EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
by and among
CERTICOM CORP.,
DRG ACQUISITION CORP.,
DRG RESOURCES GROUP INC.,
JIM COWING,
MICHAEL HARRIS,
and
DAN MOY
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September 7, 2000
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AGREEMENT AND PLAN OF MERGER
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AGREEMENT AND PLAN OF MERGER dated as of September 7, 2000 (the
"Agreement", by and among CERTICOM CORP., a Yukon, Canada corporation
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("Certicom"), DRG ACQUISITION CORP., a Delaware corporation and wholly owned
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subsidiary of Certicom ("Merger Sub"), DRG RESOURCES GROUP INC., a Delaware
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corporation (the "Company"), JIM COWING, an individual resident in the State of
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California ("Mr. Cowing"), MICHAEL HARRIS, an individual resident in the State
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of California ("Mr. Harris"), and DAN MOY, an individual resident in the State
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of California ("Mr. Moy").
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W I T N E S S E T H:
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WHEREAS, the Company is engaged, and its predecessor Digital Resources
Group, LLC (the "LLC") previously has engaged, in the businesses of information
security consulting and recruiting (such businesses, and any other lines of
business derived from such businesses, are referred to as the "Business");
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WHEREAS, the Company's issued and outstanding share capital consists of
five thousand (5,000) shares of common stock (the "Company Stock"). In addition,
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the Company has granted to certain of its employees options to purchase shares
of Company Stock pursuant to the Company's 2000 Stock Option Plan (the "Company
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Option Plan") and such options are hereinafter referred to as the "Company Stock
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Options."
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WHEREAS, each of the Boards of Directors of Merger Sub and the Company has
determined that the merger of Merger Sub with and into the Company, with the
Company continuing as the surviving corporation (the "Surviving Corporation"),
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upon the terms and subject to the conditions set forth in this Agreement, is
fair to and in the best interests of its shareholders, and has approved and
adopted this Agreement and the transactions contemplated hereby;
WHEREAS, Mr. Cowing, Mr. Harris, and Mr. Moy (collectively, the
"Shareholders") own all of the issued and outstanding shares of Company Stock
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and desire to enter into this Agreement and consummate the transactions
contemplated hereby;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereby agree
as follows:
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ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
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this Agreement and in accordance with the California General Corporation Law
(the "CGCL") and the Delaware General Corporation Law (the "DGCL"), at the
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Effective Time (as defined in Section 1.3), the Merger Sub shall be merged with
and into the Company (the "Merger"). As a result of the Merger, the separate
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corporate existence of the Merger Sub shall cease, and the Company shall
continue as the Surviving Corporation.
1.2 Time and Place of Closing. Unless this Agreement shall have been
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terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 8.1, the closing of the Merger (the "Closing") shall take
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place at 10:00 a.m., Pacific Standard Time, on the first business day after the
satisfaction (or waiver) of the conditions precedent set forth in Article VII
(or as soon as practicable thereafter), at the offices of Howard, Rice,
Nemerovski, Canady, Falk & Rabkin, A Professional Corporation, Three Embarcadero
Center, 7th Floor, San Francisco, California 94111-4065, unless the parties
shall agree upon another date, time or place (the day on which the Closing takes
place being the "Closing Date").
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1.3 Effective Time of the Merger. As soon as practicable following the
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Closing, the parties will cause a Certificate of Merger (the "Certificate of
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Merger") to be executed, acknowledged and filed with the Secretary of State of
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Delaware as provided in Section 251 of the DGCL. The Merger shall become
effective at the time when the Certificate of Merger has been duly filed with
the Secretary of State of Delaware (the "Effective Time").
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1.4 Effects of the Merger. The effects of the Merger shall be as provided
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in the Certificate of Merger and the applicable provisions of the CGCL and the
DGCL. Without limiting the immediately foregoing sentence, all properties,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
1.5 Directors and Officers. The directors of Merger Sub in effect at the
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Effective Time shall, from and after the Effective Time, be the directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation until each such director's
successor is duly elected or appointed and qualified. The officers of Merger Sub
in effect at the Effective Time shall, from and after the Effective Time, be the
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officers of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and Bylaws of the Surviving Corporation until
each such officer's successor is duly elected or appointed and qualified.
1.6 Certificate of Incorporation; Bylaws. At the Effective Time, the
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Certificate of Incorporation and the Bylaws of the Merger Sub shall be the
Certificate of Incorporation and Bylaws of the Surviving Corporation, until duly
amended as provided therein or by applicable law.
1.7 Conversion of Shares. The shares of the Company, the Merger Sub, and
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Certicom shall be converted in the Merger as follows:
(a) Company Value. The Company shall be valued at twelve million
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five hundred thousand dollars (US $12,500,000).
(b) Company Stock. Subject to the terms of this Agreement, at the
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Effective Time, by virtue of the Merger and without any action on the part of
Merger Sub, the Company, Certicom or the holders of any Company Stock, each
share of Company Stock issued and outstanding immediately prior to the Effective
Time (other than (i) shares held in the Company's treasury or by any subsidiary
of the Company, (ii) any Company Dissenting Shares (as defined in Section 1.10)
and (iii) shares held by Certicom, Merger Sub or any other subsidiary of
Certicom) shall be cancelled and converted into the right to receive, subject to
the indemnification and escrow provisions of this Agreement, that number of
Certicom Common Shares (as hereinafter defined) obtained by dividing
US$12,500,000 by the average of the Closing Share Price of Certicom Common
Shares for the twenty (20) trading days ending two business days prior to the
Closing Date (the "Average Closing Price"); provided, however, that the Average
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Closing Price shall be deemed to be no less than US$26.88 per share and no
greater than US$36.78 per share. Such Certicom Common Shares, subject to such
indemnification and escrow provisions, are collectively referred to herein as
the "Merger Consideration." The Merger Consideration shall be allocated and
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fractional Certicom Common Shares shall be rounded as set out on Exhibit A.
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(c) Conversion of Merger Sub Shares. At the Effective Time, each
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share of Common Stock of Merger Sub shall be converted into one (1) issued and
outstanding fully paid and nonassessable share of common stock of the Surviving
Corporation, and shall constitute the only shares of capital stock of the
Surviving Corporation outstanding immediately after the Effective Time.
(d) Company Treasury Shares. At the Effective Time, each share of
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Company Stock held in the Company's treasury or owned by any subsidiary of
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the Company shall be canceled and retired and shall cease to exist, and no
consideration shall be delivered or deliverable in exchange therefor.
(e) Shares Owned by Certicom and Merger Sub. At the Effective Time,
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each share of Company Stock owned by Certicom, Merger Sub or any subsidiary of
Certicom or Merger Sub immediately prior to the Effective Time shall be canceled
and retired and shall cease to exist, and no consideration shall be delivered or
deliverable in exchange therefor.
(f) Company Stock Options. At the Effective Time, Certicom shall
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assume the Company Stock Options in accordance with Section 6.6 hereof.
(g) Hold Period. Seventy-Five percent (75%) of the aggregate number
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of Certicom Common Shares initially issued to each Shareholder upon the
cancellation and conversion of the Company Stock shall be subject to a hold
period and may not be transferred, traded or otherwise disposed of during such
hold period without the written consent of Certicom. The hold period shall
expire as to six and one-quarter percent (6.25%) of the aggregate number of
Certicom Common Shares initially issued to each Shareholder on the seven-month
anniversary of the Closing Date and a further six and one-quarter percent
(6.25%) of the aggregate number of Certicom Common Shares initially issued to
each Shareholder upon the expiry of each one-month period thereafter so that the
hold period shall expire entirely on the eighteen month anniversary of the
Closing Date. The Certificates representing the foregoing Certicom Common Shares
shall bear legends to the foregoing effect. Certicom will not register a
transfer of Certicom Common Shares unless the foregoing conditions are
satisfied, and Certicom may instruct its transfer agent not to register the
transfer of any Certicom Common Shares unless the foregoing conditions are
satisfied.
1.8 Delivery of Certificates.
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(a) Exchange Procedures. At the Closing or as soon as practicable
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thereafter, each Shareholder shall deliver to Certicom a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Company Stock (each, a "Certificate" and collectively, the
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"Certificates") held by such Shareholder endorsed by such Shareholder. Upon
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delivery to Certicom of a Certificate for cancellation, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole Certicom Common Shares which such holder has
the right to receive pursuant to the provisions of subsection 1.7 less such
holder's pro rata portion of the Escrow Shares (as defined in Section 1.9), and
the Certificate or Certificates so surrendered shall immediately be cancelled.
Until surrendered as contemplated by this Section 1.8, each Certificate shall be
deemed at any time after the Effective
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Time to represent only the right to receive upon such surrender the certificate
representing Certicom Common Shares contemplated by this Section 1.8.
(b) Distributions with Respect to Unexchanged Shares. No dividends
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or other distributions declared or made after the Effective Time with respect to
Certicom Common Shares with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate with respect to the Certicom
Common Shares represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Certicom Common Shares
issued in exchange therefor, without interest, (i) the amount of dividends or
other distributions with a record date after the Effective Time previously paid
with respect to such Certicom Common Shares, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such Certicom Common Shares.
(c) No Further Rights in Company Stock. All Certicom Common Shares
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issued upon conversion of any Company Stock in accordance with the terms hereof
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares (except as otherwise expressly provided in this
Agreement).
1.9 Escrow. At the Closing, Certicom will deposit into escrow (the
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"Escrow"), on behalf of the shareholders of the Company entitled to receive the
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Merger Consideration, certificates representing twenty-five percent (25%) of the
aggregate number of Certicom Common Shares to be issued to such Shareholders at
the Effective Time (the "Escrow Shares"). The Escrow Shares shall be shares
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subject to the Hold Period set forth in Section 1.7(g). The Escrow Shares shall
be held by Certicom (in this capacity, the "Escrow Agent") in accordance with
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and subject to the provisions of an Escrow Agreement substantially in the form
of Exhibit B hereto (the "Escrow Agreement"). The Escrow Shares shall be held
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as collateral for the indemnification obligations of the persons who were
shareholders of the Company immediately prior to the Effective Time under
Article IX of this Agreement.
1.10 Dissenting Shares. Any holder of Company Stock issued and outstanding
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immediately prior to the Effective Time with respect to which appraisal and/or
dissenter's rights, if any, are available by reason of the Merger pursuant to
Section 262 of the DGCL or Section 1300 of the CGCL ("Company Dissenting
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Shares") shall not be entitled to receive any payment or Certicom
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Common Shares in respect of such Company Stock pursuant to subsection 1.7,
unless such holder fails to perfect, effectively withdraws or loses its
appraisal rights and/or rights to dissent from the Merger. Such holder shall be
entitled to receive only such rights as are granted under Section 262 of the
DGCL and Section 1300 of the CGCL. If any such holder fails to perfect,
effectively withdraws or loses such appraisal and/or dissenter's rights under
the DGCL or the CGCL, such Company Dissenting Shares shall thereupon be deemed
to have been cancelled and converted in accordance with subsection 1.7(a). Any
payments made with respect to Company Dissenting Shares shall be made solely by
the Surviving Corporation, and no funds or other property have been or shall be
provided by Certicom or any of Certicom's other direct or indirectly
subsidiaries for such payment.
1.11 Tax Treatment. The parties intend that the Merger shall qualify as a
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reorganization within the meaning of Section 368(a) of the Internal Revenue Code
as amended (the "Code"), but each party will bear such party's own risk of the
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consequences if it should not qualify as a reorganization within the meaning of
Section 368(a) of the Code. No party will have any liability to any other
because of any failure so to qualify, and failure so to qualify will not be
grounds for rescission, termination or any other legal or equitable relief.
1.12 Definitions. For purposes of this Agreement, the following
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capitalized terms shall have the following meanings:
"Adjusted Net Worth" shall mean the Company's net worth as of the Closing
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Date and as calculated in accordance with the United States generally accepted
accounting principles, except that accounts receivable shall be limited to
accounts receivable as of the Closing Date which are actually collected during
the 180 day period commencing on the Closing Date.
"Affiliate" means, with respect to any Person, any other Person that,
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directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such first Person.
"Assets" mean all personal property, equipment, goodwill, cash, cash
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equivalents, cash deposits, marketable securities, investments, books and
records, accounts, notes and other receivables, rights to Intellectual Property,
contractual and other rights, claims and interests and all other assets and
rights of the Company, including, without limitation, all assets and rights of
the Company which are specifically referred to or reflected in the Financial
Statements.
"Certicom Common Shares" shall mean common shares in the capital of
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Certicom.
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"Certicom Material Adverse Effect" means any material adverse change in, or
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material adverse effect on, the business, assets, prospects, results of
operations or financial or other condition of Certicom and its subsidiaries
(taken as a whole), or any event or circumstance which would likely prevent,
hinder or materially delay the consummation of any of the transactions
contemplated by this Agreement.
"Closing Share Price" means the last reported closing trade price of
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Certicom's Common Shares, as listed on the NASDAQ National Market and reported
by Bloomberg Financial Markets ("Bloomberg"), or if the NASDAQ National Market
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operates on an extended hours basis and does not designate the closing trade
price, then the last trade price of Certicom's Common Shares prior to 4:00:00
p.m. Eastern Time, as reported by Bloomberg, for the date in question.
"Company Material Adverse Effect" means (i) any material adverse change in,
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or material adverse effect on, the business, assets, prospects, results of
operations or financial or other condition of the Company or (ii) any event or
circumstance that is or would reasonably be likely to prevent, hinder or
materially delay the consummation of any of the transactions contemplated by
this Agreement.
"Encumbrance" shall mean and include any mortgage, pledge, claim, charge,
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lien, encumbrance, interest, option, right of first refusal, restriction,
condition, violation, security interest or assessment of any nature affecting in
any way the assets or property involved.
