The classes and any maximum number of shares that the Categories et tout nombre maximal d' actions que la
corporation is authorized to issue societe est authorisee a emettre
The annexed Schedule I is incorporated in this form.
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4 - Restrictions, if any, on share transfers Restrictions sur le transfert des actions, s'll y a lieu
None
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5 - Number (or minimum and maximum number) of directors Nombre (ou nombre minimal et maximal) d'administrateurs
Minimum 3, Maximum 9
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6 - Restrictions, if any, on business the corporation may carry on Limites imposees a l'activite commerciale de la societe,
s'll y a lieu
None
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7 - Other provisions, if any Autres dispositions, s'll y a lieu
The annexed Schedule II is incorporated in this form.
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The foregoing restated article of incorporation correctly set Cette mise a jour des statuts constitutifs demontre exacte-
out, without substantive change, the corresponding provi- ment, sans changement substantiel, les dispositions corres-
sions of the articles of incorporation as amended and pondantes des statuts constitutifs modifies qui
supersede the original articles of incorporation. remplacement les statuts constitutifs originaux.
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Signature Date |FOR DEPARTMENTAL USE ONLY -
DAY M YEA |A L'USAGE DU MINISTERE SEULEMENT
[SIG] |2|9|0|9|0|0 |
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Title - Titre |
President |Filed - Deposee Sep 29 2000
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<PAGE> 3
SCHEDULE I
The classes and any maximum number of shares that the Corporation is authorized
to issue shall consist of an unlimited number of Preferred Shares, issuable in
series, an unlimited number of Series A Preferred Shares, an unlimited number of
Series B Preferred Shares and an unlimited number of Common Shares with the
following rights, privileges, restrictions and conditions:
COMMON SHARES
SECTION 1. VOTING RIGHTS
Each holder of Common Shares shall be entitled to receive notice of and to
attend all meetings of shareholders of the Corporation and to vote thereat,
except meetings at which only holders of a specified class of shares (other than
Common Shares) or specified series of shares are entitled to vote. At all
meetings of which notice must be given to the holders of the Common Shares, each
holder of Common Shares shall be entitled to one vote in respect of each Common
Share held by such holder.
SECTION 2. DIVIDENDS
The holders of the Common Shares shall be entitled, subject to the rights,
privileges, restrictions and conditions attaching to any other class of shares
of the Corporation, to receive any dividend declared by the Corporation.
SECTION 3. LIQUIDATION, DISSOLUTION OR WINDING-UP
The holders of the Common Shares shall be entitled, subject to the rights,
privileges, restrictions and conditions attaching to any other class of shares
of the Corporation, to receive the remaining property of the Corporation on a
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary.
PREFERRED SHARES
(a) ONE OR MORE SERIES. - The Preferred Shares may at any time and from
time to time be issued in one or more series.
(b) TERMS OF EACH SERIES. - Subject to the Canada Business Corporations Act (the
"Act") or any statute which may be substituted therefor, as amended from time to
time, the directors may fix, before the issue thereof, the number of Preferred
Shares of each series, the designation, rights, privileges, restrictions and
conditions attaching to the Preferred Shares of each series, including, without
limitation, any voting rights, any right to receive dividends (which may be
cumulative or non-cumulative and variable or fixed) or the means of determining
such dividends, the dates of payment thereof, any terms and conditions of
redemption or purchase, any conversion rights, and any rights on the
liquidation, dissolution or winding-up of the Corporation, any sinking fund or
other provisions, the whole to be subject to the issue of a
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certificate of amendment setting forth the designation, rights, privileges,
restrictions and conditions attaching to the Preferred Shares of the series.
(c) RANKING OF PREFERRED SHARES. - The Preferred Shares of each series shall,
with respect to the payment of dividends and the distribution of assets in the
event of the liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary, rank on a parity with the Preferred Shares of every
other series and be entitled to preference over the common shares. If any amount
of cumulative dividends (whether or not declared) or declared non-cumulative
dividends or any amount payable on any such distribution of assets constituting
a return of capital in respect of the Preferred Shares of any series is not paid
in full, the Preferred Shares of such series shall participate rateably with the
Preferred Shares of every other series in respect of all such dividends and
amounts.
SERIES A AND SERIES B PREFERRED SHARES
SECTION 1. LIQUIDATION RIGHTS.