"Escrow Agreement" means the Escrow Agreement attached hereto as Exhibit B.
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"Financial Statements" shall mean the unaudited financial statements of the
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LLC's operations for the six months ending June 30, 2000.
"Governmental Entity" shall mean any federal, state or provincial
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governmental authority, court, administrative agency or commission or other
governmental or regulatory body or entity.
"Intellectual Property" means any patent, copyright, trademark, trade name,
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service mark, logo, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any invention, know-
how, trade secret, formula, algorithm, process, confidential or proprietary
report or information, customer list or membership list, any computer program,
software, source code, object code, database or data right, and any system,
user,
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programmer, maintenance, installation or other form of documentation or other
material related thereto), any license or other contract relating to any of the
foregoing, and any goodwill associated with any business owning, holding or
using any of the foregoing.
"Law" shall mean any statute, law, ordinance, rule, regulation or
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administrative ruling or any governmental permit, franchise or license or any
injunction, judgment, order or consent or similar decree or agreement, whether
federal, state, local or foreign.
"Person" means any individual, corporation, partnership, limited liability
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company, trust, unincorporated association or other entity or organization,
including any Governmental Entity.
"Shareholder" means a holder of Company Stock.
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"Taxes" shall mean (A) all taxes, charges, fees, levies, or other similar
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assessments, including without limitation, income, gross receipts, ad valorem,
premium, excise, real property, personal property, windfall profit, sales, use,
transfer, licensing, withholding, employment, payroll, estimated and franchise
taxes imposed on the Company or its Assets by the United States, any state,
local, or foreign government, or any subdivision, agency, or other similar
entity of the United States, or any such government, and any interest, fines,
penalties, assessments, or additions to tax resulting from, attributable to, or
incurred in connection with any such tax or any contest or dispute thereof, and
(B) any Taxes (as defined in clause (A)) for which the Company is liable as a
transferee, indemnitor, guarantor, surety or in a similar capacity under any
law, contract, arrangement, understanding or commitment, whether oral or
written, or by reason of having been a member of any affiliated, consolidated,
combined or unitary group.
"Tax Returns" shall mean any report, return, statement, or other
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information required to be supplied to a federal, state, local or foreign taxing
authority in connection with Taxes.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE SHAREHOLDERS
Except as set forth in the Schedule of Exceptions delivered to Certicom on
the date hereof (the "Schedule of Exceptions"), the Company and the Shareholders
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hereby jointly and severally represent and warrant to Certicom and Merger Sub as
follows:
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2.1 Organization, Standing and Power. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, lease and
operate its properties (including, without limitation, the Assets) and to carry
on its business as now being conducted (including, without limitation, the
Business). The Company is duly qualified and in good standing to conduct
business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification
necessary, except where the failure to be so qualified would not result in a
Company Material Adverse Effect.
2.2 Authority and Enforceability. The Company has all requisite corporate
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power and authority to execute and deliver this Agreement and to perform fully
its obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
and approved by all necessary corporate action on the part of the Company and
the shareholders of the Company. Without limiting the generality of the
foregoing sentence, (a) the board of directors of the Company has (i)
unanimously approved this Agreement; and (ii) determined that the Merger is in
the best interest of the Shareholders and is on terms that are fair to such
Shareholders; and (b) holders of the requisite number of shares of Company Stock
under the DCGL and of the CGCL and the Certificate of Incorporation and Bylaws
of the Company have duly and irrevocably approved this Agreement, the Agreement
of Merger and the Merger. This Agreement has been duly executed and delivered by
the Company and, assuming this Agreement constitutes the valid and binding
agreement of the other parties hereto, this Agreement constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
2.3 Subsidiaries. The Company does not, directly or indirectly, (a) own
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or hold beneficially or of record any shares of capital stock, equity interest
or any other security of any other entity or (b) have any other investment in
any other entity.
2.4 Capital Structure.
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(a) The authorized capital stock of the Company consists of one
hundred thousand (100,000) shares of Company Stock. As of the date hereof,
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there are five thousand (5,000) shares of Company Stock issued and outstanding.
Section 2.4 of the Schedule of Exceptions delivered to Certicom on the date
hereof (the "Schedule of Exceptions") sets forth a true, correct and complete
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list, as of the date hereof, of the names and addresses of all of the
Shareholders and the respective types and numbers of Company Stock held by each.
All outstanding shares of Company Stock have been validly authorized and issued
and are fully paid, non-assessable and free of preemptive or similar rights.
There are no shares of Company Stock held by the Company in its treasury.
(b) Section 2.4 of the Schedule of Exceptions sets forth a true,
correct and complete list, as of the date hereof, of the name of each holder of
a Company Stock Option and the number of shares of Company Stock that may be
acquired on exercise thereof, and indicating the portion of such Company Stock
Options that are vested and also indicating the additional portion of such
Company Stock Options that will be vested prior to the Effective Time. Except as
specified in Section 2.4 of the Schedule of Exceptions, all of the Company Stock
Options are Incentive Stock Options within the meaning of the Code. Except for
the Company Stock Options, there are no (i) options, warrants, calls, rights
(including preemptive rights), commitments or any other agreements of any
character to which the Company or the LLC is a party or any one or more of the
Shareholders is a party or by which the Company, the LLC or any of the
Shareholders may be bound requiring it, him or them to issue, transfer, dispose
of, sell, purchase, redeem or otherwise acquire (or to refrain from doing any of
the foregoing) any shares of Company Stock or any other shares of capital stock
or other securities of the Company or its successors or rights convertible into,
exchangeable for, or evidencing the right to subscribe for, any shares of
capital stock or other securities of the Company or its successors, or other
ownership interests in the Company or its successors, or (ii) stockholders
agreements, voting trusts or other agreements or understandings to which the
Company, the LLC or any of the Shareholders is a party or by which the Company
or any of the Shareholders may be bound relating to the voting of, or placing
any restrictions on, any shares of the capital stock of the Company or its
successors.
2.5 Title to Assets; Condition; Sufficiency of Assets.
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(a) Title to Assets; Condition. Except as otherwise expressly
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permitted pursuant to the last sentence of Section 2.16 with respect to real
property, (i) the Company owns beneficially and of record, and has good and
marketable title to, the Assets, free and clear of any Encumbrances and (ii)
upon consummation of the transactions contemplated at the Closing, the Company
will still have good and marketable title to the Assets, free and clear of any
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Encumbrance. All tangible Assets, if any, are in good working condition and
repair, except for reasonable wear and tear.
(b) Sufficiency of Assets. The Assets include substantially all the
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assets and properties used or employed by the Company or previously used or
employed by the LLC in the Business as presently conducted. Immediately after
giving effect to the Merger and the consummation of the other transactions
contemplated pursuant to this Agreement to be effected at the Closing, the
Surviving Company (i) will have all right, title, and interest in and to, or
will have a valid right to use, substantially all of the assets (including,
without limitation, Intellectual Property), properties, equipment, licenses and
rights owned, used, employed or retained by the Company and previously owned,
used, employed or retained by the LLC, in the conduct of its business prior to
the date hereof, and (ii) will have all assets (including, without limitation,
Intellectual Property), properties, equipment, licenses and rights that are
reasonably necessary to carry on the business and operations of the Business
after the Closing Date in substantially the same manner as presently conducted
by the Company and previously conducted by the LLC. Neither the Company nor any
of the Shareholders knows that any employee or any subcontractor, consultant,
independent contractor, software developer or similar Person will not continue
his, her or its employment or other relationship with the Surviving Company.
2.6 No Violations Resulting From Transactions. The execution and delivery
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by the Company of this Agreement and the consummation of the transactions
contemplated hereby by the Company will not (a) conflict with or violate any
provision of the Certificate of Incorporation or Bylaws of the Company, as
amended through the date hereof, (b) require any consent, waiver, approval,
authorization or permit of, or filing with or notification to, any Governmental
Entity other than: (i) the office of the California Secretary of State and the
Delaware Secretary of State; and (ii) such filings, authorizations, orders and
approvals as may be required under the Securities Act (Ontario), any other
applicable federal, provincial or state securities laws and the rules of The
Toronto Stock Exchange, (c) result in or constitute a Default (as defined in
subsection 2.18(b)), or require any consent or approval of or notice to any
Person, or result in the creation of any Encumbrance, under or pursuant to (i)
any of the Contracts listed in Section 2.18 of the Schedule of Exceptions or
(ii) any other material agreement to which the Company is a party or by which it
or any of its Assets may be bound, or (d) violate any Law applicable to the
Company or by which it or any of its Assets may be bound.
2.7 Compliance with Laws. The Company is, and the Company and the LLC at
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all times have been, in material compliance with all Laws applicable to
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the Company or the LLC or to the conduct of the business or operations of the
Company or the LLC or the use of their respective properties (including any
leased properties) and assets, and neither the Company nor the LLC has received,
and does not know of the issuance or threatened issuance by any Governmental
Entity, of any notices of violation or alleged violation of any Law applicable
to the Company or the LLC. The manner in which each of the Company and the LLC
has manufactured, packaged, shipped, advertised, labeled and sold its products
complies in all material respects with all applicable Laws pertaining thereto.
2.8 Litigation. There is no action, suit, claim, investigation or
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proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
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or, to the knowledge of the Company or any of the Shareholders, threatened that
questions the validity of this Agreement or any action taken or to be taken by
the Company or any of the Shareholders in connection with the consummation of
the transactions contemplated hereby or thereby. Section 2.8 of the Schedule of
Exceptions sets forth a true, accurate and complete list, and a brief
description (setting forth the names of the parties involved, the court or other
governmental or mediating entity involved, the relief sought and the substantive
allegations and the status thereof), of (a) each material Legal Proceeding
pending or, to the knowledge of the Company or any of the Shareholders,
threatened against or affecting the Company, the LLC or any of the Assets or any
assets of the LLC, (b) each pending Legal Proceeding against or affecting the
Company, the LLC, or any of the Assets or any assets of the LLC which is brought
in the form of a class action or a purported class action, and (c) each group of
two or more Legal Proceedings which (i) arise out of a common set of facts,
events or circumstances, have substantially similar allegations or seek
substantially similar relief and (ii) when taken together as such a group, could
reasonably be expected to result in a Company Material Adverse Effect. None of
the matters listed in Section 2.8 of the Schedule of Exceptions could, if
adversely determined, either individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect. To the knowledge of the
Company and each of the Shareholders, no event has occurred and no circumstance,
matter or set of facts exist which would constitute a valid basis for the
assertion by any third party of any claim or Legal Proceeding, other than those
listed in Section 2.8 of the Schedule of Exceptions, which is or would
reasonably be likely to result in a Company Material Adverse Effect. There is no
outstanding or, to the knowledge of the Company or any of the Shareholders,
threatened, judgment, injunction, order or consent or similar decree or
agreement of any Governmental Entity against, naming the Company, the LLC, or,
to the knowledge of the Company or any of the Shareholders, affecting any of its
Assets or any assets of the LLC.
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2.9 Taxes.
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(a) Payment of Taxes; Tax Returns. All Taxes with respect to any
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periods ending on or before the Closing Date which are due and payable (whether
or not shown on any Tax Return) by either the Company or the LLC have been paid
in full and no such Taxes remain outstanding. The Company has established, and
prior to the Closing Date will have established, current accruals that are
adequate for the payment of all Taxes payable by it or the LLC which are not yet
due and payable with respect to its results of operations for all periods ending
on or before the Closing Date. Each of the Company and the LLC has filed all Tax
Returns required to have been filed by it prior to the date hereof and no
extension of time for filing a Tax Return is presently in effect. The Tax
Returns that have been filed by the Company and the LLC have been accurately
prepared, duly and timely filed and are correct and complete in all material
respects. Each of the Company and the LLC has withheld and paid all Taxes
required to have been withheld and paid by it in connection with amounts paid to
or owing to any employee, independent contractor, creditor or any other third
party.
(b) Tax Audits. There has been no examination by any Tax authority
----------
of any return of the Company or the LLC or of any other person, firm or
corporation for which the Company or the LLC is liable, during the past two (2)
years, and there are no audits, actions, suits, proceedings, investigations or
claims now pending or threatened against the Company or the LLC in respect of
any Taxes.
2.10 Employees. Section 2.10 of the Schedule of Exceptions sets forth a
---------
true, correct and complete list of all employees of the Company as of the date
hereof and all Contracts and other agreements with such employees.
2.11 Financial Advisors. (a) No Person has acted directly or indirectly as
------------------
a broker, finder or financial advisor for or to the Company, the LLC or any of
the Shareholders in connection with the negotiations relating to or the
transactions contemplated by this Agreement, and (b) no Person is entitled to
any fee or commission or like payment, or expense reimbursement, in respect of
this Agreement or any of the transactions contemplated hereby, based in any way
on agreements, arrangements or understandings made by or on behalf of the
Company, the LLC or any of the Shareholders.
2.12 Financial Statements.
--------------------
(a) Section 2.12 of the Schedule of Exceptions sets forth true,
correct and complete copies of the Financial Statements.
13
(b) The Financial Statements (i) were prepared in accordance with
the cash basis method of accounting applied in a consistent manner, provided
that accounts receivable from customers, salaries, taxes and accounts payable to
consultants are accrued in accordance with generally accepted accounting
principles consistently applied, (ii) are complete and correct in all material
respects and (iii) present fairly the consolidated financial position, results
of operations and changes in financial position or cash flows, whichever is
applicable, of the LLC as of the dates and for the periods indicated.
2.13 No Undisclosed Liabilities. Neither the Company nor the LLC has had
--------------------------
any indebtedness, obligation or liability of any kind (whether accrued,
absolute, contingent or otherwise, and whether due or to become due or asserted
or unasserted), and, to the knowledge of the Company and each of the
Shareholders, there is no basis for the assertion of any claim or liability of
any nature against the Company or the LLC, which was not fully reflected in,
reserved against or otherwise described in the balance sheet included in the
Financial Statements. Since June 30, 2000, neither the Company nor the LLC has
incurred any indebtedness, obligation or liability of any kind (whether accrued,
absolute, contingent or otherwise, and whether due or to become due or asserted
or unasserted) that would be required to be disclosed on a balance sheet
prepared in accordance with the methodology described in Section 2.12(b), other
than those which (x) are incurred in the ordinary course of business consistent
with past practice, and (y) would not, in the aggregate, result in a Company
Material Adverse Effect.
2.14 Absence of Certain Developments. Since June 30, 2000, (a) there has
-------------------------------
been no event, condition or statement of facts of any character that has had or
could have a Company Material Adverse Effect, (b) neither the LLC nor the
Company nor any of the Shareholders has taken any action that would have been
prohibited by Section 5.1 had that Section been effective since such date and
(c) there has not been any damage, destruction or loss, whether or not covered
by insurance, with respect to the property and assets of the Company having a
replacement cost of more than U.S. $5,000 for any single loss or U.S. $10,000
for all such losses.
2.15 Intellectual Property.
---------------------
(a) List of Intellectual Property; Sufficiency. Section 2.15 of the
------------------------------------------
Schedule of Exceptions sets forth a true, correct and complete list of all
reasonably identifiable and material Intellectual Property which is either owned
by the Company, licensed by the Company or otherwise used in the Business (other
than computer software which is generally available to the public and the use
rights to
14
which were legally acquired by the Company for free, through established retail
facilities or by download from the Internet) by the Company or previously used
by the LLC and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the date(s) of any licenses or other agreements or
contracts with respect thereto. The Company owns or has the lawful right to use
all Intellectual Property necessary for the conduct of the Business as now
conducted by the Company and also as previously conducted by the LLC.
(b) Title; Validity; Pending Applications; Infringements. Except as
----------------------------------------------------
set forth in the Schedule of Exceptions:
(i) The Company has full legal and beneficial ownership (free
and clear of any and all Encumbrances) of, or a valid right to use (free of any
material restriction not entered into in the ordinary course of business), all
Intellectual Property necessary for the conduct of the Business, and neither the
Company nor any of the Shareholders has received any notice or claim (whether
written, oral or otherwise) challenging either the Company's or the LLC's
ownership or rights in such Intellectual Property or suggesting that any other
Person (except, under certain circumstances, the licensor thereof) has any claim
of legal or beneficial ownership with respect thereto;
(ii) All Intellectual Property of the Company is legally valid
and enforceable without any material qualification, limitation or restriction on
its use, and the Company has not, directly or indirectly through any of its
Affiliates or representatives, nor has the LLC or any of the Shareholders,
received any notice or claim (whether written, oral or otherwise) challenging
the validity or enforceability of any such Intellectual Property;
(iii) With respect to any Intellectual Property of the Company
for which registration with any private or governmental Person is permitted, but
which has not yet been registered, all applications with respect thereto, the
filing of which would be reasonably prudent, have been filed and are pending and
in good standing and are without challenge of any kind;
(iv) To the knowledge of the Company and each of the
Shareholders, neither the Business nor any of the operations, products or
services of the Company or the LLC conflict with, infringe upon, violate or
interfere with or constitute an appropriation of any right, title or interest
held by any other person or entity, and there have been no claims made with
respect thereto; and
15
(v) To the knowledge of the Company and each of the
Shareholders, no other Person is infringing in any material respect on any part
of the Intellectual Property listed in Section 2.15 of the Schedule of
Exceptions.
(c) Preservation of Intellectual Property. Neither the Company nor
-------------------------------------
the LLC has conducted the Business, and has not used or enforced (or failed to
use or enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of the Intellectual
Property listed in Section 2.15 of the Schedule of Exceptions, and neither the
Company nor the LLC has taken or failed to take any action that would result in
the forfeiture or relinquishment of any Intellectual Property used in the
conduct of the Business. Neither the Company nor any of the Shareholders knows
of any new developments in any of the Intellectual Property owned, created or
used by the Company or its competitors or the LLC that might reasonably be
expected to result in a Company Material Adverse Effect.
(d) Protection and Maintenance of Intellectual Property. Each of the
---------------------------------------------------
Company and the LLC (i) has taken all reasonable steps to (A) protect the
Company's rights to the Intellectual Property listed in Section 2.15 of the
Schedule of Exceptions and (B) prevent the unauthorized use thereof by, or the
unauthorized disclosure thereof to, any other Person, and (ii) shall use all
reasonable efforts to maintain, or cause to be maintained, the Intellectual
Property listed in Section 2.15 of the Schedule of Exceptions in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within an applicable renewal period ending on or prior to the Closing,
application to renew all of such Intellectual Property subject to expiration on
or prior to the Closing. Neither the Company nor the LLC nor any of the
Shareholders, nor any of their respective Affiliates, has granted to any other
Person any rights or permissions to use any of the Intellectual Property listed
in Section 2.15 of the Schedule of Exceptions. With respect to any part of the
Intellectual Property which was created by the Company or the LLC or any of
their respective agents or representatives (e.g., any copyrights, know-how,
trade secret, trade right or confidential or proprietary report or information
of the Company or the LLC), (i) no third party has any rights (whether non-
exclusive or otherwise) in such Intellectual Property and, except pursuant to
reasonably prudent safeguards, no third party has received any confidential
information relating to such Intellectual Property, (ii) neither the Company nor
the LLC is under any contractual or other obligation to disclose to any third
party any such Intellectual Property except pursuant to prudent and reasonable
safeguards, and (iii) there are no known significant defects therein and such
Intellectual Property substantially conforms to all documentation and materials
produced by the Company or the LLC which describe such Intellectual Property.
16
2.16 Real Property. Section 2.16 of the Schedule of Exceptions sets forth
-------------
an accurate and complete list of all real property which the Company owns or has
the right to acquire or in which the Company has a leasehold interest. The
Company has a good and marketable title in each parcel of real property owned by
it and a good and valid leasehold interest in each parcel of real property
leased by it, in the case of each parcel of real property free and clear of all
Encumbrances, except those Encumbrances which do not materially interfere with
the Company's use and enjoyment of such real property or materially detract from
or diminish the value thereof.
2.17 Insurance. The Company currently maintains, and as of the Effective
---------
Time will maintain, valid insurance policies, which policies provide coverage
for the Company and the operations conducted by the Business that is customary
in scope and amount for persons conducting business or owning assets similar to
the Company. There are no pending material claims against such insurance by the
Company or the LLC or any of their respective Affiliates as to which the
applicable insurers have denied coverage. In addition, there exist no material
claims under such insurance that have not been properly filed by the Company or
the LLC or one of their respective Affiliates. During the past two years,
neither the Company nor the LLC has been refused any insurance coverage by any
insurer from which the Company or the LLC has sought coverage.
2.18 Material Contracts.
------------------
(a) List of Material Contracts. Section 2.18(a)(1) of the Schedule
--------------------------
of Exceptions sets forth a true, correct and complete list (including the title,
the date, the parties and a list of any amendments, modifications or supplements
thereto) of all material agreements and other contracts to which either the
Company or the LLC is a party or by which the Company or the Assets or the LLC
or its assets may be bound ("Contracts"). Except as stated in Section 2.18(a)(2)
---------
of the Schedule of Exceptions, neither the Company nor the LLC is a party to,
nor are any of the Assets or the assets of the LLC bound by, any (i) contract
not made in the ordinary course of business or the performance of which will
extend over a period greater than thirty (30) days and which is not cancelable
by the Company without penalty; (ii) employment, consulting, independent
contractor, non-competition, severance, golden parachute or indemnification
contract; (iii) advertising, public relations, franchise, distributorship or
sales agency contract; (iv) contract involving the commitment or payment in
excess of U.S. $10,000 for the future purchase of services, properties,
materials or equipment; (v) contract among stockholders to which the Company,
the LLC or any of the Shareholders is a party or granting a right of first
refusal or for a partnership or for a joint venture or for the acquisition, sale
or lease of any
17
properties or assets of the Company; (vi) mortgage, pledge, conditional sales
contract, security agreement, factoring agreement or other similar contract with
respect to any property of the Company; (vii) loan agreement, credit agreement,
promissory note, guarantee, subordination agreement, letter of credit or any
other similar type of contract; (viii) retainer contract with investment
bankers, attorneys, accountants, actuaries, appraisers or other professional
advisers; (ix) contract or agreement with any Governmental Entity; (x) contract
which would be reasonably likely to limit or restrain the Company, the LLC or
any of the Shareholders from engaging in any line of business, competing with
any Person or conducting business in any particular geographic area, (xi)
software development agreement or any other similar agreement to which the
Company or the LLC, or any entity acting on behalf of the Company or the LLC, is
a party, (xii) contract the performance or nonperformance of which by the
Company or the LLC would reasonably likely cause a Company Material Adverse
Effect, or (xiii) commitment or agreement to enter into any of the foregoing.
The Company has delivered or otherwise made available to Certicom true, correct
and complete copies of the Contracts listed in Section 2.18 of the Schedule of
Exceptions, together with all amendments, modifications and supplements thereto
and side letters to which either the Company or the LLC is a party affecting the
obligations of any party thereunder. No Person holds a power of attorney to act
on behalf of the Company or the LLC.
(b) Enforceability; Defaults; Consents; Impending Terminations; Etc.
----------------------------------------------------------------
Except as Set Forth in the Schedule of Exceptions:
- -------------------------------------------------
(i) Each Contract is valid and enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity);
(ii) No Default (as defined below) exists under any Contract
either by the Company or the LLC or, to the knowledge of the Company or any of
the Shareholders, by any other party thereto;
(iii) Neither the Company nor any of the Shareholders is aware
of the assertion by any third party of any claim of Default or breach under any
Contract;
(iv) With respect to Contracts that were assigned or subleased
to the Company by the LLC or any other third party, all necessary consents to
such assignments or subleases have been obtained; and
18
(v) Neither the Company, nor the LLC nor any of the
Shareholders has been notified during the preceding ninety (90) days by any
customer, licensor, licensee, supplier or key employee of the Company or the LLC
that it has or that it intends to either (A) terminate or significantly change
its existing business relationship with the Company or the LLC, either now or in
the foreseeable future, or (B) not renew or extend its existing business
relationship with the Company or the LLC at the end of the term of any existing
contractual or other arrangement such person or entity may have with the Company
or the LLC.
For purposes of this Agreement, the term "Default" means, with respect to
-------
any Contract, (x) any material breach of or default under such Contract, (y) any
event which could (either with or without notice or lapse of time or both) give
rise to any right of termination, cancellation or acceleration or any obligation
to repay with respect to such Contract, or (z) any event which could result in
either a material increase in the obligations or liabilities of, or a loss of
any material benefit to which, the party in question or any of its affiliates
may be entitled or subject to under such Contract.
(c) Certain Agreements. Neither the execution and delivery of this
------------------
Agreement nor the consummation of the transactions contemplated hereby will (i)
result in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any director
or employee of the Company or the LLC, (ii) materially increase any benefits
otherwise payable under any Benefit Plan (as defined in Section 2.24) or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits. Each of the Company and the LLC is in compliance in all material
respects with all applicable laws, agreements and contracts relating to
employment, employment practices, wages, hours, and terms and conditions of
employment, including, but not limited to, employee compensation matters. The
Company believes it has satisfactory labor relations; nothing has come to the
attention of the Company or any of the Shareholders as a result of the
negotiation or entering into of this Agreement that would lead the Company or
any of the Shareholders to believe that the consummation of the transactions
contemplated hereby will have a Company Material Adverse Effect on labor
relations. Except as set forth in the Schedule of Exceptions, neither the
Company nor the LLC has employment contracts or material consulting agreements
currently in effect that are not terminable at will or upon reasonable notice
(other than agreements with the sole purpose of providing for the
confidentiality of proprietary information or assignment of inventions), except
as such termination rights are limited under applicable employment laws.
19
2.19 Related Party Transactions. Except as set forth in the Schedule of
--------------------------
Exceptions, no Shareholder, director, officer, partner, employee, member,
"affiliate" or "associate" (as such terms are defined in Rule 12b-2 under the
U.S. Securities Exchange Act of 1934, as amended) of the Company or the LLC (a)
since May 27, 1998, has lent or borrowed any monies to or from or has
outstanding any indebtedness or other similar obligations to the Company, (b) to
the knowledge of the Company and each of the Shareholders, owns any direct or
indirect interest of any kind (except with respect to the ownership of not more
than one percent (1%) of any class of equity security in a publicly-held
company) in, or is a director, officer, employee, partner, affiliate or
associate of, or consultant or lender to, or borrower from, or has the right to
participate in the management, operations or profits of, any Person that is a
competitor, supplier, customer, distributor, lessor, tenant, creditor or debtor
of the Company or the LLC, (c) is otherwise a party to, or since May 27, 1998,
has been a party to, any contract, arrangement or understanding with the Company
or the LLC or (d) to the knowledge of the Company or any of the Shareholders,
owns or has any rights in any assets (including, without limitation,
Intellectual Property), properties, licenses or rights which are used or leased
(or, since May 27, 1998, were used or leased) by the Company or the LLC in the
conduct of its business.
2.20 Restrictions on Business Activities. There is no material agreement,
-----------------------------------
judgment, injunction, order or decree binding upon the Company that has or could
reasonably be expected to have the effect of prohibiting or impairing any
business practice of the Company or the LLC, any acquisition of property by the
Company or the conduct of the Business by the Company that would be reasonably
likely to have a Company Material Adverse Effect.