(a) LIQUIDATION PAYMENTS. In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
the holders of each Series A Preferred Share and Series B Preferred Share
(together the "Preferred Shares") shall be entitled to be paid out of the assets
of the Corporation available for distribution to holders of the Corporation's
capital stock of all classes in preference to holders of Common Shares, an
amount equal to:
(i) with respect to Series A Preferred Shares, the greater of (i) an amount
equal to $2.00 per Series A Preferred Share, together with all dividends
accrued thereon and unpaid and accrued (the "Series A Minimum Purchase
Price"); or (ii) such amount per Series A Preferred Share as would have
been payable had all Preferred Shares been converted to Common Shares
pursuant to the provisions of Section 2 immediately prior to such event
of liquidation, dissolution or winding up; and
(ii) with respect to Series B Preferred Shares, the greater of (i) an amount
equal to $10.50 per Series B Preferred Share, together with all dividends
accrued thereon and unpaid and accrued (the "Series B Minimum Purchase
Price"); or (ii) such amount per Series B Preferred Share as would have
been payable had all Preferred Shares been converted to Common Shares
pursuant to the provisions of Section 2 immediately prior to such event
of liquidation, dissolution or winding up.
If all assets of the Corporation shall be insufficient to permit the payment in
full to the holders of Preferred Shares of all amounts so distributable to them,
then the entire assets of the Corporation available for such distribution shall
be distributed rateably among the holders of Preferred Shares and in proportion
to the full preferential amount each such holder is otherwise entitled to
receive.
After such payments shall have been made in full to the holders of the Preferred
Shares, or funds necessary for such payments shall have been set aside by the
Corporation in trust for the account of holders of Preferred Shares so as to be
available for such payments, the remaining assets
<PAGE> 5
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available for distribution shall be distributed among the holders of the Common
Shares rateably in proportion to the number of Common Shares held by each of
them.
After conversion of Preferred Shares into Common Shares, the holder of such
Common Shares shall not be entitled to any preferential payment or distribution
in case of any liquidation, dissolution or winding up, but shall share rateably
in any distribution of the assets of the Corporation among the holders of Common
Shares.
The amounts payable with respect to Preferred Shares under this Section 1(a) are
hereinafter referred to as "Preferred Share Liquidation Payments".
(b) DISTRIBUTION OTHER THAN CASH. Whenever the distributions provided for in
this Section 1 shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board of Directors of the Corporation, provided however, that
if any holder of Preferred Shares disputes the fair market value computed by the
Board of Directors, the fair market value shall be determined by a national
chartered accountant firm selected by the Board of Directors with whom the
Corporation has no dealings.
(c) SALE OF ASSETS AS LIQUIDATION ETC. The sale of all or substantially all of
the assets of the Corporation shall be deemed to be a liquidation, dissolution
or winding up of the affairs of the Corporation for purposes of this Section 1
unless the holders of at least a majority of the then outstanding Preferred
Shares elect to the contrary, such election to be made by giving written notice
thereof to the Corporation no later than 15 days after the Corporation provides
written notice of such event to the holders of Preferred Shares. If the holders
of Preferred Shares so elect and give such notice, the provisions of Subsection
2(h) shall apply to the Preferred Shares. Unless such election is made, all
consideration received by the Corporation in such asset sale less all costs and
expenses related to such sale and any debt required to be paid as a result of
such sale together with all other available assets of the Corporation shall be
distributed toward the amounts payable with respect to such Preferred Shares
pursuant to Subsection 1(a).
(d) NOTICE. Written notice of any proposed liquidation, dissolution or winding
up of the affairs of the Corporation (including any merger, consolidation or
sale of assets which may be deemed to be a liquidation, dissolution or winding
up of the affairs of the Corporation under Subsection 1(c)), stating a payment
date, the amount of the Preferred Share Liquidation Payments and the place where
such Preferred Share Liquidation Payments shall be payable, shall be delivered
to the holders of Preferred Shares not less than 45 days prior to the proposed
date of such proposed liquidation, dissolution or winding up.
SECTION 2. CONVERSION.
The holders of Preferred Shares shall have conversion rights as follows (the
"Conversion Rights"):
(a) OPTIONAL CONVERSION. Each Preferred Share shall be convertible, without the
payment of any additional consideration by the holder thereof and at the option
of the holder thereof, at any time after the Original Issue Date (as defined in
section 2(e)) at the office of the Corporation or any transfer agent for the
Preferred Shares by making the following calculation:
<PAGE> 6
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(i) Each Series A Preferred Share shall be converted into that number
of fully paid and non-assessable Common Shares determined by
multiplying each such share by the ratio determined by dividing
$2.00 by the Series A Conversion Price, determined as hereinafter
provided, in effect at the time of conversion. The Series A
Conversion Price at which Common Shares will be deliverable upon
conversion of Series A Preferred Shares without the payment of any
additional consideration by the holder thereof (the "Series A
Conversion Price") shall initially be $2.00 per Common Share.
(ii) Each Series B Preferred Share shall be converted into that number
of fully paid and non-assessable Common Shares determined by
multiplying each such share by the ratio determined by dividing
$10.50 by the Series B Conversion Price, determined as hereinafter
provided, in effect at the time of conversion. The Series B
Conversion Price at which Common Shares will be deliverable upon
conversion of Series B Preferred Shares without the payment of any
additional consideration by the holder thereof (the "Series B
Conversion Price") shall initially be $10.50 per Common Share.