2.21 Books and Records. The books, records and accounts of the Company
-----------------
and the LLC (a) have in all material respects been maintained in accordance with
good business practices on a basis consistent with prior years and (b) are
stated in reasonable detail and in all material respects accurately and fairly
reflect the transactions and dispositions of the assets of the Company and the
LLC. Each of the Company and the LLC has devised and maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(x) transactions are executed in accordance with management's general or
specific authorization; and (y) transactions are recorded as necessary (i) to
permit accurate preparation of financial statements and (ii) to maintain
accountability for assets.
2.22 Allocation of Merger Consideration. The allocation of the Merger
----------------------------------
Consideration among the holders of the shares of Company Stock as set forth in
Exhibit A is correct pursuant to the terms and conditions of this Agreement,
- ---------
20
assuming that no Company Stock is submitted for transfer after the date of this
Agreement.
2.23 No Misrepresentation. Neither this Agreement (including the
--------------------
Exhibits and Schedules hereto) nor any information supplied to Certicom by or on
behalf of the Company or any of the Shareholders in connection with this
Agreement or the transactions contemplated hereby or thereby contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading.
2.24 Benefit Plans.
-------------
(a) Section 2.24 of the Schedule of Exceptions sets forth a true,
correct and complete list of all "employee pension benefit plans" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) ("Pension Plans") and all "employee welfare benefit plans" (as
----- -------------
defined in Section 3(1) of ERISA), bonus, stock option, stock purchase, deferred
compensation plans or arrangements and other employee fringe benefit plans
maintained, or contributed to, by the Company or the LLC for the benefit of any
current or former employees of the Company or the LLC or with respect to which
Company or the LLC has any liability (all the foregoing, including Pension
Plans, being herein called "Company Benefit Plans"). The Company has delivered
---------------------
to Certicom true, complete and correct copies of (i) each Benefit Plan (or, in
the case of any unwritten Benefit Plans, descriptions thereof), (ii) the two
most recent annual reports on Form 5500 (including all schedules and attachments
thereto) filed with the Internal Revenue Service (including all schedules and
attachments thereto) filed with the Internal Revenue Service with respect to
each Benefit Plan (if any such report was filed), (iii) the most recent summary
plan description for each Benefit Plan for which such a summary plan description
has been prepared and (iv) each trust agreement, group annuity contract or other
funding and financing arrangement relating to any Benefit Plan.
(b) Each Benefit Plan has been administered in all material respects
in accordance with its terms. The Company and the LLC and all Benefit Plans are
in compliance in all material respects with the applicable provisions of ERISA,
the Code, all other applicable Laws and all applicable collective bargaining
agreements. Except as set forth in Section 2.24 of the Schedule of Exceptions,
there are no proceedings pending, or, to the knowledge of the Company or any of
the Shareholders, threatened against or involving any Benefit Plan and, there
are no investigations by any Governmental Entity or other claims (except routine
claims for benefits payable in the normal operation of the Benefit
21
Plans) pending or, to the knowledge of the Company or any of the
Shareholders, threatened against or involving any Benefit Plan or asserting
any rights to benefits under any Benefit Plan. Except as set forth in
Section 2.24 of the Schedule of Exceptions, none of the proceedings,
investigations and claims listed in such Section 2.24 as to which there is
at least a reasonable possibility of adverse determination, would have, if
so determined, individually or in the aggregate, a Company Material Adverse
Effect. Except as set forth in Section 2.24 of the Schedule of Exceptions,
to the knowledge of the Company and each of the Shareholders, there are no
unasserted claims of the type that would be required to be disclosed in
such Section 2.24, if pending or threatened, that are considered probable
of assertion and that if asserted would have at least a reasonable
possibility of an adverse determination.
(c) All required contributions to, and distributions from, each
of the Benefit Plans have been made. Neither the Company nor the LLC nor
any entity required to be treated with the Company or the LLC as a single
employer under Section 414(b), (c) or (m) of the Code maintains any plan
that is subject to Title IV of ERISA or Chapter 43 of the Code, where such
requirement would be reasonably likely to have a Company Material Adverse
Effect. To the knowledge of the Company and each of the Shareholders, no
event has occurred with respect to any Benefit Plan that could result in
the imposition of a lien under ERISA, the Code or any other Applicable Law
on any of the assets of the Company.
2.25 Environmental Matters.
---------------------
(a) Each of the Company and the LLC is, and at all times has
been, in full compliance with, and has not been and is not in violation of
or liable under, any legal requirement designed to minimize, prevent,
punish, or remedy the consequences of actions that damage or threaten any
environmental medium or natural resource (including, but not limited to,
soil, surface waters, and ambient air) or public health and safety
("Environmental Law"). Neither the Company nor the LLC nor any of the
-------------------
Shareholders has any basis to expect or has received any actual or
threatened order, notice or communication from (i) any Governmental Entity
or private citizen acting in the public interest, or (ii) the current or
prior owner or operator of any real property or leasehold currently or
formerly owned by the Company or the LLC, of any actual or potential
violation or failure to comply with any Environmental Law, or of any actual
or threatened obligation to bear the cost of any cost, damage, expense,
liability, obligation or other responsibility arising from or under any
Environmental Law ("Environmental Liabilities") with respect to any
-------------------------
property or assets (whether real, personal, or mixed) in which the Company
or the LLC or any other person for whose conduct the Company or the LLC is
or may be responsible has or had an interest.
22
(b) There are no pending or, to the knowledge of the Company or
any of the Shareholders, threatened claims, encumbrances, or other
restrictions of any nature, resulting from any Environmental Liabilities
with respect to any property or assets (whether real, personal, or mixed)
in which the Company or the LLC or any other person for whose conduct the
Company or the LLC is or may be responsible has or had an interest.
(c) Neither the Company nor any of the Shareholders has any
knowledge of or basis to expect, or has received any citation, directive,
inquiry, notice, order, summons, warning, or other communication that
relates to (i) any waste or other substance that is listed, defined,
designated, or classified as, or other wise determined to be, hazardous,
radioactive, toxic, or a pollutant or a contaminant under or pursuant to
any Environmental Law ("Hazardous Materials"); (ii) any activity
---------------------
involving Hazardous Materials (including, but not limited to, generation,
distribution, or storage thereof).
2.26 Tangible Net Worth. The Company's "Adjusted Working Capital"
------------------ ------------------------
(cash plus accrued accounts receivable net of reserves minus accrued
salary, taxes and accounts payable, determined in accordance with generally
accepted accounting principles consistently applied) is, and as of Closing
Date the Company's Adjusted Working Capital shall be, at least $100,000
("Minimum Adjusted Working Capital"). The Company's Adjusted Working
--------------------------------
Capital as of the Closing Date shall reflect all accrued and unpaid fees
and expenses of attorneys and accountants ("Professional Fees") of no
-------------------
greater than US$75,000, and shall reflect, as an asset, Certicom's
commitment, pursuant to Section 10.8, to pay up to US$75,000 of
Professional Fees that are reflected as a liability.
2.27 Merger of LLC and the Company. The merger of the LLC and the
-----------------------------
Company (a) was duly executed and effectively converted all ownership
interest in and assets of the LLC into capital stock in and assets of the
Company, and (b) in all respects complied with and satisfied the
requirements of California and Delaware law. Section 2.27 of the Schedule
of Exceptions set forth true, correct and complete copies of (x) the Merger
Agreement between the LLC and the Company; (y) any and all state or federal
government filings relating to the merger of the LLC and the Company; and
(z) any and all resolutions of the boards of directors of LLC and the
Company relating to the merger of the LLC and the Company.
23
ARTICLE III
REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE SHAREHOLDERS
3.1 Representations and Warranties of the Shareholders. Except as set
--------------------------------------------------
forth in the Schedule of Exceptions, each of the Shareholders hereby severally
represents and warrants to, and covenants and agrees with, Certicom and Merger
Sub as follows:
(a) Such Shareholder has all requisite legal right, power and
authority to enter into this Agreement and to agree to the transactions
contemplated hereby, and to perform all of his obligations hereunder.
(b) This Agreement has been duly executed and delivered by such
Shareholder and, assuming this Agreement constitutes the valid and binding
agreement of the other parties hereto, this Agreement constitutes a legal, valid
and binding obligation of such Shareholder, enforceable against such Shareholder
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
(c) The execution and delivery by such Shareholder of this Agreement,
and the consummation of the transactions contemplated hereby by such
Shareholder, will not (i) require any consent, waiver, approval, authorization
or permit of, or filing with or notification to, any Governmental Entity, (ii)
result in or constitute a Default, or require any consent or approval of or
notice to any Person, or result in the creation of an Encumbrance, under or
pursuant to any other material contract or agreement to which such Shareholder
is a party or by which it or any of its assets may be bound, or (iii) violate
any Law applicable to such Shareholder or by which he is bound.
(d) Such Shareholder owns beneficially and of record, and has good and
marketable title to, the number of shares of Company Stock set forth opposite
his name in Section 2.4 of the Schedule of Exceptions, free and clear of any
Encumbrance. During the period commencing on the date hereof and ending on the
Closing Date, such Shareholder shall retain both record and beneficial ownership
of all such shares of Company stock held by him free and clear of any
Encumbrance, and will not transfer any of such shares of Company stock to any
party or other Person or otherwise grant any Encumbrance with respect to such
shares of Company Stock.
24
(e) The Certicom Common Shares to be acquired by such Shareholder
in the Merger are being acquired for his own account for investment
purposes and not with a view to, or for resale in connection with, any
distribution of such shares within the meaning of the U. S. Securities Act
of 1933, as amended (the "Securities Act") or any applicable state
--------------
securities or "blue sky" laws.
(f) Such Shareholder understands that the Certicom Common Shares
to be issued to the Shareholders in the Merger will not be registered under
the Securities Act or qualified under any state securities or "blue sky"
laws, and such shares may not be sold or otherwise disposed of except in
compliance with the Securities Act or in reliance upon an exemption
therefrom.
(g) Such Shareholder understands that Certicom is relying to a
substantial extent on the representations warranties and covenants of such
Shareholder as provided in this Agreement and authorizes Certicom to act as
it may see fit in full reliance thereon, including, without limitation,
placing the following or a similar legend on and stop order against the
Certicom Common Shares to be acquired by the Shareholders in the Merger:
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO A HOLD PERIOD THAT
EXPIRES AS SET OUT BELOW AND MAY NOT BE TRANSFERRED, TRADED OR
OTHERWISE DISPOSED OF UNTIL THE EXPIRY OF SUCH HOLD PERIOD EXCEPT WITH
THE CONSENT OF THE COMPANY:
DATE HOLD NUMBER
PERIOD EXPIRES OF SHARES FOR
WHICH HOLD
PERIOD EXPIRES
[On Closing Date] 25% of initial total
[7 months after Closing Date] 6.25% of initial total
[8 months after Closing Date] and each month 6.25% of initial total
thereafter
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES
---------------
ACT"), AND MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO
---
THE COMPANY, (B) IN ACCORDANCE WITH RULE 144 UNDER THE U.S. SECURITIES
ACT, IF APPLICABLE,
25
(C) IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S.
SECURITIES ACT, OR (D) IN A TRANSACTION THAT DOES NOT OTHERWISE
REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE
STATE SECURITIES LAWS AND AN OPINION OF COUNSEL OF RECOGNIZED STANDING
REASONABLY SATISFACTORY TO THE COMPANY HAS BEEN PROVIDED TO THAT
EFFECT. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE GOOD DELIVERY
IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW
CERTIFICATE BEARING NO LEGEND MAY BE OBTAINED FROM THE REGISTRAR AND
TRANSFER AGENT UPON DELIVERY OF THIS CERTIFICATE AND A DULY AUTHORIZED
DECLARATION, IN A FORM SATISFACTORY TO THE REGISTRAR AND TRANSFER
AGENT AND THE COMPANY, THAT SUCH SALE IS BEING MADE IN ACCORDANCE WITH
RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT;
provided, that if the Certicom Common Shares are being sold outside the
United States in compliance with the requirements of Rule 904 of Regulation
S under the Securities Act, any such legend shall be removed if the
Shareholder provides a declaration to the registrar and transfer agent, to
the following effect (or as Certicom may prescribe from time to time):
The undersigned (a) acknowledges that the sale of the securities of
Certicom Corp. (the "Company") to which this declaration relates is
-------
being made in reliance on Rule 904 of Regulation S under the United
States Securities Act of 1933, as amended (the "U.S. Securities Act")
-------------------
and (b) certifies that (1) the undersigned is not an affiliate of the
Company as that term is defined in the U.S. Securities Act, (2) the
offer of such securities was not made to a person in the United States
and either (A) at the time the buy order was originated, the buyer was
outside the United States, or the seller and any person acting on its
behalf reasonably believe that the buyer was outside the United
States, or (B) the transaction was executed on or through the
facilities of The Toronto Stock Exchange and neither the Seller nor
any person acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States, and (3) neither the
seller nor any affiliate of the seller nor any person acting on any of
their behalf has engaged or will engage in any directed selling
efforts in the United States in
26
connection with the offer and sale of such securities. Terms used
herein have the meanings given to them by Regulation S.
(h) Such Shareholder has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits
and risks of the prospective investment in the Certicom Common Shares, and
is able to bear the economic consequences thereof for an indefinite period
of time. Such Shareholder qualifies as an "accredited investor" as such
term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act.
(i) In making the decision to invest in the Certicom Common
Shares, such Shareholder has relied upon independent investigations made by
such Shareholder and, to the extent believed by such Shareholder to be
appropriate, his representatives, including his own professional, tax and
other advisors, and has not relied upon any representation or warranty from
Certicom or Merger Sub or any of their respective directors, officers,
employees, agents, affiliates or representatives with respect to the value
of the Certicom Common Shares or the tax consequences of the transactions
contemplated by this Agreement.
(j) Such Shareholder and his representatives have received a copy
of Certicom's Form 10-K filed with the Securities and Exchange Commission
on July 31, 2000, and been given a full opportunity to examine all
documents relating to the transactions contemplated hereby, including this
Agreement, and to ask questions of, and to receive answers from, Certicom
and Merger Sub and their respective representatives concerning, among other
things, the Merger, the Merger Consideration, the investment in the
Certicom Common Shares to be issued in the Merger and the business of
Certicom and such other information as such Shareholder desires in order to
evaluate an investment in the Certicom Common Shares. All such questions
have been answered to the full satisfaction of such Shareholder.
3.2 Confidentiality. From and after the Closing, such Shareholder
---------------
shall, and shall use its best efforts to cause his representatives and
Affiliates to, (a) hold, in strict confidence, all confidential, proprietary or
other nonpublic information or trade secrets relating to the Business or the
Company or any products or services offered by the Business, the Company or the
LLC or by Certicom or any of its Affiliates (the "Confidential Information"),
------------------------
unless and to the extent specifically compelled to disclose by judicial or
administrative process or, in the reasonable opinion of its counsel, by other
requirements of Law, and (b) not, directly or indirectly, except at the request
of Certicom, use for their own benefit or purposes, or release or disclose to
any other person or entity, any such Confidential Information (except, to the
extent reasonably required, for disclosure
27
to those of such Shareholder's accountants, attorneys and other representatives
who are contractually or legally bound to maintain the confidentiality of such
Confidential Information or who shall agree to be bound by the provisions of
this Section 3.2). Notwithstanding the foregoing, the term "Confidential
------------
Information" shall not include information (i) which is or becomes generally
- -----------
available to the public, or (ii) becomes available to the applicable Shareholder
on a non-confidential basis from a source which is not, to such Shareholder's
knowledge, bound by a confidentiality or other similar agreement, or by any
other legal, contractual or fiduciary obligation which prohibits disclosure of
such information.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
MERGER SUB AND CERTICOM
Merger Sub and Certicom hereby jointly and severally represent and warrant
to the Company and the Shareholders as follows:
4.1 Organization, Standing and Power. Each of Merger Sub and Certicom is
--------------------------------
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each of Merger Sub and Certicom is duly
qualified and in good standing to conduct business in each jurisdiction in which
the business it is conducting, or the operation, ownership or leasing of its
properties, makes such qualification necessary, except where the failure to be
so qualified would not result in a Certicom Material Adverse Effect (as defined
below).
4.2 Authority. Each of Merger Sub and Certicom has all requisite power
---------
and authority to execute and deliver this Agreement and to perform fully its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of each of Merger Sub and Certicom. This
Agreement has been duly executed and delivered by each of Merger Sub and
Certicom and, assuming this Agreement constitutes the valid and binding
agreement of the other parties hereto, this Agreement constitutes the legal,
valid and binding obligation of each of Merger Sub and Certicom, enforceable
against each of Merger Sub and Certicom in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
28
4.3 Capital Structure. As of the date hereof, the authorized capital of
-----------------
Certicom consists of an unlimited number of Common Shares and unlimited number
of Preference Shares.
4.4 Issuance of Shares by Certicom. Prior to the Closing, Certicom and
------------------------------
Merger Sub will have taken all necessary action to issue the Certicom Common
Shares to be issued by it in connection with the Merger. All Certicom Common
Shares to be issued by Certicom in connection with the Merger will, at the time
of issuance, be validly issued, fully paid and nonassessable, and no Person will
have any preemptive right of subscription or purchase in respect thereof; in
addition, such shares will be issued free and clear of any Encumbrances (except
pursuant to applicable securities or "blue sky" laws and except as set forth in
the Escrow Agreement).
4.5 Exchange Listing. Certicom shall use its best efforts to list the
----------------
Certicom Common Shares on the Toronto Stock Exchange prior to the Closing Date
and continue such listing until at least thirty (30) trading days following the
eighteen month anniversary of the Closing Date.
4.6 No Violations Resulting From Transactions. The execution and
-----------------------------------------
delivery by Merger Sub and Certicom of this Agreement and the consummation of
the transactions contemplated hereby and thereby by each of Merger Sub and
Certicom will not (a) conflict with or violate any provision of the Articles of
Continuance or Bylaws of Certicom or the Certificate of Incorporation or Bylaws
of Merger Sub, (b) require any consent, waiver, approval, authorization or
permit of, or filing with or notification to, any Governmental Entity other
than: (i) the office of the California Secretary of State and the Delaware
Secretary of State and (ii) such filings, authorizations, orders and approvals
as may be required under the Securities Act (Ontario), any other applicable
federal, provincial or state securities laws and the rules of The Toronto Stock
Exchange, (c) result in or constitute a Default, or require any consent or
approval of or notice to any Person, or result in the creation of an
Encumbrance, under or pursuant to any material agreement to which Merger Sub or
Certicom is a party or by which any of their respective assets are bound, or (d)
violate any Law applicable to Merger Sub or Certicom or by which any of their
respective assets are bound.
4.7 Litigation. There is no suit, claim, action, proceeding or
----------
investigation pending or, to the knowledge of Certicom, threatened against
Certicom or Merger Sub which, individually or in the aggregate, questions the
validity of this Agreement or any action to be taken by Certicom or Merger Sub
in connection with the consummation of the transactions contemplated hereby or
29
could otherwise prevent or delay the consummation of the transactions
contemplated by this Agreement.
4.8 OSC Reports.
-----------
(a) Since January 1, 1997, Certicom has filed all forms, reports
and documents with the Ontario Securities Commission ("OSC") required to be
---
filed by it pursuant to the Securities Act (Ontario) and the regulations
promulgated thereunder and the applicable rules and policies of the OSC
(such forms, reports and documents collectively referred to as the "OSC
---
Reports"), all of which complied when filed in all material respects with
-------
the applicable requirements of such statute, regulations, policies and
rules. None of the OSC Reports at the time filed or as subsequently
amended, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
(b) The consolidated balance sheets and the consolidated
statements of operations, retained earnings and cash flows (including the
related notes thereto) of Certicom contained in the OSC Reports present
fairly the consolidated financial positions and the consolidated results of
operations and cash flows of Certicom and its consolidated subsidiaries as
of the dates and for the periods presented therein in conformity in all
material respects with Canadian generally accepted accounting principles
applied on a consistent basis during the periods involved, except as
otherwise noted therein and subject, in the case of quarterly financial
statements, to normal and recurring year-end audit adjustments.
4.9 Absence of Certain Changes or Events. Since April 30, 2000,
------------------------------------
there has been no material adverse change in the business, assets, financial
conditions or results of operations of Certicom.
4.10 Merger Sub. All of the issued and outstanding stock of Merger
----------
Sub is owned, and will be owned immediately prior to the Effective Time,
directly by Certicom. Except for obligations incurred in connection with its
incorporation or organization or the negotiation of this Agreement or the
consummation of the transactions contemplated hereby, Merger Sub has neither
incurred any obligation or liability nor engaged in any business or activity of
any type or kind whatsoever or entered into any agreement or arrangement with
any Person.
4.11 Intent Consistent with Reorganization. Except for actions
-------------------------------------
which Certicom deems reasonably necessary in order to comply with other Sections
of this Agreement, Certicom has no present plan or intent to take any action
that
30
would cause the Merger to fail to qualify as a reorganization within the meaning
of Section 368(a) of the Code.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of the Company's Business Pending the Closing. From and
-----------------------------------------------------
after June 30, 2000 and continuing until the Closing, each of the Company and
the Shareholders agrees that (except as expressly contemplated or permitted by
this Agreement, or to the extent that Certicom shall otherwise consent in
writing), the Company shall be obligated to:
(a) conduct the Business only in the ordinary course consistent with
past practice;
(b) except as provided herein, not (i) pay or distribute any dividend
or other distribution, nor declare, authorize or set aside for payment any
dividend which would reduce the Company's current assets (cash plus accrued
accounts receivable), measured as of the Closing Date, to less than US$100,000;
(ii) grant any option, warrant, call or right (including preemptive rights);
(iii) issue, transfer, dispose, sell, purchase, redeem or otherwise acquire any
shares of capital stock of the Company or any of its securities or rights
convertible into, exchangeable for, or evidencing the right to subscribe for,
any shares of capital stock or other securities of, or other ownership interests
in, the Company; or (iv) enter into any agreement of any character requiring the
Company or its successors to take any of the actions in (i), (ii) and (iii)
above;
(c) not effect any recapitalization, reclassification or similar
change in the capitalization of the Company;
(d) not amend the Articles of Incorporation or Bylaws of the Company;
(e) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of the Company and (ii) preserve the present
relationship of the Company with persons having business dealings with the
Company;
(f) not, other than in the ordinary course of business consistent with
past practice and without materially increasing the benefits or the costs
thereof, and except for the payment of bonuses in the aggregate amount of U.S.
$25,000 to employees, (i) increase the compensation payable or to become payable
by the Company to any of their respective directors, officers, employees,
31
agents or representatives, (ii) increase the coverage or benefits available
under any (or create any new) severance pay, termination pay, vacation pay,
company awards, salary continuation for disability, sick leave, deferred
compensation, bonus or other incentive compensation, insurance, pension or other
employee benefit plan, payment or arrangement made to, for, or with any of the
directors, officers, employees, agents or representatives of the Company, (iii)
award or pay any bonus to any such person or (iv) enter into any employment,
deferred compensation, severance, consulting, non-competition or similar
agreement (or amend any such agreement) to which the Company is a party or
involving a director, officer or employee of the Company in his or her capacity
as a director, officer or employee of the Company;
(g) comply with all Laws and comply with all contractual and other
obligations applicable to the Company;
(h) not incur any indebtedness for borrowed money, not issue any bond,
debenture or promissory note and, except for trade payables and any other
liabilities or obligations incurred in the ordinary course of business
(consistent with past practice), not create, incur, acquire, assume, guarantee
or become subject to, or agree to incur or become subject to, any other
obligation or liability (contingent or otherwise);
(i) not subject to any Encumbrance (except for leases that do not
materially impair the use of the property subject thereto) any of the properties
or assets (whether tangible or intangible) of the Company;
(j) not acquire any properties or fixed assets at a price in excess of
US$5,000 without Certicom's prior approval, and not sell, assign, transfer,
convey, lease or otherwise dispose of any of the material properties or assets
(except for fair consideration in the ordinary course of business consistent
with past practice) of the Company;
(k) not dispose of or permit to lapse any rights to the use of any
Intellectual Property, or dispose of or disclose to any person or entity (other
than Certicom and its affiliates and representatives) any trade secret, formula,
process or know-how of the Company not theretofore a matter of public knowledge;
(l) not cancel or compromise any debt or claim or waive or release any
material right of the Company except in the ordinary course of business
consistent with past practice;
32
(m) not enter into any commitment for capital expenditures of the
Company in excess of U.S. $5,000 for any individual commitment and U.S. $10,000
for all commitments in the aggregate;
(n) not agree to do anything prohibited by Articles V or VI of this
Agreement or anything which would make any of the representations and warranties
of the Company or the Shareholders in this Agreement untrue or incorrect in any
material respect; and
(o) not agree to take any action which would be prohibited by this
Section 5.1;
provided in all events that the Company shall be permitted to
defend and/or prosecute any claims identified in Section 2.8 of the Schedule of
Exceptions in a commercially reasonable manner.
5.2 No Solicitation. From and after the date hereof until the termination
---------------
of this Agreement, neither the Company nor any of its officers, directors,
employees, representatives, agents (including, without limitation, any
investment banker, attorney or accountant retained by or for the Company or its
affiliates) or affiliates, nor any of the Shareholders will, directly or
indirectly, initiate, solicit or knowingly encourage (including by way of
furnishing non-public information or assistance), or take any other action to
facilitate knowingly, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal
(as defined below), or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain an Acquisition Proposal or agree to or endorse any Acquisition Proposal,
or authorize or permit any of the officers, directors or employees of the
Company or any investment banker, financial advisor, attorney, accountant or
other representative retained by the Company or any shareholder of the Company
to take any such action. For purposes of this Section 5.2, "Acquisition
-----------
Proposal" shall mean any of the following (other than the transactions between
- --------
or among the Company, the Shareholders and Certicom contemplated hereunder)
involving the Company or any Shareholder: (a) any merger, consolidation, share
exchange, recapitalization, business combination, or other similar transaction
affecting the Company or the Business; (b) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of 10% or more of the assets of the
Company in a single transaction or series of transactions; or (c) any
acquisition or offer to acquire 10% or more of the outstanding shares of capital
stock of the Company. The Company and each of the Shareholders hereby jointly
and severally represent and warrant to Certicom that the Company and the
Shareholders have terminated any and all existing discussions with third parties
relating to an Acquisition Proposal.
33
5.3 Advice of Changes; Governmental Filings. The Company shall confer on
---------------------------------------
a regular and frequent basis with Certicom, report on operational matters and
promptly advise Certicom orally and in writing of any change or event having, or
which, insofar as reasonably can be foreseen, could have, a Company Material
Adverse Effect. The Company shall promptly provide Certicom (or its counsel)
with copies of all filings made by the Company with any state or federal
Governmental Entity in connection with this Agreement and the transactions
contemplated hereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Access to Information; Confidentiality.