(b) MECHANICS OF OPTIONAL CONVERSIONS. Before any holder of Preferred Shares
shall be entitled to convert the same into Common Shares, the holder shall
surrender the certificate or certificates therefor at the office of the
Corporation or of any transfer agent for Preferred Shares, and shall give
written notice to the Corporation at such office that the holder elects to
convert the same and shall state therein the holder's name or the name or,
subject to any legal or contractual restrictions on transfer thereof, names of
the holder's nominees in which the holder wishes the certificate or certificates
for Common Shares to be issued and such notice shall be accompanied by an
agreement in form satisfactory to the Corporation acting reasonably by which the
person(s) in whose name the Common Shares are to be issued agrees to be bound by
the provisions of any applicable shareholders' agreement of the Corporation if
such person is not already a party to such agreements. On the date of
conversion, all rights with respect to the Preferred Shares so converted shall
terminate, except for any of the rights of the holder thereof, upon surrender of
the holder's certificate or certificates therefor, to receive certificates for
the number of Common Shares into which such Preferred Shares have been converted
and to receive dividends as contemplated in Section 5. 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
the holder's attorney duly authorized in writing. No fractional Common Share
shall be issued upon the optional conversion of Preferred Shares. In lieu of any
fractional share to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the Series A
Minimum Purchase Price in respect of Series A Preferred Shares and Series B
Minimum Purchase Price in respect of Series B Preferred Shares. The Corporation
shall, as soon as practicable after surrender of the certificate or certificates
for conversion, issue and deliver at such office to such holder of Preferred
Shares, or, subject to any legal or contractual restrictions on transfer
thereof, to the holder's nominee or nominees, a certificate or certificates for
the number of Common Shares to which the holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the Preferred Shares to be
converted, and the person or persons entitled to receive the Common Shares
issuable upon conversion shall be treated for all purposes as the record holder
or holders of such Common Shares on such date.
<PAGE> 7
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(c) AUTOMATIC CONVERSION. Each Preferred Share shall be converted automatically
into that number of fully paid and non-assessable Common Shares determined as
follows: (i) in the case of Series A Preferred Shares, by multiplying each
Series A Preferred Share by the ratio determined by dividing $2.00 by the Series
A Conversion Price in effect at the time of conversion (subject to adjustment as
provided for in Subsections 2(e)); and (ii) in the case of Series B Preferred
Shares, by multiplying each Series B Preferred Share by the ratio determined by
dividing $10.50 by the Series B Conversion Price in effect at the time of
conversion (subject to adjustment as provided for in Subsections 2(e)). Such
automatic conversion shall occur upon the earliest to occur of:
(i) the closing of an offering or offerings pursuant to a receipted
prospectus under the Securities Act (Ontario), as amended, or
similar document filed under other applicable securities laws in
Canada or the United States, covering the offer and sale of Common
Shares for the account of the Corporation to the public in which:
(A) the Common Shares are listed on a North American stock
exchange or The NASDAQ Stock Market;
(B) the net proceeds to the Corporation from such offering or
offerings aggregate not less than $15 million; and
(C) the public offering price of which is not less than $15.00
per share adjusted to take into account of any dividend,
combination of shares, or the like; or
(ii) the written election of the holders of greater than 50% of the
then outstanding Preferred Shares to require such conversion.
(d) MECHANICS OF AUTOMATIC CONVERSIONS. Upon the occurrence of an event
specified in Subsection 2(c), the Preferred Shares shall be converted
automatically without any further action by the holders of the Preferred Shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided, however, that all holders of
Preferred Shares being converted shall be given written notice of the occurrence
of an event specified in Subsection 2(c) including the date such event occurred
(the "Automatic Conversion Date"), and the Corporation shall not be obligated to
issue certificates evidencing the Common Shares issuable upon such conversion
unless certificates evidencing such Preferred Shares being converted are either
delivered to the Corporation or its transfer agent, or the holder notifies the
Corporation or any transfer agent that such certificates have been lost, stolen,
or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection therewith
and, if the Corporation so elects, provides an appropriate indemnity bond and
the holder of the Common Shares enters into an agreement in form satisfactory to
the Corporation acting reasonably by which the person in whose name the Common
Shares are to be issued agrees to be bound by the provisions of any applicable
shareholders' agreement of the Corporation if such person is not already a
party. On the Automatic Conversion Date, all rights with respect to the
Preferred Shares so converted shall terminate, except for any of the rights of
the holder thereof, upon surrender of the holder's certificate or certificates
therefor, to receive certificates for the number of Common Shares into which
such Preferred Share have been converted and the right to receive the dividends
as contemplated in Section 5. Upon the automatic conversion of the Preferred
Shares, the holders of
<PAGE> 8
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such Preferred Shares shall surrender the certificates representing such shares
at the office of the Corporation or of its transfer agent. 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
the holder's attorney duly authorized in writing. Upon surrender of such
certificates, the Corporation shall promptly issue and deliver to such holder,
in such holder's name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of Common Shares into which the
Preferred Shares surrendered were convertible on the Automatic Conversion Date.