--------------------------------------
(a) The Company agrees that, prior to the Closing Date, Certicom shall
be entitled, through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Company and examination of its books and records as Certicom
may reasonably request, and to make extracts and copies of such books and
records. The Company further agrees that, prior to the Closing Date, Certicom
shall be entitled, through its officers, employees and representatives
(including, without limitation, its legal advisors and accountants), to make
such investigation of the customers, employees and consultants of the Company as
Certicom may reasonably request, subject to the Company's approval, such
approval not to be unreasonably withheld. Any such investigation and examination
shall be conducted during regular business hours and under reasonable
circumstances, and the Company shall cooperate fully therein. In order that
Certicom may have full opportunity to make such investigation and examination as
it may reasonably request, the Company and the Shareholders shall each use their
respective commercial best efforts to cause the Company's officers, employees,
consultants, agents, accountants, attorneys and other representatives and its
customers to cooperate fully with representatives of Certicom in connection with
such investigation and examination.
(b) With respect to each calendar month ending after the date hereof
and prior to the Closing Date, the Company or the LLC shall provide to Certicom,
within forty-five (45) days following the end of each such calendar month, true
and complete copies of the unaudited balance sheet of the Company as at the end
of each such month and the related unaudited income statement for the month then
ended, which financial statements shall be prepared in accordance with
34
United States generally accepted accounting principles and the Company's books
and records.
6.2 Additional Agreements. Each of the parties agrees to use its
---------------------
respective best efforts to (a) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement, (b) obtain all licenses,
permits, consents, approvals, authorizations, qualifications and orders of
Governmental Entities and parties to contracts with the Company as are necessary
for consummation of the transactions contemplated by this Agreement, and (c)
fulfill all conditions precedent applicable to such party or its representatives
pursuant to this Agreement. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each party shall use its respective commercially reasonable efforts to take or
cause to be taken all such necessary action.
6.3 Publicity. On or prior to the Closing Date, Certicom, Merger Sub, the
---------
Company and the Shareholders will consult with each other with respect to any
press release or public announcement pertaining to this Agreement and shall not
issue any such press release or make any such public announcement prior to such
consultation and agreement, provided in all events that Certicom and its
Affiliates may issue any such release or make any such public announcement as
Certicom determines, in its sole discretion, may be required by applicable Law
or by obligations pursuant to any listing agreement with any stock exchange.
6.4 Notification of Certain Matters. The Company and each of the
-------------------------------
Shareholders shall give prompt notice to Certicom of (a) any notice of, or other
communication relating to, a Default received subsequent to the date of this
Agreement and prior to the Closing, under any contract material to the financial
condition, properties, businesses or results of operations of the Company to
which it is a party or is subject, (b) any notice or other communication from
any third party alleging that the consent of such third party is or may be
required in connection with the transactions contemplated by this Agreement, (c)
any material adverse change in the financial condition, properties, businesses,
prospects or results of operations of the Company, other than changes resulting
from general economic conditions, or (d) any material Legal Proceeding commenced
by or against the Company, the LLC or any of the Shareholders, or any Legal
Proceeding commenced or threatened against the Company or the LLC or any of the
Shareholders relating to the transactions contemplated by this Agreement.
35
6.5 Directors' and Officers' Indemnification.
----------------------------------------
(a) Certicom and the Company agree that all indemnification now
existing in of the directors and officers of the Company (other than the
Shareholders) as of the date hereof as provided in the Articles of Incorporation
and Bylaws of the Company and in any indemnification agreements existing between
any such director or officer and the Company on the date hereof shall continue
in full force and effect to the extent provided in such organizational or other
document, provided that neither Certicom nor the Company shall be obligated to
indemnify such directors or officers for any actions taken or decisions made in
violation or contravention of this Agreement or in connection with any matter or
circumstance the existence or occurrence of which constitutes a breach of the
representations, warranties, covenants or agreements of the Company or the
Shareholders in this Agreement. Notwithstanding the foregoing, each of the
Shareholders hereby acknowledges and agrees that no benefit shall accrue to him
except as set forth in Section 6.5(b).
(b) The Company hereby agrees, to the extent permitted by the CGCL, to
indemnify the Shareholders solely as provided in, and pursuant to, the Bylaws of
the Company for any actions taken or decisions made in good faith by the
Shareholders only in their capacities as directors or officers of the Company,
provided that the Company shall not be obligated to indemnify any of the
Shareholders (i) for any actions taken or decisions made in violation or
contravention of this Agreement, (ii) for any matter against which any of the
Shareholders shall be obligated to indemnify (or otherwise indemnifies) the
Company or any other Indemnitee under Article IX or (iii) in connection with any
matter or circumstance the existence or occurrence of which constitutes a breach
of the representations, warranties, covenants or agreements of the Company or
any of the Shareholders in this Agreement.
6.6 Company Stock Options. At the Effective Time, Certicom shall assume
---------------------
each outstanding Company Stock Option, whether vested or unvested, pursuant to
an Option Assumption Agreement in substantially the form attached hereto as
Exhibit C-1 (for Cowing, Harris and Moy) and Exhibit C-2 (for Company employees
- ----------- -----------
other than Cowing, Harris and Moy) (either, an "Option Assumption Agreement")
---------------------------
6.7 Distribution of Excess Working Capital. Within 200 days after the
--------------------------------------
Closing, Certicom shall cause the Company to calculate the Company's Adjusted
Working Capital as of the Closing and provide a copy of such calculation to each
of the Shareholders. If the Company's Adjusted Working Capital as of the Closing
exceeds US$100,000, the Company shall pay to the
36
Shareholders in cash jointly an amount equal to such difference. If the
Company's Adjusted Working Capital as of the Closing is less than US$100,000,
the Shareholders shall jointly and severally be obligated to pay to the Company
in cash an amount equal to such shortfall. Any such payment by either the
Company or the Shareholders shall be made within ten (10) days after the
Shareholders receive the Company's calculation of the Company's Adjusted Working
Capital as of the Closing.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Obligations of All Parties. The respective obligations
----------------------------------------
of each party to effect the Merger shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions:
(a) Governmental Approvals. All authorizations, consents, orders or
----------------------
approvals of, or declarations or filings with, or expirations of waiting periods
imposed by, any Governmental Entity, including the Ontario Securities Commission
or The Toronto Stock Exchange, requisite to the transactions contemplated
hereby, shall have been filed, occurred or been obtained, as the case may be.
(b) Contractual Consents. The Company shall have given all notices
--------------------
to, and obtained all consents, approvals or authorizations of or from, any
Person which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
contracts and agreements to which the Company, the LLC or any of the
Shareholders is a party or by which the Company, the LLC or any of Shareholders
or any of their respective assets may be bound, or which may be required to
permit the change of ownership of the Company), except for such notices,
consents, approvals or authorizations the failure of which to give or obtain, as
the case may be, would not result or would not reasonably be likely to result in
a Company Material Adverse Effect.
(c) No Injunctions or Restraints. No temporary restraining order,
----------------------------
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use all
commercially reasonable efforts to have any such order, injunction, legal
restraint or prohibition vacated.
37
7.2 Conditions of Obligations of Merger Sub and Certicom. The respective
----------------------------------------------------
obligations of Merger Sub and Certicom to effect the Merger are subject to the
satisfaction at or prior to the Effective Time of the following conditions
(which are for the exclusive benefit of Merger Sub and Certicom), any or all of
which may be waived in whole or in part by Merger Sub or Certicom in its sole
discretion:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company and the Shareholders set forth in this Agreement shall
be true and correct in all material respects as of the date of this Agreement,
and shall be true and correct in all material respects at and as of the
Effective Time, as though made at and as of the Effective Time except (i) for
changes contemplated by this Agreement; and (ii) that representations and
warranties which specifically relate to a particular date or period shall be
true and correct as of such date and for such period, and Merger Sub and
Certicom shall have received at or prior to the Effective Time certificates,
signed by the President and/or Chief Executive Officer and by each of the
Shareholders, certifying to such effect.
(b) Performance of Obligations. Each of the Company and the
--------------------------
Shareholders shall have performed in all material respects at or prior to the
Effective Time all obligations required to be performed by each such party at or
prior to the Effective Time, and Merger Sub and Certicom shall have received at
or prior to Closing certificates, signed by the President of the Company and by
each of the Shareholders, certifying to such effect.
(c) Shareholder Approval. The Company shall have delivered to
--------------------
Certicom: (i) copies of a written consent of each shareholder of the Company
approving this Agreement, the Merger and the transactions contemplated herein in
form and substance satisfactory to Certicom and (ii) an investment
representation letter executed by each Shareholder in the form attached hereto
as Exhibit D-1 and from each holder of a Company Stock Option in the form
-----------
attached hereto as Exhibit D-2.
-----------
(d) Insurance Purchase. The Shareholders shall have purchased a
------------------
fully prepaid tail insurance policy (the "Tail Insurance Policy") with Certicom
---------------------
and the Company as the insureds and named beneficiaries to provide coverage for
errors, omissions and other similar liabilities of the Company or the LLC. The
Tail Insurance Policy shall provide coverage of at least US $2,000,000, have a
deductible of no more than US$5,000, and have a term for making claims of no
less than two (2) years from the Closing Date, and otherwise be satisfactory to
Certicom.
38
(e) Employment Documents. (i) The non-competition covenants in
--------------------
substantially the form attached hereto as part of Exhibit E, and (ii) the
---------
Proprietary Rights Agreements in substantially the form attached hereto as part
of Exhibit E, shall have each been duly executed and delivered by each of the
---------
persons identified in Exhibit E.
---------
(f) Repurchase Agreement. A Repurchase Agreement in the form
--------------------
attached hereto as Exhibit F shall have been duly executed and delivered by
---------
Shareholders.
(g) Option Assumption Agreement. An Option Assumption Agreement and
---------------------------
investment representation letter in the form attached hereto as Exhibit D-1 (for
----------
Cowing, Harris, and Moy) or Exhibit D-2 (for holders of Company Stock
-----------
Options other than Cowing, Harris and Moy) shall have been executed and
delivered by each holder of a Company Stock Option.
(h) Escrow Agreement. The Escrow Agreement (the "Escrow Agreement")
---------------- ----------------
in the form attached hereto as Exhibit B shall been duly executed and delivered
---------
by the Company, the Escrow Agent and the Shareholders.
(i) Opinion of Counsel. Merger Sub and Certicom shall have received
------------------
an opinion of Jeffer, Mangels, Butler & Marmaro LLP concerning the matters
indicated in Exhibit G, in form and substance satisfactory to Merger Sub and
---------
Certicom.
(j) Other Documents. The Company shall have delivered such other
---------------
documents as Certicom and Merger Sub may reasonably request.
7.3 Conditions of Obligations of the Company and the Shareholders. The
-------------------------------------------------------------
respective obligations of the Company and the Shareholders to effect the Merger
are subject to the satisfaction at or prior to the Effective Time of the
following conditions (which are for the exclusive benefit of the Company and the
Shareholders), any or all of which may be waived in whole or in part by the
Company:
(a) Representations and Warranties. The representations and
------------------------------
warranties Certicom and Merger Sub set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement, and shall be
true and correct in all material respects at and as of the Effective Time, as
though made at and as of the Effective Time except (i) for changes contemplated
by this Agreement; and (ii) that representations and warranties which
specifically relate to a particular date or period shall be true and correct as
of such date and for such period, and the Company shall have received at or
prior to the Effective Time a
39
certificate, signed by an executive officer of Certicom and Merger Sub,
certifying to such effect.
(b) Exchange Listing. Certicom shall have caused the Certicom Common
----------------
Shares to be issued in the Merger to have been approved for listing on the
Toronto Stock Exchange subject to customary conditions reasonably agreeable to
the Shareholders.
(c) Performance of Obligations. Certicom and Merger Sub shall have
--------------------------
performed in all material respects at or prior to the Effective Time all
obligations required to be performed by each such party at or prior to the
Effective Time, and the Company shall have received at or prior to Closing a
certificate of Certicom and the Merger Sub, signed by an executive officer of
Certicom and Merger Sub, certifying to such effect.
(d) Employment Documents. The Proprietary Rights Agreements in
--------------------
substantially the form attached hereto as part of Exhibit E shall have each been
---------
executed and delivered by Certicom.
(e) Escrow Agreement. The Escrow Agreement in the form attached
----------------
hereto as Exhibit B shall have been executed and delivered by the Company, the
---------
Escrow Agent and the Shareholders.
(f) Option Assumption Agreement. An Option Assumption Agreement in
---------------------------
the form attached hereto as Exhibit C-1 or Exhibit C-2 shall have been executed
----------- -----------
and declined by Certicom to each holder of a Company Stock Option.
(g) Other Documents. Certicom and Merger Sub shall have delivered
---------------
such other documents as the Company may reasonably request.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may not be terminated by any or all of the
-----------
Shareholders. This Agreement may be terminated at any time prior to the Closing:
(a) by mutual written consent of the Company, on behalf of itself and
the Shareholders, and Certicom, on behalf of itself and Merger Sub;
(b) by (i) either (A) the Company, if there has been a material
breach of any representation, warranty, covenant or agreement on the part of
Certicom, which breach has not been cured within ten (10) business days
40
following receipt by Certicom of written notice of such breach, or (B) Certicom,
if there has been a material breach of any representation, warranty, covenant or
agreement on the part of the Company or any one or more of the Shareholders, as
the case may be, which breach has not been cured within ten (10) business days
following receipt by the breaching party of written notice of such breach, or
(ii) either the Company or Certicom, if any permanent injunction or other order
of a court or other competent authority preventing the consummation of the
transactions contemplated by this Agreement shall have become final and non-
appealable; or
(c) by either the Company or Certicom, if the Closing shall not have
occurred on or before September 20, 2000; provided that (i) in the event that
any temporary restraining order, preliminary or permanent injunction or other
order shall be issued by any court of competent jurisdiction or other legal
restraint or prohibition occurs preventing the consummation of the transactions
contemplated by this Agreement on or before such date, such date shall be
automatically extended to October 20, 2000, and the parties shall use their
commercially reasonable efforts to have such order, injunction, legal restraint
or prohibition vacated, and (ii) the right to terminate this Agreement under
this Section 8.1(c) shall not be available to (A) Certicom, if such party has
breached any of its representations, warranties or covenants hereunder in any
material respect and such breach has been the cause of or resulted in the
failure of the Closing to occur on or before such date (as such date may be
extended under clause (i) above) or (B) the Company, if either the Company or
any one or more of the Shareholders has breached any of its or his respective
representations, warranties or covenants hereunder in any material respect and
such breach has been the cause of or resulted in the failure of the Closing to
occur on or before such date (as such date may be extended under clause (i)
above).