No fractional Common Share shall be issued upon the automatic conversion of
Preferred Shares. In lieu of any fractional share to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to such fraction
multiplied by the Series A Minimum Purchase Price in respect of Series A
Preferred Shares and Series B Minimum Purchase Price in respect of Series B
Preferred Shares. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of the occurrence of any event
described in Subsection 2(c), and the person or persons entitled to receive the
Common Shares issuable upon conversion shall be treated for all purposes as the
record holder or holders of such Common Shares on such date.
(e) ADJUSTMENTS TO CONVERSION PRICE.
(i) SPECIAL DEFINITIONS. For purposes of this Subsection 2(e), the
following definitions shall apply:
"OPTION" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire either Common Shares or
Convertible Securities.
"ORIGINAL ISSUE DATE" shall mean the first date on which a
Series B Preferred Share was issued.
"CONVERSION PRICE" shall mean the Series A Conversion Price or
Series B Conversion Price, as applicable.
"CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares of capital stock (other than Common Shares) or
other securities directly or indirectly convertible into or
exchangeable for Common Shares other than the Preferred Shares.
"ADDITIONAL COMMON SHARES" shall mean all Common Shares issued
(or, pursuant to Subsection 2(e)(ii), deemed to be issued) by the
Corporation after the Original Issue Date, other than:
(A) Common Shares issued or issuable upon conversion of
Preferred Shares;
(B) securities issued in connection with any stock split, stock
dividend, combination of shares of the like;
(C) Common Shares issued or issuable to officers, directors or
employees of, or consultants to, the Corporation pursuant
to a stock purchase or option plan, or other similar
arrangement approved by the Board of Directors,
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and consented to in accordance with the provisions of the
Unanimous Shareholders' Agreement; and
(D) that number of Common Shares, as is recommended by the
Compensation Committee of the Corporation's Board of
Directors and approved by the Corporation's Board of
Directors, issued or issuable to officers, directors, or
employees of, or consultants to, the Corporation at the
discretion of the Board of Directors, and consented to in
accordance with the provisions of the Unanimous
Shareholders' Agreement.
(ii) ISSUE OF SECURITIES DEEMED TO BE ISSUE OF ADDITIONAL COMMON SHARES.
(A) OPTIONS AND CONVERTIBLE SECURITIES. In the event the Corporation
at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of
securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of
Common Shares issuable upon the exercise of such Options or, in
the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Common Shares issued as of the time of
such issue or, in case such a record date shall have been fixed,
as of the close of business on such record date, provided that in
any such case in which Additional Common Shares are deemed to be
issued:
(1) no further adjustment of the Conversion Price shall
be made upon the subsequent issue of Convertible
Securities or Common Shares upon the exercise of
such Options or conversion or exchange of such
Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or
otherwise, for any increase in the Consideration (as
defined in Subsection 2(e)(iv)) payable to the
Corporation, or decrease in the number of Common
Shares issuable, upon the exercise, conversion or
exchange thereof, the Conversion Price computed upon
the original issue thereof (or upon the occurrence
of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon
any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of
conversion or exchange under such Convertible
Securities;
(3) upon the expiration of any such Options or any
rights of conversion or exchange under such
Convertible Securities which shall not have been
exercised, the Conversion Price computed upon the
original issue thereof (or upon the occurrence of a
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record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon
such expiration, be recomputed as if:
(I) in the case of the Convertible Securities or
Options for Common Shares, the only
Additional Common Shares issued were the
Common Shares, if any, actually issued upon
the exercise of such Options or the
conversion or exchange of such Convertible
Securities and the Consideration received
therefor was the Consideration actually
received by the Corporation for the issue of
all such Options, whether or not exercised,
plus the Consideration actually received by
the Corporation upon such exercise, or for
the issue of all such Convertible Securities
which were actually converted or exchanged,
plus the additional Consideration, if any,
actually received by the Corporation upon
such conversion or exchange; and
(II) in the case of Options for Convertible
Securities, only the Convertible Securities,
if any, actually issued upon the exercise
thereof were issued at the time of issue of
such Options, and the Consideration received
by the Corporation for the Additional Common
Shares deemed to have been then issued was
the Consideration actually received by the
Corporation for the issue of all such
Options, whether or not exercised, plus the
Consideration deemed to have been received by
the Corporation upon the issue of the
Convertible Securities with respect to which
such Options were actually exercised;
(4) no readjustment pursuant to Clauses (2) or (3) above
shall have the effect of increasing the Conversion
Price to an amount which exceeds the lower of (i)
the Conversion Price on the original adjustment
date; or (ii) the Conversion Price that would have
resulted from any issue of Additional Common Shares
between the original adjustment date and such
readjustment date;
(5) in the case of any Options which expire by their
terms not more than 30 days after the date of issue
thereof, no adjustment of the Conversion Price shall
be made until the expiration or exercise of all such
Options, where upon such adjustment shall be made in
the same manner provided in Clause (3) above; and
(6) if such record date shall have been fixed and such
Options or Convertible Securities are not issued on
the date fixed therefor, the adjustment previously
made in the Conversion Price which became effective
on such record date shall be cancelled as of the
close of business on such record date, and
thereafter the
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Conversion Price shall be adjusted pursuant to this
Subsection 2(e)(ii) as of the actual date of their
issue.
(B) STOCK DIVIDENDS, STOCK DISTRIBUTION AND SUBDIVISIONS. In the event
the Corporation at any time or from time to time after the
Original Issue Date shall declare or pay any dividend or make any
other distribution on the Common Shares payable in Common Shares
or effect a subdivision of the outstanding Common Shares (by
reclassification or otherwise other than by payment of a dividend
in Common Shares), then and in any such event, Additional Common
Shares shall be deemed to have been issued:
(1) in the case of any such dividend or distribution,
immediately after the close of business on the record date
for the determination of holders of any class of securities
entitled to receive such dividend or distribution; or
(2) in the case of any such subdivision, at the close of
business on the date immediately prior to the date upon
which such corporate action becomes effective.
If such record date shall have been fixed and no part of such
dividend shall have been paid on the date fixed therefor, the
adjustment previously made in the Conversion Price which became
effective on such record date shall be cancelled as of the close
of business on such record date, and thereafter the Conversion
Price shall be adjusted pursuant to this Section 2(e)(ii) as of
the time of actual payment of such dividend.
(iii) ADJUSTMENT OF THE CONVERSION PRICE UPON ISSUE OF ADDITIONAL COMMON
SHARES. In the event that at any time or from time to time after
the Original Issue Date, the Corporation shall issue Additional
Common Shares (including, without limitation, Additional Common
Shares deemed to be issued pursuant to Subsection 2(e)(ii)(A) but
excluding Additional Common Shares deemed to be issued pursuant to
Subsection 2(e)(ii)(B), which event is dealt with in Subsection
2(e)(v)(A)), without consideration or for a Consideration Per
Share (as defined below) less than the Series A Conversion Price,
with respect to Series A Preferred Shares, or Series B Conversion
Price, with respect to Series B Preferred Shares, in effect on the
date of and immediately prior to such issue, then and in such
event, such Conversion Price shall be reduced, concurrently with
such issue, to a price equal to the Consideration Per Share for
which such Additional Common Shares are issued or deemed to be
issued.
(iv) DETERMINATION OF CONSIDERATION. For purposes of this Subsection
2(e), the consideration (the "Consideration") received or
receivable by the Corporation for the issue of any Additional
Common Shares shall be computed as follows:
<PAGE> 12
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(A) CASH AND PROPERTY. Such Consideration shall:
(1) insofar as it consists of cash, be computed at the
aggregate amounts of cash received or receivable by the
Corporation excluding amounts paid or payable for accrued
interest or accrued dividends;
(2) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board of
Directors, provided however, that if any holder of
Preferred Shares disputes the fair market value computed by
the Board of Directors, the fair market value shall be
determined by a national chartered accountant firm selected
by the Board of Directors with whom the Corporation has no
dealings; and
(3) in the event Additional Common Shares are issued together
with other shares or securities or other assets of the
Corporation for consideration which covers both, be the
proportion of such consideration so received or receivable,
computed as provided in Subsections 2(e)(iv)(A)(1) and (2)
above, allocable to such Additional Common Shares as
determined in good faith by the Board of Directors,
provided however, that if any holder of Preferred Shares
disputes the allocation determined by the Board of
Directors, the allocation shall be determined by a national
chartered accountant firm selected by the Board of
Directors with whom the Corporation has no dealings.
(B) ADDITIONAL COMMON SHARES OTHER THAN OPTIONS AND CONVERTIBLE
SECURITIES. The Consideration per share (the "Consideration Per
Share") for the issue of any Additional Common Shares other than
Options and Convertible Securities shall be the Consideration for
the issue of any Additional Common Shares other than Options or
Convertible Securities, divided by the total number of such
Additional Common Shares issued by the Corporation in exchange
therefor.
(C) OPTIONS AND CONVERTIBLE SECURITIES. The Consideration per share
(also the "Consideration Per Share", as the context requires) for
Additional Common Shares deemed to have been issued pursuant to
Subsection 2(e)(ii)(A), relating to Options and Convertible
Securities, shall be computed by dividing (x) the Consideration
for the issue of such Options or Convertible Securities, plus the
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such
Consideration), payable to the Corporation upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by (y) the
number of Common Shares (as set forth in the instruments relating
thereto, without regard to
<PAGE> 13
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any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(v) ADJUSTMENT OF THE CONVERSION PRICE FOR DIVIDENDS, DISTRIBUTIONS,
SUBDIVISIONS, COMBINATIONS OR CONSOLIDATIONS OF COMMON SHARES.