8.2 Effect of Termination. In the event of termination of this Agreement
---------------------
by either the Company or Certicom as provided in Section 8.1, this Agreement
shall forthwith become void and there shall be no liability or obligation on the
part of any party or any of their respective Affiliates, officers, directors,
shareholders or representatives, except (a) for any confidentiality obligations
under Section 6.1 and (b) to the extent that such termination results from any
intentional or knowing breach by any party of any of its representations or
warranties, or of any of its covenants or agreements, in each case as set forth
in this Agreement.
8.3 Amendment. Subject to applicable Law, this Agreement may be amended,
---------
modified or supplemented only by written agreement signed by the Company, on
behalf of itself and the Shareholders, and Certicom, on behalf of
41
itself and Merger Sub, at any time prior to the Closing Date with respect to any
of the terms contained herein, and each party agrees to be bound by any such
amendment, modification or supplement, provided that no such amendment shall
materially and adversely affect any of the Shareholders in a different or
disproportionate manner relative to the other Shareholders unless such amendment
is agreed to in writing by each such differently or disproportionately affected
Shareholder.
8.4 Extension; Waiver. At any time prior to the Closing Date, the Company
-----------------
(on behalf of itself and the Shareholders), on the one hand, and Certicom (on
behalf of itself and Merger Sub), on the other hand, may: (a) extend the time
for the performance of any of the obligations or other acts of the other
parties; (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto; and (c) waive
compliance with any of the agreements or conditions contained herein. Any
agreement to any such extension or waiver shall be valid only if set forth in a
written instrument signed by the Company (on behalf of itself and the
Shareholders), or by Certicom (on behalf of itself and Merger Sub), as the case
may be. The failure of any party to assert any of its rights hereunder shall not
constitute a waiver of such rights.
ARTICLE IX
SURVIVAL; INDEMNIFICATION
9.1 General Survival. The parties agree that, regardless of any
----------------
investigation made by the parties, (a) the representations and warranties of the
parties contained in this Agreement shall survive the execution and delivery of
this Agreement for a period beginning on the date hereof and ending on the
eighteen-month anniversary of the Closing Date; provided, however, that the
-------- -------
representations and warranties of the Company and the Shareholders concerning
Taxes (Section 2.9), Benefit Plans (Section 2.24) and Environmental Matters
(Section 2.25) and the representations and warranties of the Shareholders
(Article III) shall survive until the expiration of all applicable statutes of
limitations; and (b) each covenant and agreement set forth in this Agreement
which, by its terms, is to be performed after the Closing Date shall survive
until the expiration of all applicable statutes of limitations (each of the time
periods set forth above is collectively referred to as the applicable "Survival
--------
Period"). Notwithstanding anything to the contrary contained herein, (i) no
- ------
claim, suit or proceeding for breach of any representation or warranty of any
party set forth in this Agreement may be brought by any party unless written
notice of such claim shall have been given on or prior to thirty (30) days after
the expiry of the applicable Survival Period (in which event each such
representation or warranty shall, with respect to the specific claim made,
survive the applicable Survival Period until such claim is
42
finally resolved and all obligations with respect thereto are fully satisfied)
and (ii) nothing contained in this Agreement or otherwise shall in any way limit
any claim, suit, cause or action or remedy that may be available to Certicom or
any other Indemnitee (as defined below) based on fraud.
9.2 Indemnification.
---------------
(a) Indemnification Provisions in General. Subject to the provisions
-------------------------------------
of Section 9.1, each of the Shareholders shall jointly and severally indemnify
and hold harmless Certicom, Merger Sub, the Surviving Corporation and their
respective Affiliates, officers, directors, stockholders, representatives and
agents (collectively the "Indemnitees") from and against and in respect of any
-----------
and all Losses (as defined below) incurred by, resulting from, arising out of,
relating to, imposed upon or incurred by Certicom or any other Indemnitee by
reason of:
(i) any inaccuracy in or breach of any of the Company's
representations, warranties, covenants or agreements contained in this
Agreement; and
(ii) any misrepresentation contained in any statement or
certificate furnished to Certicom or any other Indemnitee by or on behalf of the
Company in connection with the transactions contemplated by this Agreement.
For purposes of this Agreement, the term, "Losses" means any and all
------
deficiencies, judgments, settlements, demands, claims, suits, actions or causes
of action, Taxes, assessments, liabilities, losses, damages (whether direct,
indirect, incidental or consequential), interest, fines, penalties, costs and
expenses (including, without limitation, reasonable legal, accounting and other
costs and expenses incurred in connection with investigating, defending,
settling or satisfying any and all demands, claims, actions, causes of action,
suits, proceedings, assessments, judgments or appeals, and in seeking
indemnification therefor), net of any recovery made under the tail insurance
policy with respect to the same.
(b) No Shareholder of the Company shall be required to indemnify any
Indemnitee for any Losses until and only to the extent that the aggregate amount
of all Losses under all claims shall exceed U.S. $100,000 (the "Floor");
-----
provided, however, the Floor shall not apply to Losses attributable to Sections
- -------- -------
2.9, 2.24, or 2.25, and the Shareholders shall indemnify the Indemnitees for all
such Losses. Except as specifically provided in Section 9.2(d), the maximum
aggregate liability of the Shareholders shall be: (i) US $12,500,000 for any
Losses with respect to Sections 2.9, 2.24, and 2.25, and (ii) the amount (if
any) recoverable by the Indemnities pursuant to the Escrow for other Losses.
43
(c) The obligation of the Shareholders to indemnify Certicom or any
other Indemnitee for a Loss under this Article IX is subject to the condition
that each Shareholder shall have received written notice of an Indemnification
Claim (as defined in Section 9.3 hereof) for such Loss on or before thirty (30)
days after the expiry of the Survival Period.
(d) The rights and remedies of Certicom and any other Indemnitees
against the Shareholders for any claims with respect to the matters set forth in
Section 9.2(a) shall be limited to the indemnification and other rights set
forth in this Article IX; provided that no provision of this Agreement shall
limit, in any manner, any remedy at law or in equity to which any Indemnitee
shall be entitled against the Company or any Shareholder for specific
performance (whether or not pursuant to Section 10.7), or as against the
Shareholders as a result of fraud or intentional misrepresentation in which any
of the Shareholders participates.
(e) Losses shall be paid first from the Escrow. Subject to Section
9.2(b), the Shareholders will be jointly and severally liable to the extent they
cannot be satisfied from the Escrow.
9.3 Procedures for Indemnification.
------------------------------
(a) A claim for indemnification hereunder (an "Indemnification
---------------
Claim") shall be made in accordance with the Escrow Agreement and, in the case
- -----
of a Third Party Claim (as defined in Section 9.4), containing (by attachment or
otherwise) such other information as the Indemnitee shall have concerning such
Third Party Claim.
(b) If the Indemnification Claim involves a Third Party Claim, the
procedures set forth in Section 9.4 hereof shall be observed by the Indemnitee
and the Shareholders.
9.4 Defense of Third Party Claims. Should any claim be made or suit,
-----------------------------
audit, examination or other proceeding be instituted against an Indemnitee
which, if prosecuted successfully, would be a matter for which such Indemnitee
is entitled to indemnification under this Article IX (without regard to Section
9.2(b)) (a "Third Party Claim"), the obligations and liabilities of the parties
-----------------
hereunder with respect to such Third Party Claim shall be subject to the
following terms and conditions:
(a) The Indemnitee shall give each Shareholder and the Escrow Agent
written notice of any such Third Party Claim promptly after receipt by the
Indemnitee of notice thereof, and the Shareholder Representative may, subject to
44
the prior written consent of Certicom, undertake control of the defense thereof
by counsel of its own choosing reasonably acceptable to the Indemnitee. The
Indemnitee may participate in the defense through its own counsel at its own
expense. If Certicom does not consent to the Shareholders undertaking the
defense of such Third Party Claim, or the Shareholders fail or refuse to
undertake the defense of such Third Party Claim within fifteen (15) days after
written notice of such claim has been delivered to the Shareholders by the
Indemnitee, the Indemnitee shall have the right to undertake the defense,
compromise and, subject to Section 9.5, settlement of such Third Party Claim
with counsel of its own choosing. In the circumstances described in the
preceding sentence, the Indemnitee shall, promptly upon its assumption of the
defense of such Third Party Claim, make an Indemnification Claim as specified in
Section 9.3(b), which shall be deemed an Indemnification Claim that is not a
Third Party Claim for the purposes of the procedures set forth herein. Failure
of the Indemnitee to furnish written notice to a Shareholder or the Escrow Agent
of a Third Party Claim shall not release the Shareholders from their obligations
hereunder, except to the extent they are prejudiced by such failure.
(b) The Indemnitee and the Shareholders shall cooperate with each
other in all reasonable respects in connection with the defense of any Third
Party Claim, including making available records relating to such claim and
furnishing employees of the Indemnitee as may be reasonably necessary for the
preparation of the defense of any such Third Party Claim or for testimony as
witness in any proceeding relating to such claim.
(c) Unless the Shareholders have failed to fulfill their obligations
under this Article IX, no settlement by the Indemnitee of a Third Party Claim
shall be made without the prior written consent by or on behalf of the
Shareholders which consent shall not be unreasonably withheld or delayed. If the
Shareholders have assumed the defense of a Third Party Claim as contemplated by
this Section 9.4, no settlement of such Third Party Claim may be made by the
Shareholders without the prior written consent by or on behalf of the
Indemnitee, which consent shall not be unreasonably withheld or delayed.
9.5 Manner of Indemnification.
-------------------------
(a) To provide a fund against which an Indemnitee may assert claims
of indemnification under this Article IX, the Escrow Shares shall be deposited
into Escrow pursuant to the Escrow Agreement in accordance with the provisions
of Section 1.9 hereof. The Escrow Shares so deposited shall be held and
distributed in accordance with the Escrow Agreement.
45
(b) Each claim for indemnification asserted against the Shareholders
pursuant to this Article IX shall be made only in accordance with this Article
IX and the Escrow Agreement.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. Any notice or communication required or permitted hereunder
-------
shall be in writing and either delivered personally or telecopied or sent by
overnight courier, or by certified or registered mail, postage prepaid, and
shall be deemed to have been given, dated and received when so delivered
personally or by courier or telecopied, or, if mailed, ten days after the date
of mailing to the following address or telecopy number, or to such other address
or addresses as such person may subsequently designate by notice given
hereunder:
(a) if to Certicom or Merger Sub, to:
--------------------------------
Certicom Corp.
25801 Industrial Boulevard
Hayward, CA 94545
Fax: 510-780-5303
Attention: Chief Financial Officer
(b) if to the Company, to:
---------------------
DRG Resources Group Inc.
662 Island Place
Redwood City, CA 94065
Fax: 877-777-7951
Attention: Jim Cowing
with a copy to:
--------------
Jeffer, Mangels, Butler & Marmaro, LLP
One Sansome, Twelfth Floor
San Francisco, CA 94104
Fax: 415-398-5584
Attention: William S. Solari III
46
(c) if to Mr. Cowing, to:
--------------------
662 Island Place
Redwood City, CA 94065
Fax: 877-777-7951
(d) if to Mr. Harris, to:
--------------------
1935 Jefferson #201
San Francisco, CA 94123
Fax: 877-709-6679
(e) if to Mr. Moy, to:
-----------------
2008 Reliez Valley Road
Lafayette, CA 94549
Fax: 877-868-8298
10.2 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.3 Entire Agreement; No Third Party Beneficiaries. This Agreement,
----------------------------------------------
together with the Exhibits and Schedules, constitutes the entire agreement of
the parties with respect to the subject matter hereof, and supersedes all prior
oral and written and all contemporaneous oral, agreements and understandings
among the parties with respect to the subject matter hereof. This Agreement is
not intended to confer upon any Person, other than the parties, any rights or
remedies hereunder, except that: (i) the Indemnitees (and their successors and
assigns) are express intended third party beneficiaries of Article IX of this
Agreement and, to the extent relevant thereto, of Article X, and, as such, each
of such persons is entitled to rely on the provisions thereof as if a party
hereto.
10.4 Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of California, without giving effect to
the principles of conflicts of law thereof.
47
10.5 Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or unenforceable, all other provisions of this Agreement shall
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. In the event that the enforceability of any non-
competition or similar covenants contained herein is called into question as the
result of time, geographical or other applicable limitations specified in such
covenants, such time, geographical or other applicable limitations shall be
deemed modified to the minimum extent necessary to render the applicable
provisions of such covenants enforceable.