(A) STOCK DIVIDENDS, DISTRIBUTIONS OR SUBDIVISIONS. In the event the
Corporation shall be deemed to have issued Additional Common
Shares pursuant to Subsection 2(e)(ii)(B) in a stock dividend,
stock distribution or subdivision, the Conversion Price in effect
immediately before such deemed issue shall, concurrently with the
effectiveness of such deemed issue, be proportionately decreased.
(B) COMBINATIONS OR CONSOLIDATIONS. In the event the outstanding
shares of Common Shares shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of
Common Shares, the Conversion Price in effect immediately prior to
such combination or consolidation shall, concurrently with the
effectiveness of such combination or consolidation, be
proportionately increased.
(f) ADJUSTMENTS FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event that at
any time or from time to time after the Original Issue Date the Corporation
shall make or issue, or fix a record date for the determination of holders of
Common Shares entitled to receive, a dividend or other distribution other than a
Dividend in the Ordinary Course or a stock dividend payable in Common Shares
which event is dealt with in Subsection 2(e)(v)(A), then and in each such event
provision shall be made so that the holders of Preferred Shares shall receive
upon conversion thereof, in addition to the number of Common Shares receivable
thereupon, the amount of the dividend of the Corporation that they would have
received had their Preferred Shares been converted into Common Shares on the
date of such event and had they thereafter, during the period from the date of
such event to and including the Conversion Date, retained such securities
receivable by them as aforesaid during such period, giving application during
such period to all adjustments called for herein. For purposes hereof, "Dividend
in the Ordinary Course" means a dividend payable in cash not exceeding 5% of the
net profit of the Corporation in any fiscal year.
(g) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. In the event that
at any time or from time to time after the Original Issue Date, the Common
Shares issuable upon the conversion of Preferred Shares shall be changed into
the same or a different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification, or otherwise other than a
merger, consolidation, or sale of assets provided for in Subsection 2(h) below,
then and in each such event the holder of any Preferred Shares shall have the
right thereafter to convert such shares into the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification, or other change, by the holder of a number of Common Shares
equal to the number of Common Shares into which such Preferred Shares might have
been converted immediately prior to such reorganization, reclassification, or
change, all subject to further adjustment as provided herein.
(h) ADJUSTMENT FOR MERGER, CONSOLIDATION OR SALE OF ASSETS. In the event that at
any time or from time to time after the Original Issue Date, the Corporation
shall sell all or substantially all
<PAGE> 14
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of its assets or merge, amalgamate or consolidate with or into another entity,
each Preferred Share as to which such is not treated as a liquidation under
Subsection 1(c) shall thereafter be convertible into the kind and amount of
shares of stock or other securities or property to which a holder of the number
of Common Shares of the Corporation deliverable upon conversion of such
Preferred Shares would have been entitled to receive upon such consolidation,
amalgamation, merger or sale; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors, provided however, that if
any holder of Preferred Shares disputes the adjustment determined by the Board
of Directors, the adjustment shall be determined by a national chartered
accountant firm selected by the Board of Directors with whom the Corporation has
no dealings) shall be made in the application of the provisions set forth in
this Section 2 with respect to the rights and interest thereafter of the holders
of Preferred Shares, to the end that the provisions set forth in this Section 2
shall thereafter be applicable, as nearly as reasonably may be, in relation to
any shares of stock or other property thereafter deliverable upon the conversion
of Preferred Shares.
(i) NO IMPAIRMENT. The Corporation shall not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
amalgamation, merger, dissolution, issue or sale of securities or any other
voluntary action, including, without limitation, voluntary bankruptcy
proceedings, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Corporation but shall at all
times in good faith assist in the carrying out of all the provisions of this
Section 2 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the Holders of
Preferred Shares under this Section 2 against impairment.
(j) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment pursuant to this Section 2, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each affected holder of Preferred Shares a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any affected holder of Preferred Shares,
furnish or cause to be furnished to such holder a like certificate setting
forth:
(i) such adjustments and readjustments; and
(ii) the number of Common Shares and the amount, if any, of other
property which at the time would be received upon the conversion
of each Preferred Share.
(k) NOTICES OF RECORD DATE. In the event of any taking by the Corporation of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend (other than a cash
dividend which is the same as cash dividends paid in previous quarters) or other
distribution, the Corporation shall deliver to each holder of Preferred Shares
at least twenty days prior to such record date a notice specifying the date on
which any such record is to be taken for the purpose of such dividend or
distribution.