10.6 Assignment. Neither this Agreement nor any of the rights, interests or
----------
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties; provided that Certicom may assign its rights and obligations to any
Affiliate, but no such assignment shall relieve Certicom of its obligations
hereunder if such assignee does not perform such obligations. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
10.7 Specific Performance. The parties acknowledge that irreparable damage
--------------------
would result if this Agreement were not specifically enforced, and they
therefore consent that the rights and obligations of the parties under this
Agreement may be enforced by a decree of specific performance issued by a court
of competent jurisdiction. Such remedy shall, however, not be exclusive and
shall be in addition to any other remedies which any party may have under this
Agreement or otherwise. Each of the Shareholders acknowledges that his failure
to comply with any of the provisions of Section 3.2 will result in irreparable
harm for which there is no adequate remedy at law and that Certicom shall be
entitled, without the necessity of proving actual damages, to injunctive relief
in addition to damages and all other remedies which may otherwise be available
to Certicom.
10.8 Fees and Expenses. All costs and expenses, including Professional
-----------------
Fees, shall be paid by the party incurring such costs and expenses. Certicom
will pay Professional Fees of the LLC and the Corporation of up to US$75,000,
which commitment shall be reflected as an asset of the Company on the Company's
Adjusted Working Capital as of the Closing Date in accordance with Section 2.26.
Any Professional Fees incurred by the Company or the LLC in excess of US$75,000
shall be paid by the Shareholders.
10.9 Definition of Knowledge and Ordinary Course. Whenever any fact or
-------------------------------------------
matter is stated to be "to the knowledge of the Company," "to the
48
knowledge of the Company or any of the Shareholders" or any similar reference,
such reference shall mean that, (a) in the case of the Shareholders, any one or
more of the Shareholders knows of the existence or non-existence of such fact or
matter, and (b) in the case of the Company, any one or more of Mr. Cowing, Mr.
Harris, Mr. Moy knows of the existence or non-existence of such fact or matter.
Whenever the phrase "in the ordinary course of the Company's business,
consistent with past practices" or any phrase of similar meaning is used in this
Agreement, such reference shall be deemed to refer to the ordinary course of the
Company's business, consistent with the normal business practices of the Company
and the LLC as in effect on or prior to the date hereof.
10.10 Construction; Interpretation. The headings contained in this
----------------------------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Article, section, schedule,
exhibit, recital and party references are to this Agreement unless otherwise
stated. No party, nor its counsel, shall be deemed the drafter of this Agreement
for purposes of construing the provisions of this Agreement, and all provisions
of this Agreement shall be construed in accordance with their fair meaning, and
not strictly for or against any party.
10.11 Certain Obligations. Whenever this Agreement requires the Company to
-------------------
take any action or to refrain from taking any action, such requirement shall be
deemed to include an undertaking on the part of each of the Shareholders to use
his best efforts to cause the Company to take such action or to refrain from
taking such action, as the case may be.
10.12 Dispute Resolution.
------------------
(a) Except for actions by any party seeking equitable, injunctive or
other relief as provided in Section 10.7, any controversy, dispute or claim
arising out of or relating to this Agreement (or the breach hereof) that cannot
be resolved by good faith negotiation between or among the parties shall be
finally submitted to JAMS for final and binding arbitration pursuant to the
comprehensive arbitration rules for commercial cases of JAMS and pursuant to the
law set forth in the United States Arbitration Act. Such arbitration shall be
held before a single arbitrator who shall be a retired California state judge.
The arbitrator may enter a default decision against any party who fails to
participate in the arbitration proceedings.
(b) The decision of the arbitrator shall be final, unappealable and
binding, and judgment on the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof. The arbitrator shall be authorized to
award any relief, whether legal or equitable, to the party so entitled to such
relief.
49
(c) In respect of any suit, action or other proceeding relating
to the enforcement of any award rendered by the arbitrator, each party
irrevocably submits to the non-exclusive jurisdiction of any state or federal
court located in the County of Alameda, State of California.
(d) The arbitrator shall be authorized to apportion its fees and
expenses and the reasonable attorney's fees and expenses of the parties as the
arbitrator deems appropriate. In the absence of any such apportionment, the fees
and expense of the arbitrator will be borne fifty percent (50%) by Certicom, on
the one hand, and fifty percent (50%) by the Shareholders, on the other, and
each party will bear the fees and expenses of its own attorney. Any such fees
and expenses borne by the Shareholders shall be paid out of the Escrow.
(e) The parties agree that this Section 10.12 has been included
to rapidly and inexpensively resolve any claims or disputes between or among
them with respect to this Agreement, and that this Section 10.12 shall be
grounds for dismissal of any action commenced by any party in any court with
respect to this Agreement, other than post-arbitration actions seeking to
enforce an arbitration award or other than any action contemplated by Section
10.7. The parties shall keep confidential, and shall not disclose to any person,
except as may be required by applicable Law, the existence of any controversy
hereunder, the referral of any such controversy to arbitration or the status or
resolution thereof.
50
51
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties as of the date first above written.
COMPANY
- -------
DRG RESOURCES GROUP INC.,
a Delaware corporation
By: _____________________________
Name: James Cowing
Title: President
CERTICOM
- --------
CERTICOM CORP.,
a Yukon, Canada corporation
By: _____________________________
Name: Richard M. Depew
Title:
MERGER SUB
- ----------
DRG ACQUISITION CORP.,
a Delaware corporation
By: _____________________________
Name: Richard M. Depew
Title: President
52
SHAREHOLDERS
- ------------
________________________________________
JAMES COWING
_______________________________________
DANIEL MOY
53
__________________________________________
MICHAEL HARRIS
54
EXHIBIT A
---------
Number of
Name Certicom Common Shares
- ---- ----------------------
Jim Cowing 159,038
Michael Harris 159,038
Dan Moy 79,519
A-1
EXHIBIT B
---------
B-1
EXHIBIT C-1
-----------
C-1
EXHIBIT C-2
-----------
C-1
EXHIBIT D-1
-----------
D-1
EXHIBIT D-2
-----------
D-1
EXHIBIT E
---------
E-1
EXHIBIT F
---------
F-1
EXHIBIT G
---------
G-1
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER.......................................................... 2
1.1 The Merger.......................................................... 2
1.2 Time and Place of Closing........................................... 2
1.3 Effective Time of the Merger........................................ 2
1.4 Effects of the Merger............................................... 2
1.5 Directors and Officers.............................................. 2
1.6 Certificate of Incorporation; Bylaws................................ 3
1.7 Conversion of Shares................................................ 3
1.8 Delivery of Certificates............................................ 4
1.9 Escrow.............................................................. 5
1.10 Dissenting Shares................................................... 5
1.11 Tax Treatment....................................................... 6
1.12 Definitions......................................................... 6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS.. 8
2.1 Organization, Standing and Power.................................... 8
2.2 Authority and Enforceability........................................ 9
2.3 Subsidiaries........................................................ 9
2.4 Capital Structure................................................... 9
2.5 Title to Assets; Condition; Sufficiency of Assets................... 10
2.6 No Violations Resulting From Transactions........................... 11
2.7 Compliance with Laws................................................ 11
2.8 Litigation.......................................................... 12
2.9 Taxes............................................................... 12
2.10 Employees........................................................... 13
2.11 Financial Advisors.................................................. 13
2.12 Financial Statements................................................ 13
2.13 No Undisclosed Liabilities.......................................... 14
2.14 Absence of Certain Developments..................................... 14
2.15 Intellectual Property............................................... 14
2.16 Real Property....................................................... 16
2.17 Insurance........................................................... 17
2.18 Material Contracts.................................................. 17
2.19 Related Party Transactions.......................................... 19
2.20 Restrictions on Business Activities................................. 20
2.21 Books and Records................................................... 20
2.22 Allocation of Merger Consideration.................................. 20
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2.23 No Misrepresentation................................................ 20
2.24 Benefit Plans....................................................... 21
2.25 Environmental Matters............................................... 22
2.26 Tangible Net Worth.................................................. 23
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SHAREHOLDERS....... 23
3.1 Representations and Warranties of the Shareholders.................. 23
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MERGER SUB AND CERTICOM........... 27
4.1 Organization, Standing and Power.................................... 27
4.2 Authority........................................................... 28
4.3 Capital Structure................................................... 28
4.4 Issuance of Shares by Certicom...................................... 28
4.5 Exchange Listing.................................................... 28
4.6 No Violations Resulting From Transactions........................... 28
4.7 Litigation.......................................................... 29
4.8 OSC Reports......................................................... 29
4.9 Absence of Certain Changes or Events................................ 30
4.10 Merger Sub.......................................................... 30
4.11 Intent Consistent with Reorganization............................... 30
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS........................... 30
5.1 Conduct of the Company's Business Pending the Closing............... 30
5.2 No Solicitation..................................................... 32
5.3 Advice of Changes; Governmental Filings............................. 33
ARTICLE VI ADDITIONAL AGREEMENTS............................................... 33
6.1 Access to Information; Confidentiality.............................. 33
6.2 Additional Agreements............................................... 34
6.3 Publicity........................................................... 34
6.4 Notification of Certain Matters..................................... 34
6.5 Directors' and Officers' Indemnification............................ 35
6.6 Company Stock Options............................................... 35
6.7 Distribution of Excess Working Capital.............................. 36
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ARTICLE VII CONDITIONS PRECEDENT................................................ 36
7.1 Conditions to Obligations of All Parties............................ 36
7.2 Conditions of Obligations of Merger Sub and Certicom................ 37
7.3 Conditions of Obligations of the Company and the Shareholders....... 38
ARTICLE VIII TERMINATION AND AMENDMENT........................................... 39
8.1 Termination......................................................... 39
8.2 Effect of Termination............................................... 40
8.3 Amendment........................................................... 40
8.4 Extension; Waiver................................................... 41
ARTICLE IX SURVIVAL; INDEMNIFICATION........................................... 41
9.1 General Survival.................................................... 41
9.2 Indemnification..................................................... 42
9.3 Procedures for Indemnification...................................... 43
9.4 Defense of Third Party Claims....................................... 43
9.5 Manner of Indemnification........................................... 44
ARTICLE X GENERAL PROVISIONS.................................................. 45
10.1 Notices............................................................. 45
10.2 Counterparts........................................................ 46
10.3 Entire Agreement; No Third Party Beneficiaries...................... 46
10.4 Governing Law....................................................... 46
10.5 Severability........................................................ 46
10.6 Assignment.......................................................... 47
10.7 Specific Performance................................................ 47
10.8 Fees and Expenses................................................... 47
10.9 Definition of Knowledge and Ordinary Course......................... 47
10.10 Construction; Interpretation........................................ 48
10.11 Certain Obligations................................................. 48
10.12 Dispute Resolution.................................................. 48
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An extra section break has been inserted above this paragraph. Do not delete
this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.
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AMENDMENT NO. 1 TO AGREEMENT AND
--------------------------------
PLAN OF MERGER
--------------
This Amendment No. 1 (the "Amendment") to the Agreement and Plan of
Merger dated as of September 7, 2000 (the "Merger Agreement"), is entered into
as of September 12, 2000, by and among Certicom Corp. ("Certicom"), DRG
Acquisition Corp. ("Merger Sub"), DRG Resources Group, Inc. (the "Company"), Jim
Cowing ("Mr. Cowing"), Michael Harris ("Mr. Harris"), and Dan Moy ("Mr. Moy").
Capitalized terms not otherwise defined herein shall have the meanings set forth
in the Merger Agreement.
WHEREAS, Certicom, Merger Sub, the Company, Mr. Cowing, Mr. Harris,
and Mr. Moy desire to modify certain terms of the Merger Agreement as more fully
set forth below;
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Certicom, Merger Sub, the Company, Mr. Cowing, Mr. Harris, and Mr.
Moy hereby agree as follows:
1. The parties agree that the date of the acquisition of the Company
by Certicom shall be September 12, 2000, and that effective control of the
Company, including the risks and rewards of ownership, passed to Certicom on
that date. Therefore, it is the parties' express intent and understanding that
the Closing Date of the Merger shall be September 12, 2000.
2. The Company and the Shareholders represent and warrant that as of
the Closing Date and as of the Effective Time, 397,595 shares of Company Stock
were issued and outstanding. Accordingly, Section 1.7(b) of the Merger Agreement
is hereby deleted in its entirety and replaced with the following:
"(b) Company Stock. Subject to the terms of this Agreement, at the
-------------
Effective Time, by virtue of the Merger and without any action on the part of
Merger Sub, the Company, Certicom or the holders of any Company Stock, each
share of Company Stock issued and outstanding immediately prior to the Effective
Time (other than (i) shares held in the Company's treasury or by any subsidiary
of the Company, (ii) any Company Dissenting Shares (as defined in Section 1.10)
and (iii) shares held by Certicom, Merger Sub or any other subsidiary of
Certicom) shall be cancelled and converted into the right to receive, subject to
the indemnification and escrow provisions of this Agreement, one Certicom Common
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Share (as hereinafter defined). Such Certicom Common Shares, subject to such
indemnification and escrow provisions, are collectively referred to herein as
the "Merger Consideration." The Merger Consideration shall be allocated and
--------------------
fractional Certicom Common Shares shall be rounded as set out on Exhibit A."
---------
3. Except as expressly modified herein, the Merger Agreement remains
unmodified and in full force and effect. The parties hereto expressly ratify and
reaffirm the terms of the Merger Agreement as modified by this Amendment.
4. This Amendment may be executed in counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same document.
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
COMPANY
- -------
DRG RESOURCES GROUP INC.,
a Delaware corporation
By: ______________________________
Name: James Cowing
Title: President
CERTICOM
- --------
CERTICOM CORP.,
a Yukon, Canada corporation
By: ______________________________
Name: Richard D. Brounstein
Title: Senior Vice President and Chief
Financial Officer
MERGER SUB
- ----------
DRG ACQUISITION CORP.,
a Delaware corporation
By: ______________________________
Name: Richard D. Brounstein
Title: Secretary and Treasurer
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SHAREHOLDERS
- ------------
______________________________________________
JAMES COWING
______________________________________________
DANIEL MOY
______________________________________________
MICHAEL HARRIS
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