(l) COMMON SHARES RESERVED. The Corporation shall reserve and keep available out
of its authorized but unissued Common Shares such number of Common Shares as
shall from time to time be sufficient to effect conversion of the Preferred
Shares.
<PAGE> 15
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(m) CERTAIN TAXES. The Corporation shall pay any issue or transfer taxes payable
in connection with the conversion of Preferred Shares, provided, however, that
the Corporation shall not be required to pay any tax which may be payable in
respect of any transfer to a name other than that of the holder of the Preferred
Shares.
(n) CLOSING OF BOOKS. The Corporation shall at no time close its transfer books
against the transfer of any Preferred Shares of any Common Shares issued or
issuable upon the conversion of any Preferred Shares in any manner which
interferes with the timely conversion or transfer of such Preferred Shares or
Common Shares.
SECTION 3. RESTRICTIONS.
At any time when Preferred Shares are outstanding, except where the vote of the
holders of a greater number of shares of the Corporation is required by law or
hereunder, and in addition to any other vote required by law or hereunder,
without the affirmative vote of the holders of at least two-thirds of the then
outstanding Preferred Shares voting collectively as a single class, the
Corporation will not:
(a) create or authorize the creation of, or increase or authorize any increase
in the number of authorized shares of any class or series of capital stock of
the Corporation having liquidation or dividend rights equal or superior to the
Preferred Shares;
(b) issue any shares, or any rights, options or warrants to acquire shares or
any security convertible into shares, of any class of series of capital stock of
the Corporation having liquidation or dividend rights equal or superior to the
Preferred Shares; and
(c) redeem any shares of its capital stock other than pursuant to Section 6.
SECTION 4. VOTING RIGHTS.
The holders of Preferred Shares shall be entitled to notice of any meeting of
shareholders and, except with respect to the matters set forth in Section 3 or
as otherwise required by law, shall vote together with the holders of Common
Shares as a single class upon any matter submitted to the shareholders for a
vote, on the following basis:
(a) holders of Common Shares shall have one vote per share; and
(b) holders of Preferred Shares shall have that number of votes per share as is
equal to the number of Common Shares (including fractions of a share) into which
each such Preferred Share held by such holder could be converted on the date for
determination of shareholders entitled to vote at the meeting or on the date of
any written consent.
SECTION 5. DIVIDENDS.
Preferred Shares shall be entitled to a fixed, preferential, cumulative dividend
in the amount of 5% per annum of the Series A Minimum Purchase Price or of the
Series B Minimum Purchase Price, as applicable, compounded annually. Dividends
on such Preferred Shares shall be payable in preference and prior to any payment
of any dividend on the Common Shares. After the payment of such dividends on
Preferred Shares, the holders of Common Shares and Preferred Shares shall be
entitled, when and if declared by the Board of Directors, to dividends out of
<PAGE> 16
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assets of the Corporation legally available therefor, which dividends shall be
payable to the holders of the Preferred Shares (as if fully converted into
Common Shares) and the holders of the Common Shares on a per share basis.
SECTION 6. REDEMPTION.
(a) OPTIONAL REDEMPTION.
(i) From and after the date that is the earlier of (a) five years
after the Original Issue Date (as defined in section 2(e)) or (b)
an event of non-compliance by the Corporation under the Unanimous
Shareholders' Agreement, each holder of Preferred Shares may elect
to have the Corporation redeem from it, to the extent the
Corporation has funds legally available for such purpose, and
subject to Subsection 6(a)(iv), any or all Preferred Shares held
by such holder. Such election may be made only by delivering to
the Corporation within 60 days after the Corporation's delivery to
the holders of Preferred Shares of its year-end audited financial
statements, or within 30 days after its delivery to such holders
of its quarterly unaudited financial statements (a) a written
notice signed by such holder specifying the number of Preferred
Shares so to be redeemed, and (b) certificates for the Preferred
Shares so to be redeemed, together with stock powers therefor duly
executed by such holder in blank (such written election,
certificates and stock powers being referred to collectively as a
"Redemption Notice").
(ii) Subject to Subsection 6(a)(iii), within 10 days of receipt of a
Redemption Notice, the Corporation shall deliver to each holder of
Preferred Shares a notice containing a copy of each Redemption
Notice it has received, and specifying the total funds legally
available to the Corporation for redemption of all Preferred
Shares outstanding at such time. Upon receipt of such notice from
the Corporation, each holder of Preferred Shares who has not
delivered a Redemption Notice shall have 20 days to deliver to the
Corporation a written notice of its election to have the
Corporation redeem from it, to the extent the Corporation has
funds legally available for such purpose, and subject to
Subsection 6(a)(iv), any or all Preferred Shares held by such
holder (a "Participation Notice"). Such Participation Notice shall
be in the form and shall contain the information and documents
required to be contained in a Redemption Notice.
(iii) Within 6 months of the expiration of the 20 day period referred to
in Subsection 6(a)(ii), the Corporation shall redeem from each
holder of Preferred Shares from whom the Corporation received a
Redemption Notice or a Participation Notice, all the Preferred
Shares as to which Redemption Notices or Participation Notices
have been given, to the extent the Corporation has funds legally
available for such purpose, and subject to Subsection 6(a)(iv), by
paying to the respective holders an amount per Preferred Share
equal to:
(A) in the case of Series A Preferred Shares, the greater of
(i) the number of Series A Preferred Shares to be redeemed
held by the respective holders multiplied by the Series A
Minimum Purchase Price; (ii) if there is a published market
for the Common Shares, the "market price" as defined in the
Securities Act (Ontario) of the Common Shares as at the end
of the
<PAGE> 17
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20 day period referred to in Section 6(iii) multiplied by
the number of Common Shares held by the respective holders
had the Series A Preferred Shares to be redeemed held by
the respective holders been converted into Common Shares
pursuant to the provisions of Section 2 on such date; and
(iii) if there is not a published market for the Common
Shares, the Fair Market Value of the Common Shares held by
the respective holders had the Preferred Shares to be
redeemed held by the respective holders been converted into
Common Shares pursuant to the provisions of Section 2 on
such date; and
(B) in the case of Series B Preferred Shares, the greater of
(i) the number of Series B Preferred Shares to be redeemed
held by the respective holders multiplied by the Series B
Minimum Purchase Price; (ii) if there is a published market
for the Common Shares, the "market price" as defined in the
Securities Act (Ontario) of the Common Shares as at the end
of the 20 day period referred to in Section 6(iii)
multiplied by the number of Common Shares held by the
respective holders had the Series B Preferred Shares to be
redeemed held by the respective holders been converted into
Common Shares pursuant to the provisions of Section 2 on
such date; and (iii) if there is not a published market for
the Common Shares, the Fair Market Value of the Common
Shares held by the respective holders had the Preferred
Shares to be redeemed held by the respective holders been
converted into Common Shares pursuant to the provisions of
Section 2 on such date.
The Fair Market Value shall be the simple average of the
Fair Market Value arrived at by two nationa1 accounting
firms, one as selected jointly by the written election of
the holders of not less than two-thirds of the then
outstanding Preferred Shares, and one as selected by the
Board of Directors of the Corporation. For purposes hereof,
Fair Market Value means the highest cash price in terms of
money which would be obtained if all the Shareholders of
the Corporation sold all of their respective Common Shares
in an open and unrestricted market (recognizing that the
Common Shares are securities of a corporation which cannot
offer its securities to the public) without compulsion to a
willing and knowledgeable purchaser acting at arms' length
and where in determining such Fair Market Value: (i) the
value of each Common Share is based on the value of all
Common Shares; and (ii) no diminution or accretion in value
is attributed to any majority or minority interest.
(iv) If the funds of the Corporation legally available for redemption
of Preferred Shares are insufficient to redeem the total number of
Preferred Shares submitted for redemption pursuant to Redemption
Notices and any Participation Notices, those funds which are
legally available will be split pro rata based on the aggregate
value of Series A Preferred Shares and Series B Preferred Shares
to be redeemed (based on the applicable minimum purchase price)
into two pools of funds, one pool for Series A Preferred Share
redemptions and one pool for Series
<PAGE> 18
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B Preferred Share redemptions. Each pool will be used to redeem
the maximum possible number of whole shares rateably among the
holders of the applicable series of Preferred Shares who have
submitted Redemption Notices or Participation Notices during the
20 day period referred to in Subsection 6(a)(ii), or which are
subject to mandatory redemption. The Preferred Shares not redeemed
shall remain outstanding and, notwithstanding anything herein to
the contrary, shall remain entitled to all rights and preferences
otherwise provided herein.
SECTION 7. NOTICES.
All notices, requests, consents, demands and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given, made and received (a) when delivered against receipt; (b) upon
transmitter's confirmation of the receipt of a facsimile transmission, which
shall be followed by an original sent otherwise in accordance with this Section
7; (c) upon confirmed delivery by a standard overnight carrier; or (d) upon
expiration of 5 business days after the date when deposited in the mail, first
class postage prepaid, addressed to the Corporation at its registered office or
at such other address of which the Corporation may notify the holders of
Preferred Shares from time to time, or if to a holder of Preferred Shares or
Common shares, to such holder's address as shown by the records of the
Corporation.
SECTION 8. RESIDUAL RIGHTS.
All rights accruing to the outstanding shares of the Corporation not expressly
provided for to the contrary herein shall be vested in the Common Shares.
<PAGE> 19
SCHEDULE II
1. The directors may appoint from time to time one or more directors within
the limits provided in the Canada Business Corporations Act.
2. The directors are authorized to determine the number of directors of the
Corporation from time to time to time by resolution.
